The Huge Supreme Court Cases You May Have Missed (Episode 49)

Just to take people back a little bit to the history of how we got here, there was a Supreme Court case way back in 1992 that had to do with a catalog retailer. In that case, the Supreme Court said that the question was, is requiring a catalog retailer to collect sales tax in a state where it doesn’t have a physical location, is that a burden on interstate commerce? The court said the burden isn’t so great that it’s unconstitutional. They said it’s really a question of trying to decide a sort of balancing act. Yeah, there’s a bit of a burden on that company to have to figure out the sales tax rates in all the different states and collect and remit that tax, but there’s also a public interest in collecting tax, and so how do we balance that?

In 1992, the court said, “We think it’s a little bit more burdensome, so we’re going to say that states can’t require these out-of-state sellers to collect sales tax, but we’re really not sure about that,” and so the court very explicitly says, “We think Congress ought to look at this. Congress is the right place to decide this issue.”

That’s the case that then resulted in a lawsuit and finally got us back to the Supreme Court and to this 5-4 decision giving states this power to collect sales tax. It was a really mixed decision, actually. It was a mix of conservatives and liberals on the five side and then a mix of conservatives and liberals on the four side, so it was a bizarre decision in terms of the split of the court.

To get to your question, where we go from here, so in the case of Amazon, they collect on their first-party sales, so their own direct sales in all 45 states that have sales tax, but they don’t collect on their third-party sales. Those are in the marketplace the sellers that use Amazon’s platform and sell through Amazon. Amazon doesn’t necessarily collect sales tax for those sales, which is about half of its business. What this decision does is really twofold. One, there are a number of states where Amazon doesn’t have a physical presence. Maine is one of them. Hawaii, Alaska, the Dakotas. Amazon doesn’t have any warehouses, any offices, anything else in those states, and so those states legally can’t require Amazon to collect sales tax. Amazon’s been collecting on a voluntary basis as a part of agreements where it got some favors in exchange. This ruling means that now those states have firm legal grounds to require Amazon to collect sales tax. What’s going to happen with the third-party sellers is now a big question, because there’s a fight going on over that question.

South Carolina has stood up and said, “Amazon, you’re responsible for collecting these sales tax on these sales. You’re benefiting from them. You’re profiting from them. You’re facilitating them. You’re the one who ought to collect the sales tax.” Amazon is vigorously fighting that now in court, so we’ll see where that court case ends up, but I just think it’s important to just say at this point there’s still a lot of work for states to do to level the playing field and also that there’s this fight over third-party sellers. As much as there’s been a tendency in the news media to say, “Oh, well, Amazon collects everywhere,” it doesn’t. That’s a little bit of a myth, and Amazon is fighting very hard as it has for the last, however long, 23 years that it’s been in business, it’s been fighting to preserve whatever sales tax advantage it can have, and it’s still actually fighting to preserve that.

They’ve managed to convince some states, including Massachusetts and California, to go after third-party sellers directly instead of going after Amazon as the platform and the medium that really should be collecting the sales tax, in my opinion. We’ve now got Massachusetts and California sending letters to these small sellers. Some of those sellers are overseas. I mean, there’s really no effective way for the state to enforce that, and it creates a lot of confusion and hassle for sellers, but Amazon has persuaded them to do that.

We also suspect that Amazon, in some states where it came to states early last year and said, “We don’t have to collect sales tax here, because we don’t have a physical presence here,” that Amazon said to those states, “We’ll volunteer to collect sales tax on our direct sales in exchange for you not requiring us to collect them on our third-party marketplace sales.” We don’t know for sure that that’s the nature of those agreements, but there’s some indication that it is, and it’s just yet again an illustration of the fact that all these years, Amazon has been working diligently behind the scenes to make sure that it has a competitive advantage in terms of sales tax and that it uses its political power in states to maintain that advantage. I’m really glad for the Supreme Court’s ruling. I think it’s the right ruling, but it’s unfortunate that we’ve ended up in a situation where eCommerce is so dominated by this one company, largely as a result of this tax advantage.

Stacy, going from the sacred of this wonderful Wayfair South Dakota decision to the profane of the American Express, the Ohio decision, why don’t you just give us a sense of why so many anti-monopoly activists and friends of ours on Twitter are sounding the alarm bells and kind of are saying that this is a terrible decision for our hopes moving forward with antitrust law?

To give you a sense globally, a lot of other countries regulate these fees. They actually cap them and say they can’t be above a certain rate. In the U.S., for example, our credit card fees, swipe fees, are about seven times what they are in Europe. The reason for that is that American Express, Visa, and Mastercard utterly dominate the credit card market, and if you’re a store, a business, you really have to take credit cards. There’s no way in this day and age not to take credit cards. There’s not a lot of competition among those credit card companies to lower the fees, and so you just get gouged. I mean, you pay whatever they charge you. Back a few years ago, there were 17 states, and the federal government got together and said there is an antitrust violation here, that American Express, Visa, and Mastercard are, they have these terms that they give these contracts that the merchant agrees to.

Part of the contract terms are that you, as a merchant, as a store, you can’t encourage your customers to use a cheaper card. The fees vary by the type of card. If it’s an American Express card with lots of airline points that you get as a result, the fees that the merchant pays are quite high, because the merchant’s basically paying for your airline rewards. If it’s a credit card from, say, a local credit union and doesn’t have any of those rewards associated with it, the fees are lower. What retailers would like to do is to say when you come into their store, if you’re going to pay with one of those lower-cost cards, maybe they give you a discount, or if you’re going to pay with cash, maybe they give you a discount so that they have a way of helping steer consumers to the lowest-cost options.

