Mark Janus

Internet Taxes, the Supreme Court, Old Decisions, and New Facts

A very interesting analysis of the Supreme Court's new Internet tax case (South Dakota v. Wayfair, Inc.), by Notre Dame Prof. Randy Kozel.

|The Volokh Conspiracy |

Notre Dame law professor Randy Kozel—a leading scholar of precedent—was kind enough to pass along this item about this case, which raises important questions about precedent as well as federalism, jurisdiction, and taxation:

Last week, the Supreme Court agreed to hear South Dakota v. Wayfair, Inc., a constitutional dispute involving internet retailers. The question before the Court is whether a state may force out-of-state vendors to collect taxes on sales to its residents.

The justices won't be writing on a clean slate. In prior decisions, the Court ruled that a state can't impose tax-collection obligations unless a seller has a physical presence within its borders. The basic rationale is that without a physical presence, there's not a strong enough connection between the seller and the state.

But the relevant Supreme Court decisions are decades old. In a world where online selling is easy, fast, and ubiquitous, the Court is now asked to reconsider whether a physical presence is always necessary. The combination of technological innovation and changes in consumer behavior has allowed sellers to become more connected than ever with customers across the country. As Justice Kennedy noted in a recent concurrence, what it means to be "present" in a state may have taken on a different meaning.

A few months ago, I was fortunate to have the opportunity to blog here about my recent book, Settled Versus Right: A Theory of Precedent. The book deals with the role of precedent in judicial decision-making, with a particular focus on the Supreme Court. I describe precedent as a meaningful constraint and a unifying force that draws together judges over time. That explains why Supreme Court justices should generally defer to the Court's prior decisions even if they disagree with their predecessors' interpretive approach. The idea is to make sure that the Court retains a stable core, and that constitutional law isn't reinvented whenever some justices leave the bench and others arrive. Respect for precedent separates the content of the law from the perspectives of the justices who are on the Court at any given moment.

Even so, deference to precedent isn't absolute. Sometimes it's appropriate to reconsider a prior decision. To illustrate, my book discusses Quill Corp. v. North Dakota, a 1992 case that endorsed the physical-presence requirement in the context of mail-order selling. I argue that Quill is a good example of a decision that is subject to reconsideration. The technological and commercial environment has changed markedly since Quill was decided. Those intervening changes warrant a fresh look at the problem, and they don't depend on disputed matters of constitutional philosophy.

This doesn't necessarily mean the Court should overrule Quill (or an earlier case that Quill reaffirmed). Maybe Quill reflects the best understanding of the Constitution. Or maybe Quill was flawed, but it should nevertheless be retained in order to protect reliance expectations—a consideration that was important to the Court's analysis in Quill itself. I don't mean to take any position on these questions. My point is simply that significant changes in the retail world provide a sound basis for asking whether Quill ought to remain the law of the land.

This conclusion reflects broader principles that shape the role of precedent in constitutional law. Deferring to prior decisions isn't about freezing mistakes or ignoring facts. It's about allowing a court to operate as an enduring institution and bolstering the impersonality of law. Precedent can't serve this role if judges are too quick to reject prior decisions based on interpretive disagreements.

The calculus is different if key facts have changed in the years since a decision was issued. Judges might part ways over the role of the Constitution's original meaning or the best reading of a provision like the Commerce Clause. But those interpretive debates are separate from factual questions like whether technological innovation has made it easier for retailers to connect with consumers across geographical boundaries, arguably erasing some of the distinctions that formerly existed between local, brick-and-mortar sellers and their out-of-state counterparts.

Factual change is a justification for reconsidering prior decisions that goes beyond disputes over interpretive philosophy. It also underscores the nature of deference to precedent as presumptive, but not absolute. So long as it remains the rule rather than the exception, deference to precedent can promote stability and continuity even as it allows some flawed opinions to be set right.

(One other note: Wayfair isn't the only pending Supreme Court case that raises important questions about the role of precedent. Another is Janus v. American Federation of State, County, and Municipal Employees, Council 31, dealing with a First Amendment challenge to compulsory fees that support public-sector labor unions. I discuss the role of precedent when First Amendment rights are on the line in my recent article, Precedent and Speech.)

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  1. From a practical standpoint, I think SCOTUS is going to have to allow collection of State (and only state, not local) sales taxes. Internet sales have become too large (est $147B in 2016) and self reporting by individuals just doesn’t work.

    1. Why is that SCOTUS’ problem? Nothing in the Constitution requires states to fund themselves via sales taxes. If that means of funding becomes untenable (and given the highly regressive nature of sales taxes, I would argue it was long before the invention of the internet), then it’s up to Legislatures to come up with a new way to fund their institutions. “Poor states” carries no legal or moral weight at all.

      I’ll also note that I can’t think of any Constitutional argument that would support your contention that state but not local sales taxes are allowed or required. Either the both are or neither are.

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