Today, the Supreme Court ruled in a 5-4 decision to overrule Quill Corp. v. North Dakota and National Bellas Hess Inc. v. Department of Revenue of Illinois. These cases held that states cannot collect sales taxes on businesses with no physical location in the state, primarily affecting online retailers. Justice Kennedy wrote the opinion, with Justices Thomas and Gorsuch joining with concurrent opinions. Chief Justice Roberts wrote the dissenting opinion, joined by Justices Breyer, Sotomayor, and Kagan.
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“Unfortunately, the Supreme Court’s decision in the Wayfair v. South Dakota case favors states with tax-and-spend approaches to governance, and prioritizes the interests of the government above the interests of everyday people.
“States preferring to collect taxes from business owners in other states, unable to vote on those policies or benefit from the confiscated revenue, are the real winners in this case.
“Thanks to this ruling, state lawmakers will have the ability to compel online businesses to calculate and remit sales tax rates based on the locations of customers, instead of where in the world the website exists. To illustrate the absurdity of this idea, imagine going shopping and being charged a sales tax rate based on where you live, instead of where you’re shopping. Everyday people would recognize this as a ridiculous situation, but the Supreme Court did not see the farce for what it is.
“History tells us that state governments will continue to push the envelope in the pursuit of more money. Now that states can collect sales tax revenue from businesses existing outside of their border, it’s possible that the income and profits of individuals living in other states might be next on the menu of money-hungry taxing jurisdictions. The slippery slope is real, and the Supreme Court’s decision takes another step down this precarious road.”
Jesse Hathaway
Research Fellow, Budget and Tax Policy
The Heartland Institute
Managing Editor, Budget & Tax News
[email protected]
312/377-4000
“The Supreme Court folded the constitutional analysis for the reach of a state’s taxing authority under the Commerce Clause into the analysis for the reach of a state’s judicial authority under the Due Process clause of the Fourteenth Amendment. It is probably the right doctrinal call at the 50,000 foot level, but it dramatically upsets reasonable expectations and does not increase freedom. Sometimes what is constitutional is not pro-liberty. The governing rule will likely continue to develop in unpredictable ways because the underlying justification for the constitutionally legitimate reach of a state’s taxing authority is quite different from the underlying justification for the reach of a state’s judicial authority. Both are better analyzed as questions of due process in a jurisdictional sense, but the requirements of due process in either case will likely diverge over time.”
Nick Dranias
Policy Advisor
The Heartland Institute
[email protected]
602/228-2582
“The Supreme Court’s unusual five-Justice majority (Kennedy, Thomas, Ginsburg, Alito, and Gorsuch) is quite correct that “[m]odern e-commerce does not align analytically with a test that relies on the sort of physical presence defined in Quill [Corp. v. North Dakota, 504 U. S. 298],” which required a retailer to have a physical presence in a state before the state could require it to collect sales tax from its customers. At the same time, Chief Justice Roberts, writing in dissent and joined by the unlikely trio of Justices Breyer, Sotomayor, and Kagan, rightly points out that the Constitution delegates to Congress, not the courts, the power to regulate commerce among the several states. Right or wrong, the Supreme Court’s decision today in South Dakota v. Wayfair reflects as much as anything the acquiescence of Congress in relinquishing the people’s powers of self-government to the judicial and executive branches, respectively.”
David L. Applegate
Policy Advisor, Legal Affairs
The Heartland Institute
[email protected]
312/377-4000
“This decision was in the works for quite a while. Majority author Justice Kennedy had already established part of the reasoning in another opinion and the courts have been moving in this direction slowly for years. It addresses the issue of fairness in taxation. Brick-and-mortar retailers were justly dismayed that online retailers had a tax advantage. This fixes that problem. However, the opinion is a judicial-induced tax hike.”
Joshua J. Brown
Policy Advisor, Legal Affairs
The Heartland Institute
[email protected]
312/377-4000
“The overturning of the “physical presence” rule is likely to have the unfortunate effect of opening the gates for states to tax internet commerce. This is likely to hurt consumers and hurt internet commerce, and will disproportionately harm small independent retailers and startups. These latter companies are less likely to be able to afford the legal, accounting, and technical expertise to comply with the differing state laws. Amazon, the largest internet retailer, was already collecting state taxes. This decision will likely strengthen Amazon by imposing burdens on the competition.
“The majority opinion even recognized that this decision might disproportionately harm small entrepreneurs and startups, but noted that if so, Congress can always rectify the situation. I’m unsure where the concern with “fairness” suddenly went, when the smallest and least-politically connected businesses are left to lobby Congress themselves for relief.
“I hope that this decision has only minor effects on internet commerce, but I fear it has potential to do fairly substantial harm.”
Charles N. Steele, Ph.D.
Associate Professor of Economics, Hillsdale College
Policy Advisor, The Heartland Institute
[email protected]
312/377-4000
“South Dakota v. Wayfair will have far-reaching effects on regulation and tax policy. Most of these effects will arise from the ruling’s unintended consequences.
“The key principle in the decision is that location within a state has little meaning in a global world where customers can be served from locations beyond a state’s borders. This is a major blow to states’ rights, as firms and citizens in other states could become subject to the taxes and regulations imposed in each state where they do business. Interstate competition will be diminished by this decision. Sorting out the implications of this decision for a raft of non-tax related issues will take a long time and will test this decision in ways that are likely to seriously weaken this decision, if not lead to its overturning.
“The decision also weakens the traditional force of the principle of stare decisis. Two Supreme Court decisions from the past 50 years or so were overturned. This exceptional precedent will weaken the power of the stare decisis principle in future rulings.”
John A. Tatom
Fellow, Institute for Applied Economics, Johns Hopkins University
Policy Advisor, The Heartland Institute
[email protected]
312/377-4000
Jesse Hathaway is a policy advisor for budget and tax issues at The Heartland Institute.
Nick Dranias is a policy advisor and research fellow for The Heartland Institute.
David Applegate is a Chicago-based trial lawyer and partner at the law firm of Williams Montgomery & John Ltd.
Charles N. Steele is an associate professor at Hillsdale College, where he holds the Herman and Suzanne Dettwiler Chair in Economics.
