Policy

Supreme Court to Revisit Internet Sales Tax Ruling

Bipartisan group of lawmakers want previous decision overruled

From left, Sens. Michael B. Enzi of Wyoming, Lamar Alexander of Tennessee, Heidi Heitkamp of North Dakota and Richard J. Durbin of Illinois want the Supreme Court to overrule a decision that prevented states from collecting sales tax on internet purchases. (Chris Maddaloni/CQ Roll Call file photo)

The Supreme Court will decide whether businesses must collect sales tax on online transactions in states where they don’t have a physical presence, in a case closely watched by lawmakers, states and online retailers.

The case gives the justices a chance to reshape internet commerce, something Congress hasn’t done since the high court last ruled on the issue in 1992. Back then, the court barred states from collecting sales tax from vendors that were out of state.

But with the growth of companies such as Amazon and eBay in the past 25 years, states miss out on collecting billions of dollars in sales and use taxes annually because of that Supreme Court ruling, called Quill Corp v. North Dakota.

South Dakota, which brought the challenge now at the court, has urged the justices to overturn that ruling, describing it as “proven entirely out of date” and “a severely criticized, constitutional holding that itself warned when decided that it might later be reconsidered.” The state is particularly hard hit because it does not have an income tax, so sales taxes are critical to its economy.

That Quill decision not only deprives states and local governments of critical revenue, “but also of a power the Constitution and Tenth Amendment fully reserved to them,” South Dakota wrote in its petition.

“The damage to the Framers’ design is done when the States must go begging to Congress for powers that belong to them by right, as 25 years of congressional inaction on this issue have vividly shown,” the petition said.

Four senators and one congresswoman filed a brief urging the Supreme Court to hear the case and overrule the 1992 decision, conceding that Congress has been unable to reach a consensus on a legislative solution.

Senate Budget Chairman Michael B. Enzi of Wyoming and GOP Rep. Kristi Noem of South Dakota, who introduced bills on the issue last year, were joined by Democratic Sens. Heidi Heitkamp of North Dakota and Richard J. Durbin of Illinois and Republican Sen. Lamar Alexander of Tennessee in signing the brief. Former Democratic Rep. John Conyers Jr. of Michigan also signed it.

“That impasse is, in our view, largely due to the structural advantages and disadvantages created by the Quill decision,” the lawmakers state in the brief.

The court created the current status quo that helps out-of-state sellers, the lawmakers said, and therefore states must persuade Congress and the president to act when there are “built-in, indeed intended, difficulties in enacting federal laws.”

But another group of lawmakers who sponsored legislation or efforts to resolve the issue, filed a brief asking the Supreme Court to stay out of it.

This group includes Sen. Ron Wyden of Oregon, the ranking Democrat of the Senate Finance Committee, and Republican Sen. Mike Lee of Utah, along with Republican Reps. Robert W. Goodlatte of Virginia, Jim Sensenbrenner of Wisconsin and Steve Chabot of Ohio, and Democratic Rep. Anna G. Eshoo of California.

“The fact that Congress thus far has not enacted a federal solution to the problem of the collection of State use taxes on sales by remote vendors should not be seen by the Court as a reason to give up on Congress,” the lawmakers wrote.

“Rather, the Court should recognize that a lasting solution will require compromise, and respect and accommodate the ongoing, diligent efforts of Congress to find a fair solution consistent with Constitutional norms,” they wrote.

Three justices had already expressed a desire to re-examine the Quill decision, including Justice Anthony M. Kennedy, who often casts the deciding vote on the nine-member court.

The court did not announce when oral arguments would be heard in the case.

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