The consensus view heading into today's Supreme Court argument in South Dakota v. Wayfair was a likely overturning of a 1992 precedent (the Quill decision) that prohibits states from requiring remote out-of-state sellers to collect sales taxes for in-state transactions.
This morning's argument left the outcome a toss-up. A decision that effectively authorizes new state sales tax obligations would increase burdens on Internet retailers like Wayfair and Overstock and could be viewed as benefiting brick and mortar chains like Wal Mart, Target, Home Depot and Best Buy.
Amazon pays state sales taxes as it has expanded its physical presence nationwide through massive and widespread fulfillment infrastructure investments. Third party sellers on Amazon, however, largely avoid the sales tax collection burden.
We previously discussed the underlying issues in the case (Hedgeye Potomac, Online Retailers Could Face Bigger Sales Tax Burdens, Feb. 6, 2018).
Arguments are not a slam dunk indication of how Justices will vote, but the questions of certain members and their expression of particular concerns suggest three votes to overturn Quill (Kennedy, Ginsburg and Gorsuch) and three to keep the decision in place, leaving it to Congress to address (Roberts, Alito and Sotomayor).
The three question marks are Justices Breyer, Thomas and Kagan.
There seems to be a functional consensus that Quill is obsolete as online sales become more pervasive and state and local governments suffer revenue losses (the states assert $100 billion in lost revenue over ten years, a disputed figure). But the Court is struggling with the consequences of abandoning Quill and risking administrative chaos as online retailers deal with tax collection obligations in more than 12,000 local tax jurisdictions. Software fixes are available to simplify burdens but the skeptical Court members indicated an absence of certainty that administrative and cost burdens were manageable.
Justice Kagan, if we are forced to guess, could lean against the states, adding a fourth vote to leave Quill in place for now. She seemed a bit reluctant to disrupt the current environment when Congress is capable of crafting legislation that could statutorily overturn Quill while addressing administrative burdens. She noted that Congress has left the Quill precedent in place for 25 years, suggesting the Court should be cautious here.
Justice Breyer is truly on the fence. We suspect he does not yet know how he wants to vote. He said today that both sides are "absolutely right." He was frustrated by the lack of reliable data on the administrative costs of collecting sales taxes on remote transactions. He said reliable data on the true cost of compliance burdens would help him make a call.
Justice Thomas was silent throughout arguments and his inclination is a complete unknown.
At this point, and noting this is a very close case, we give a modest edge to a final decision to keep Quill in place, recognizing its obsolescence but expressing hope Congress will pass a law minimizing collection burdens, including possible exemptions for smaller sellers doing very little business in a given state.
A decision is due around the end of June.
We spent time with House Judiciary Chairman Bob Goodlatte at the Court following today's argument. He hopes the Court leaves Quill in place, avoiding the potential chaos and administrative problems that could arise if states and localities impose collection burdens. He remains hopeful he can move legislation that can address state government revenue demands without burdening small Internet retailers.
But he is retiring from Congress at the end of this year and a Capitol Hill consensus on these issues remains elusive.