Well, in these contracts that the credit card companies have with local merchants, they say, “No way you can do that. You cannot reveal these fees. You cannot steer consumers to a cheaper option,” so 17 states and the federal government said that’s an antitrust violation, that that’s undermining competition, and they brought this lawsuit.

They had this really novel logic, and it’s almost, it’s so kind of strange, frankly, that it’s hard to describe in some ways, but what they said is that there is this two-sided market, that this is a two-sided market, meaning that in this case, American Express both has customers using the card on one side, and merchants using the card on the other, and so there are two sides to this market. They said, “When you look at this from an antitrust perspective, you can’t just consider how the merchants are affected. You also have to consider how the consumers are affected.” They said essentially that Visa, Mastercard, and American Express can behave in very anticompetitive ways with regard to the merchants. They can gouge them all day long as long as they can show that there’s some kind of benefit to consumers.

Now, the benefit for consumers, I think, is quite questionable, because what’s so striking about the case is that the majority utterly ignored the factual findings of the district court ruling. One of the factual findings of the district court ruling was that credit card fees, these swipe fees, have been increasing quite substantially, in fact, American Express has increased those fees 20 times in the last few years, and that those added fees end up resulting in prices being raised across the economy for all consumers regardless of whether you’re using a credit card, so there was in fact some real harm shown to consumers here, not just to merchants, but somehow, the majority utterly ignored that harm. The minority, the dissenting justices, the opinion was issued by Breyer, and he actually read the dissent out loud from the bench. They almost never do that. They only do it in cases when they are just so beside themselves about how bad they think the majority’s decision is that they read it out loud as a way of really showing a level of dissent.

What he said and what other people have … Concerns that others have raised about this case is that not only are we letting the credit card companies off the hook, we’re allowing these handful of credit card companies to continue to gouge Main Street businesses, and that’s anticompetitive, but this whole, weird, two-sided market theory is novel. It’s not really grounded in anything that’s terribly logical, and what it opens the way for is a situation in which the big tech companies, like Amazon, Google, and Facebook, could just be let off the hook for antitrust enforcement because they’re all two-sided markets. As long as Amazon can say, “Oh, consumers are benefiting,” then essentially, what this ruling suggests is that Amazon could say, “It doesn’t matter what we do to third-party sellers. It doesn’t matter what we do to suppliers. If we can serve some benefit to consumers, then this isn’t an antitrust case.”

What we’re seeing here is the alternative judicial theory kind of going as far as, I wouldn’t say logic, but as far as this progression is taking them. It’s kind of just unbelievable to watch these types of things, and you’re right for pointing out Justice Breyer’s dissent from the bench, because he seemed rightfully angry about the fact that none of this has a basis in reality.

Well, that doesn’t make any sense, because, obviously, credit card transactions are going to be growing because people are multiplying, and more people are using credit cards than cash. That doesn’t really tell us anything about, well, whether this is a competitive market or not. Yeah, tons of backflips and weird contortions in his opinion. Then Breyer’s opinion is just searing. I mean, one of the things that he says in there is that, “By failing to limit its definition to platforms that economists would recognize as two-sided, the majority carves out a much broader exception to the ordinary antitrust rules than the academic articles it relies on could possibly support.”

In the decision, he talks about, “You’re relying on these … The majority’s relying on these sort of novel academic articles, these sort of untested theories by economists, and by the way, you’re taking it even further than those economists were taking this two-sided market argument,” so it just, it really is out there on a limb. I think to your broader point, this is one of the ways in which antitrust has gone wrong. We have these really good laws on the books that are a great foundation, and yet, in recent decades the courts have begun to, have interpreted these laws in ways that really take us far away from their true purpose and their true scope, and often doing those new interpretations based on a kind of ideology that is connected to a set of economic theories that are not necessarily true, and really are moving away from the policy purposes of those, and using economics in a way to rewrite our law that I think is quite dangerous and undemocratic.

It kind of begs the question, for me, that what is the Institute for Local Self-Reliance, this organization that we focus on local economies and kind of building up in a variety of different sectors, what do we think about SCOTUS as, Supreme Court of the United States, what do we think about the Supreme Court kind of wielding this power in this centralized way, and what does that kind of say for us? That’s useful as like kind of a reflection point at this point.

In an odd way, as sort of disastrous and awful as this case is, it actually shows the need for what is already underway, which is this growing movement, and it really defines quite clearly why this movement is needed and what our purpose is, because the way that the law is being enforced is way out, far removed from its original purpose, and it’s our job as citizens to bring it back, bring it back home to what antitrust should be about.

We’re going to continue, at ILSR, to develop popular education tools and resources to help citizens and elected officials at all levels of government get involved in this issue, because that’s what we need to do, and we really need to begin using both the authority that we have at the state level and the authority that Congress has to get these laws back to where they need to be, and to create an open and fair market, and to restore democracy, really, in the face of concentrated economic power.

One of the things I just want to say that I also think is interesting, we, in talking about the American Express case, I noted that it was a 5-4 decision, it was the conservative wing of the court that was on the majority side in that decision, but that left-right split is not so clear-cut on this issue. In fact, there are a lot of Republicans and conservatives who are increasingly concerned about concentration. I spoke last week at the American Conservative Magazine’s … They had a forum on big tech, and where a lot of people there quite concerned about concentration. Also, it’s just notable that the states, the 17 states that filed this antitrust case against American Express, were led by the state of Ohio and the Attorney General in Ohio, who is a Republican. There are some indications that this, there is a sort of bipartisan embrace of this idea that concentration has gone way too far, and that we need to, as I said, we really need to take our democracy back from these economic powerhouses.