Internet Taxation

04/17/2018

NetChoice Reaction to South Dakota v. Wayfair Oral Arguments

Steve DelBianco, NetChoice President, attended today’s oral argument before the Supreme Court in the case of South Dakota v. Wayfair.

NetChoice filed an amicus brief in the case, explaining that Congress has spoken on the online sales tax issue by enacting the Internet Tax Freedom Act (ITFA) in 1998, and by making ITFA permanent in 2016.   ITFA prohibits discriminatory sales tax burdens on e-ecommerce, which is precisely what would happen if the court overturns Quill. Instead of ruling now, the court could remand the case to South Dakota to analyze conflict with ITFA.

With respect to questions and arguments in today’s supreme court session:

“Tough questions asked by the Justices today reveal that the court understands this is far more complicated than South Dakota has claimed,” said DelBianco. “Overturning Quill isn’t just flipping off a switch. It would cause national chaos.”

DelBianco summarized the strongest questions by the court. They are followed below by exact quotes from justices:

  • “If we overturn Quill, isn’t it a problem that other states may apply their sales retroactively?”
  • “What’s the threshold for minimum contacts that trigger state tax obligations?”
  • “What happens when the software breaks down?”
  • “What are the costs for smaller businesses to collect for 46 states?”
  • “If we overturn Quill, won’t we just help the biggest online sellers at the expense of small businesses?”
  • “With nearly all the big ecommerce sellers already collecting, hasn’t this problem peaked, and why act now?”
  • “Isn’t this the role of Congress? And if congress has not acted, doesn’t that suggest they are okay with Quill?”
  • “Should we ignore Supreme Court precedent?”

If we overturn Quill, isn’t it a problem that other states may apply their sales retroactively?

JUSTICE ALITO: [D]oes the government have a position on the question whether retroactive application of — of this would be constitutional?

  1. STEWART: In our view, it would be constitutional

What’s the threshold for minimum contacts that trigger state tax obligations? 

CHIEF JUSTICE ROBERTS: Mr. Stewart, do you believe that there is a constitutional minimum [number of sales for physical presence]?

  1. STEWART: there’s no constitutional minimum

What happens when the software breaks down?

SOTOMAYOR: What happens when the tax program breaks down, as it already has for the states who are using it, and merchants can’t keep track of who they’ve sold to?

What are the costs for smaller businesses to collect for 46 states?

SOTOMAYOR: Actually, [small businesses are] put at disadvantage not by Quill but by the fact that there are massive discount sellers, not just on the Internet, but even in stores now.

SOTOMAYOR: So what are we going to do with the costs that you’re going to put on small businesses?

If we overturn Quill, won’t we just help the biggest online sellers at the expense of small businesses?

BREYER: [T]heir side puts up a certain specter which I’m sensitive to, which is that we have four or maybe five giant potential retailers in the country; I mean, there could be a very small number selling virtually anything.

And they sell over the Internet. And the hope of preventing oligopoly, et cetera, is small business, which finds it easy to enter.

Now you raise with this entry barriers, and they say a lot and you say a little. And I don’t know if it’s a little or if it’s a lot.

And if it is a lot, there might be ways of putting minimums in that would, in fact, preserve the possibility of competition and the possibility of new entry, stopping the entry barriers from raising too high.

With nearly all the big ecommerce sellers already collecting, hasn’t this problem peaked, and why act now?

CHIEF JUSTICE ROBERTS: the suggestion in some of the briefs is that this is a problem that has peaked in the sense that the — the bigger e-commerce companies find themselves with physical presence in — in all 50 states.

If it is, in fact, a problem that is diminishing rather than expanding, why doesn’t that suggest that there are greater significance to the arguments that we should leave Quill in place?

Isn’t this the role of Congress?  And if congress has not acted, doesn’t that suggest they are okay with Quill?

BREYER: Well, we have briefs from three Senators and Congressman Goodlatte that says Congress was about to act. And, indeed, what stopped them from acting was our decision to decide this case. Now that’s — that’s their view of it. And between whether they know or whether I know, I guess they have a better view. They’re members of Congress and they point to many statutes. And you are 50 states. If you do not have the power to get Congress to do something, I don’t know who would.

ALITO:  [I]f Quill is overruled, what incentives do the states have to ask for any kind of congressional legislation?

CHIEF JUSTICE ROBERTS: [M]aybe [Congress] already have and they’ve made a decision or at least majorities have made a decision that this is something they’re going to leave the way it has been for, whatever it is, 25 years.

KAGAN: [U]sually, when somebody says something like that, that Congress has not addressed an issue for 25-plus years, you know, it — it gives us reason to pause, because Congress could have addressed the issue and Congress chose not to.  This is a very prominent issue which Congress has been aware of for a very long time and has chosen not to do something about that. And that seems to make the — your bar higher to surmount, isn’t it?

JUSTICE KAGAN: But isn’t that essentially a reason why we should leave this to Congress? In other words, from this Court’s perspective, the choice is just binary.

It’s — it’s you either have the Quill rule or you don’t. But Congress is capable of crafting compromises and trying to figure out how to balance the wide range of interests involved here.

Now the General said Congress hasn’t done that, but, again, you know, Congress can decide when it wants to craft a compromise and when it doesn’t want to craft a compromise. And then Congress, if it decides it wants to craft a compromise, can craft a compromise in ways that we cannot.

Should we ignore Supreme Court precedent?

GINSBURG:  Quill, right or wrong, was this Court’s decision. And if time has, and changing conditions, have rendered it obsolete, why should the Court which created the doctrine say: Well, we’ll — we’ll let Congress fix up what turns out to be our obsolete precedent?

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