The Future of Being Present: Will U.S. Supreme Court Hear Current Kill-‘Quill' Challenges?

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Tax Policy

Bloomberg BNA regularly spotlights the insights of state and local tax professionals at Grant Thornton. In this installment of Grant Thornton Insights, Brian Howsare discusses the likelihood of the U.S. Supreme Court hearing a challenge to Quill Corp. v. North Dakota's physical presence requirement.

Brian Howsare

By Brian Howsare

Brian Howsare is a manager in Grant Thornton’s indirect tax practice and provides sales and use tax, gross receipts tax, and VAT assistance to organizations across many different industries including technology, retail, and manufacturing. He can be reached at

This article is adapted in part from the author's forthcoming paper The New Normal for Sales and Use Tax in the United States: Will a State Challenge to Supreme Court Precedent Overhaul Sales and Use Tax Compliance for Online Retailers? , which is scheduled to be published in the spring 2017 issue of the Pittsburgh Tax Review.

By now, almost every online retailer is aware of Justice Kennedy's open invitation to state tax authorities to bring forward to the U.S. Supreme Court a case that could overturn the Quill/Bellas Hess physical presence standard. Retailers are also likely aware of multiple states' eager acceptance of Justice Kennedy's invitation, crafting laws that directly contradict the Quill precedent and filing suits against large online retailers that have not complied with these laws. With the filing of these lawsuits, it seems as though the machinery has been put in motion for a case with the potential to abolish the physical presence standard to be heard by the U.S. Supreme Court. With such a large and significant change—reversing course on a nearly 50-year-old precedent and immeasurably increasing online retailers' sales tax collection obligations—potentially looming, online retailers must consider how these controversies will play out in order to plan their compliance practices in the near and long terms. In considering the possibility of a reversal of U.S. Supreme Court precedent, however, the first thing to consider is whether the U.S. Supreme Court will decide to hear the controversy in the first place.

In order for a case from a lower court to be heard by the U.S. Supreme Court, the Court generally must first decide to hear the case by granting a writ of certiorari. Granting certiorari is not a right, but a matter of judicial discretion. The cases typically selected by the Court are those with issues that: (1) have been given conflicting treatment between state supreme courts or federal circuit courts; (2) are of national significance; or (3) could have precedential value. In order for the Court to grant certiorari, four justices must vote to hear the case.

At first glance, it may seem like a kill- Quill case would fit the bill of a controversy that the U.S. Supreme Court would be likely to hear. Considering the degree of economic interplay between the states, retailers, and the physical presence standard, the issue is certainly of national significance. Additionally, a ruling by the U.S. Supreme Court on this issue is sought specifically because of its precedential value. However, a split between lower appellate courts would be unlikely.

In searching the current U.S. Supreme Court roster for the four certiorari votes needed, Justice Kennedy's vote seems like a sure bet, leaving only three to gain. Justice Thomas seems the next most likely vote, as Thomas, the only other current member of the Court that was part of the Quill decision, was with Justice Kennedy in joining Justice Scalia's Quill concurrence, which clarified that the three justices did not so much endorse the merits of the physical presence standard, but acquiesced to it on the principle of stare decisis. Assuming that Justice Thomas still stands with Justice Kennedy on Quill today, only two of the remaining six justices—Alito, Breyer, Ginsburg, Roberts, Sotomayor, and Kagan—would need to vote to hear the case.

Justice Thomas's stance on Quill from over 20 years ago, however, hardly guarantees that he also recognizes the need for a challenge to the decision in 2016. He may still feel that stare decisis is as applicable now as it was in 1992. Additionally, it may be quite difficult to gain any additional votes from the rest of the Court. Based on prior petitions for certiorari in similar cases, the Court does not appear to have an appetite to hear challenges related to the physical presence rule. The Court has had many opportunities to hear cases related to the physical presence standard since Quill, but has denied them all, including a 2013 case weighing the constitutionality of New York's click-through nexus laws, a 2011 case examining the boundaries of what constitutes physical presence and whether the physical presence standard applies to Washington's business and occupation (B&O) tax, and a litany of cases (some even with conflicting conclusions) considering whether the physical presence standard should apply to income/franchise taxes.

If the U.S. Supreme Court was truly searching for an opportunity to revisit the physical presence standard, then why has it passed on so many cases related to this issue? The prior cases all seem to provide sufficient grounds to reconsider the propriety of the physical presence standard. Additionally, if the Court did take a kill- Quill case after passing on so many prior physical presence cases, the Court would seem to be rewarding state lawmakers that draft unconstitutional laws simply because the lawmakers disagree with the current policy. One would assume that the Court would be reluctant to go down this road.

Moreover, other justices have simply not signaled that they are interested in revisiting this issue. Justices' votes on whether to grant certiorari are not made public, so it is usually impossible to gauge the U.S. Supreme Court's interest in hearing an issue unless a Justice voices his or her opinion on an issue, as Justice Kennedy did in Direct Marketing Association. To the extent that other members of the Court shared Justice Kennedy's sentiment, they easily could have joined his concurrence. The fact that no other justice joined Justice Kennedy's concurrence is likely most telling, however, and is consistent with the U.S. Supreme Court declining to revisit the physical presence issue in so many prior cases.

In Direct Marketing Association, Justice Kennedy called for the Court to find an “appropriate case” in which to examine Quill. Given the Court's record of consistently denying certiorari on this issue and the fact that no other justices joined Justice Kennedy's concurrence, it seems like the U.S. Supreme Court's hesitation to revisit the physical presence standard is not for want of an appropriate case, but because the Court simply does not care to hear this issue again. Based on this, it seems most likely that the U.S. Supreme Court will not hear a challenge to Quill. It appears that states such as South Dakota and Alabama have prematurely accepted Justice Kennedy's invitation to litigate this issue, despite the fact that they had not received, and are not guaranteed, the three additional invitations that they need to make a U.S. Supreme Court case.

Undoubtedly, additional states will consider joining the fray and implementing laws that impose collection and filing requirements on out-of-state retailers lacking physical presence. These laws and the challenges they spawn are sure to garner extensive coverage and commentary as they work their way through the judicial system. While prudent retailers must monitor these laws and cases, they should also keep in mind the likelihood of the U.S. Supreme Court ultimately hearing one of these challenges. Accordingly, online retailers that are truly concerned about imminent changes to their compliance obligations would be wise to keep an eye on other state requirements (namely notice requirements) and federal legislation with the ability to abolish (or potentially codify) the Quill physical presence standard.

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