The Supreme Court overruled its prior decisions in a historic decision this week that will allow politicians to tap into Internet sales with new taxes. President Donald Trump has praised the decision in allowing Internet sales to be now subject to taxation from all 50 states. The decision in South Dakota v. Wayfair overturns the prior 1992 ruling in Quill Corp. v. North Dakota (what is it about those Dakotas and Internet taxes?). South Dakota wanted to take a cut of Internet sales even though these business have no property or employees in the state. To do so, the Supreme Court had to guy its prior requirement of a physical presence in a given state. It just did by a vote of 5-4. The opinion also contains a body blow to the doctrine of stare decisis (“to stand on the decisions”) under which the Court strives to maintain its own prior decisions. We now have a doctrine of abdicare decisis (“To ignore the decisions).
Sales taxes have always struck a sour note for me. The state taxes you when you make money and then you get taxed again when you make profits over investments. Then you get taxed again when you buy items with the previously taxed income. For those with a gripe against sales taxes, this is far, far more problematic. The states literally are doing nothing. They are not providing services to a physical store or maintaining employment rolls or permitting services. They just want their cut of money from the sales.
That is more of a policy and constitutional argument. The later question is one that turns on the dormant commerce clause power to restrict state taxation of interstate commerce. The Court now believes that having 50 states taking their cuts of interstate commerce at differing rates is not a restriction on interstate commerce.
The opinion by Justice Anthony Kennedy states:
That said, South Dakota’s tax system includes several features that appear designed to prevent discrimination against or undue burdens upon interstate commerce. First, the Act applies a safe harbor to those who transact only limited business in South Dakota. Second, the Act ensures that no obligation to remit the sales tax may be applied retroactively. S. B. 106, §5. Third, South Dakota is one of more than 20 States that have adopted the Streamlined Sales and Use Tax Agreement. This system standardizes taxes to reduce administrative and compliance costs: It requires a single, state-level tax administration, uniform definitions of products and services, simplified tax rate structures, and other uniform rules. It also provides sellers access to sales tax administration software paid for by the State. Sellers who choose to use such software are immune from audit liability. See App. 26–27. Any remaining claims regarding the application of the Commerce Clause in the absence of Quill and Bellas Hess may be addressed in the first instance on remand.
Kennedy’s majority opinion was joined by Justices Clarence Thomas, Samuel Alito, Ruth Bader Ginsburg, and Neil Gorsuch. An interesting line up. Thomas and Gorsuch wrote concurrences. Chief Justice John Roberts, Justice Stephen Breyer, Justice Sonia Sotomayor, and Justice Elena Kagan dissented.
The issue is now a political not constitutional one. Congress however is largely looking at proposals that allow taxation but organizes who gets what among the given states. The result is that consumers are going to get clipped with new taxes and politicians will be able to manipulate rates as one more avenue of revenue.There are now 31 states currently have laws taxing internet sales. This is now likely to go to a solid 50.
One of the more interesting elements of the opinion was the discarding of any hold of the doctrine of stare decisis in maintaining prior decisions in the interests of consistency and integrity of the Court. I have long argued that stare decisis is honored primarily in the breach and that these justices rarely cite the doctrine except in dissent for transparently opportunistic reasons. When they really want to overturn prior cases, it seems like barely a speed bump to where they want to go.
Justice Kennedy made fast work of the doctrine:
“Although we approach the reconsideration of our decisions with the utmost caution, stare decisis is not an inexorable command.” Pearson v. Callahan, 555 U. S. 223, 233 (2009) (quoting State Oil Co. v. Khan, 522 U. S. 3, 20 (1997); alterations and internal quotation marks omitted). Here, stare decisis can no longer support the Court’s prohibition of a valid exercise of the States’ sovereign power.
If it becomes apparent that the Court’s Commerce Clause decisions prohibit the States from exercising their lawful sovereign powers in our federal system, the Court should be vigilant in correcting the error. While it can be conceded that Congress has the authority to change the physical presence rule, Congress cannot change the constitutional default rule. It is inconsistent with the Court’s proper role to ask Congress to address a false constitutional premise of this Court’s own creation. Courts have acted as the front line of review in this limited sphere; and hence it is important that their principles be accurate and logical, whether or not Congress can or will act in response. It is currently the Court, and not Congress, that is limiting the lawful prerogatives of the States.
Chief Justice Roberts’s dissent calls for application of a higher standard of stare decisis in cases where Congress can act :
This Court “does not overturn its precedents lightly.” Michigan v. Bay Mills Indian Community, 572 U. S. ___, ___ (2014) (slip op., at 15). Departing from the doctrine of stare decisis is an “exceptional action” demanding “special justification.” Arizona v. Rumsey, 467 U. S. 203, 212 (1984). The bar is even higher in fields in which Congress “exercises primary authority” and can, if it wishes, override this Court’s decisions with contrary legislation. Bay Mills, 572 U. S., at ___ (slip op., at 16) (tribal sovereign immunity); see, e.g., Kimble v. Marvel Entertainment, LLC, 576 U. S. ___, ___ (2015) (slip op., at 8) (statutory interpretation); Halliburton Co. v. Erica P. John Fund, Inc., 573 U. S. ___, ___ (2014) (slip op., at 12) (judicially created doctrine implementing a judicially created cause of action). In such cases, we have said that “the burden borne by the party advocating the abandonment of an established precedent” is “greater” than usual. Patterson v. McLean Credit Union, 491 U. S. 164, 172 (1989). That is so “even where the error is a matter of serious concern, provided correction can be had by legislation.” Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 476 U. S. 409, 424 (1986) (quoting Burnet v. Coronado Oil & Gas Co., 285 U. S. 393, 406 (1932) (Brandeis, J., dissenting)).
We have applied this heightened form of stare decisis in the dormant Commerce Clause context. Under our dormant Commerce Clause precedents, when Congress has not yet legislated on a matter of interstate commerce, it is the province of “the courts to formulate the rules.” Southern Pacific Co. v. Arizona ex rel. Sullivan, 325 U. S. 761, 770 (1945). But because Congress “has plenary power to regulate commerce among the States,” Quill, 504 U. S., at 305, it may at any time replace such judicial rules with legislation of its own, see Prudential Ins. Co. v. Benjamin, 328 U. S. 408, 424–425 (1946).
The case is South Dakota v. Wayfair, No. 17-494.