At U.S. Supreme Court, an Invitation to Reconsider Internet Sales Tax Ruling

Date: 4 Mar 2015 | posted in: Retail | 0 Facebooktwitterredditmail

After years of fighting for a federal fix for the online sales tax loophole, this week, advocates for e-fairness gained a new ally: U.S. Supreme Court Justice Anthony M. Kennedy.

On Tuesday, the U.S. Supreme Court decided a question over which court—state or federal—has the jurisdiction to hear a case about Colorado’s internet sales tax law. The issue was minor, and without weighing in on the legal challenge to the law, the Court decided it unanimously.

At the same time, it signaled a readiness to review a much more important case about how we tax internet sales.

In 1992, the Court ruled, in Quill Corporation v. North Dakota, that unless Congress passed legislation granting them the authority to do so, states could not require out-of-state companies (e.g., mail order and online retailers) to collect sales taxes. In the 22 years since, internet commerce has boomed, and states have had to bend over backwards to try to create a more fair tax system on their own.

On Tuesday, in a solo concurrence to the court’s opinion, Justice Kennedy wrote that the Quill decision inflicts “extreme harm,” and is long past due for review.

“It is unwise to delay any longer a reconsideration of the court’s holding in Quill,” Kennedy wrote. “A case questionable even when decided, Quill now harms states to a degree far greater than could have been anticipated earlier.”

“When the court decided Quill, mail-order sales in the United States totaled $180 billion,” Kennedy continued. “But in 1992, the Internet was in its infancy. By 2008, e-commerce sales alone totaled $3.16 trillion per year in the United States.”

“The result,” Kennedy wrote, “has been a startling revenue shortfall in many states, with concomitant unfairness to local retailers and their customers who do pay taxes at the register.”

Kennedy noted that though the question about Colorado’s law did not require the Court to re-examine the issue, a different case could. “The legal system should find an appropriate case for this court to re-examine Quill,” Kennedy concluded.

Advocates for locally owned, independent businesses have long known that the online sales tax loophole is a critical issue that must be addressed at the federal level. With legislation stalled in Congress, Kennedy’s opinion invites another way to do that.

Read the full opinion here. The case is Direct Marketing Assn. v. Brohl.

Photo of the U.S. Supreme Court by Pete Jordan, via Flickr.

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Olivia LaVecchia

Olivia LaVecchia is a former senior researcher with ILSR’s Independent Business Initiative. Her work focused on building awareness and support for public policy tools that strengthen locally owned businesses and check concentrated economic power.