January 7, 2019

U.S. Supreme Court Opens The Door To Online State Sales Taxes; South Dakota v. Wayfair, Inc.

Category: Indiana Law Review | Author: | Share:

In this 5-4 decision, the U.S. Supreme Court overturned long-standing precedent to allow States to require online sellers to collect and remit sales taxes even though they have no physical presence in the State. This decision will help local brick-and-mortar retailers compete with online retailers and expand the sales tax base available to local and State governments.

In National Bellas Inc. v. Department of Revenue of Ill., 386 U.S. 753 (1967), the Court held that under the dormant Commerce Clause, a State could not require retailers without a physical presence in that State to collect taxes on the sale of goods to its residents. 25 years later, in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), the Court upheld the physical presence rule.

All nine members of the Supreme Court agree that National Bellas and Quill were wrongly decided as a matter of constitutional law. Four members of the Court (Roberts, Breyer, Sotomayor and Kagan), however, based on stare decisis, concerned with reliance by interested parties on these precedents, and recognizing that Congress has “plenary power to regulate commerce among the States,” conclude it is Congress that should correct the error and dissent from the majority opinion.

Justice Kennedy, however, in one of his last majority opinions, concludes that in a world with e-commerce sales of $453 billion, stare decisis provides an insufficient basis to follow “unsound and incorrect” precedent. “Each year, the physical presence rule becomes further removed from economic reality and results in significant revenue losses to the States.” It also discriminates against local and interstate businesses with a physical presence, putting them at a competitive disadvantage relative to remote sellers.

Kennedy writes:

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.

Further, the real world implementation of Commerce Clause doctrines now makes it manifest that the physical presence rule as defined by Quill must give way to the “far-reaching systemic and structural changes in the economy” and “many other societal dimensions” caused by the Cyber Age. Though Quill was wrong on its own terms when it was decided in 1992, since then the Internet revolution has made its earlier error all the more egregious and harmful.


  1. The physical presence rule is overturned.
  2. Stare decisis remains important but is less likely to control in the face of societal change.
  3. Labels like conservative and liberal or Republican and Democrat do not reflect the outcome in cases like this. Thomas (conservative) and Ginsburg (liberal) were in the majority while Roberts (conservative) and Kagan (liberal) joined in dissent.
  4. This decision lends credence to Chief Justice Roberts recent statement: “We do not have Obama judges or Trump judges, Bush judges or Clinton judges.” Rather, we have an “independent judiciary.”