Daniel Hemel is an assistant professor at the University of Chicago Law School. He signed an amicus brief in support of the petitioner in “South Dakota v. Wayfair.”
When the Supreme Court last considered whether states could apply their sales taxes to out-of-state retailers, “Amazon” still referred to a rain forest. The justices could not — and did not — foresee that a quarter-century later, more than half the country would shop online, and that states would lose billions of dollars in sales-tax revenue each year because of e-commerce.
The justices then also probably did not anticipate another trend: the descent of Congress into gridlock. This phenomenon has several causes: hyperpartisanship, weak congressional leadership and the pernicious influence of money in politics. The result: Pressing problems that might have been addressed in an earlier era are now going unresolved.
The specter of legislative gridlock loomed large on Tuesday at the Supreme Court, when Marty Jackley, the attorney general of South Dakota, asked the justices to overrule two precedents from the pre-Internet, pre-gridlock age. The first, National Bellas Hess, Inc. v. Department of Revenue of Illinois, dates to 1967; the second, Quill Corp. v. North Dakota , is from 1992. Together, the cases establish that — under a doctrine called the “dormant commerce clause” — states cannot impose sales-tax obligations on out-of-state retailers unless Congress explicitly authorizes them to.
The Supreme Court’s opinions in Bellas Hess and Quill reflect a bygone era in which “mail-order houses” conducted business by catalogue and post. They also reflected a set of assumptions about legislative action that appear almost as outdated. “Congress has in fact recently evidenced an active interest in this area,” Justice Potter Stewart wrote for the majority in the Bellas Hess case. Twenty-five years later, Justice John Paul Stevens said the court’s decision in Quill was “made easier by the fact that the underlying issue is . . . one that Congress has the ultimate power to resolve.”
But no resolution came. The Government Accountability Office estimates that states and localities lost between $8 billion and $13 billion last year because of their failure to collect sales taxes from out-of-state retailers. To put that in perspective, the GAO’s low-end estimate suggests that if states could collect sales tax on remote transactions, they could afford to hire more than 130,000 additional public-school teachers or a similar number of police officers.
Some members of Congress have sought to strike a sensible compromise that allows states to meet their revenue needs without imposing significant compliance burdens on small businesses. In May 2013, the Senate voted 69 to 27 to pass the Marketplace Fairness Act, which would have authorized states to collect sales taxes from out-of-state retailers who conduct more than $1 million in remote sales nationwide each year. The bill also required states to simplify sales-tax compliance as a precondition for their expanded sales-tax authority. But Rep. Bob Goodlatte (R-Va.), the chairman of the Judiciary Committee, refused to bring the bill to a vote.
At Tuesday’s oral argument, Justice Elena Kagan asked Jackley whether Congress’s inaction was intentional. Perhaps, she suggested, Congress has “chosen” to leave the status quo in place.
But it is difficult to describe congressional inaction as a conscious choice when a bipartisan supermajority in the Senate supports reform, and when rank-and-file members of the House have not had a say. Year after year, dozens of representatives from both parties co-sponsor legislation along the lines of the Marketplace Fairness Act. Year after year, these bills are referred to the House Judiciary Committee, where the chairman lets them die.
The issue won’t resolve itself. Chief Justice John G. Roberts Jr. asked Jackley whether noncollection of sales taxes is a “diminishing” problem now that Amazon collects sales taxes in all 45 states that enforce them. But Amazon does not require third-party sellers, who account for approximately half of all transactions on the site, to collect sales taxes. Neither does eBay, which ranks number two behind Amazon in e-commerce sales. (The Post is owned by Jeffrey P. Bezos, the founder and chief executive of Amazon.)
The strongest argument against judicial intervention is “stare decisis,” Latin for “to stand by things decided.” But stare decisis plays a curious role here. In other cases involving the dormant commerce clause, the court has said that stare decisis does not prevent it from overturning outdated precedents that impinge on the taxing power of states. Thus, the court is caught between two doctrines: a set of precedents that address state sales-tax collection and a set of “meta-precedents” that tell it how much weight to accord to prior decisions in the dormant commerce clause domain. The court’s own case law cuts both ways.
Hopefully by the end of Tuesday’s oral argument, it was clear to the justices that they can’t rely on Congress or on Amazon to solve the problem. And they can’t put the blame on their predecessors either, because precedent doesn’t stop the current court from intervening. Passing the buck here will cause states and localities to lose billions of dollars more in sales tax revenue. And the justices have no one to pass the buck to but themselves.