What Will Future of State Tax Law Look Like Without Scalia?

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By Jennifer McLoughlin

Feb. 18 — With the sudden passing of Justice Antonin Scalia, the empty seat on the U.S. Supreme Court is a reminder of a three-decade era marked by an originalist jurist whose “bigger than life” presence reshaped the highest court's discourse, but whose absence may have a material impact on future state tax cases.

Scalia's legacy among state tax practitioners is most notably his indelible mark on dormant commerce clause jurisprudence, which is peppered with the late justice's criticism of the doctrine not found in constitutional text. The negative inference from the federal commerce clause, prohibiting state discrimination against interstate commerce, struck a chord with Scalia that brought forth such colorful characterizations as “judicial fraud.”

Whether the new justice will take up his or her predecessor's mantle of containing the negative commerce clause remains an unanswered question, leaving practitioners to reminisce on Scalia's legacy and speculate on the doctrine's future.

Discussing the future of the doctrine, Brannon P. Denning, an associate dean and professor at Cumberland School of Law, observed that “it’s hard to say at this point, other than one of the dormant commerce clause intellectual antagonists has left the scene.”

And even with the appointment of a new justice, individual ideological leanings don't necessarily translate into predisposed opinions, so that time may be needed to determine whether the Supreme Court's new composition will change dormant commerce clause law.

Referring to Comptroller of the Treasury of Md. v. Wynne, with a 5-4 majority opinion that didn't follow the typical lines of division, Jeffrey A. Friedman noted that issues arising under the dormant commerce clause “don't align well politically.”

“There is a lot of uncertainty,” said Friedman, a partner with Sutherland Asbill & Brennan LLP in Washington. “And I don't think we'll have any guess as to where this body of law is all going without allowing for the passage of time and more cases to be decided.”

Practitioners share the same speculation regarding the outlook for the Quill physical presence standard, which is increasingly under attack by states implementing new regimes to capture revenue from remote sellers with limited or no physical presence.

While the Supreme Court hasn't had the appetite to accept a challenge to its 1992 decision in Quill Corp. v. North Dakota—where the court said that states can only require collection of sales and use taxes by vendors with a physical presence in the state—Friedman suggests that the shifting makeup of the bench “has the potential for increasing the chances of the court taking a case.”

‘Quill' Challenge?

As more states seek to collect tax from remote Internet retailers, practitioners are watching for a case challenging the long-standing Quill physical presence standard to finally climb to the Supreme Court. In Scalia's absence, practitioners speculate whether the court would grant certiorari to a Quill challenge, as it could depend on the new justice or other influences, such as the enactment of federal legislation or a streamlined agreement among states.

“It is noteworthy that both of the Justices who joined Scalia’s opinion [concurring in Quill], Justice Kennedy and Justice Thomas, are still on the court and Justice Kennedy last year stated in his concurring opinion in Direct Marketing Association that it is time to reconsider the court’s holding in Quill,” Craig B. Fields, chair of Morrison & Foerster LLP’s State + Local Tax Group, said in a Feb. 17 e-mail.

Noting that the chances of Supreme Court review may have increased by “a very small extent,” Charles A. Rothfeld, special counsel with Mayer Brown LLP, observed that Scalia “would have been philosophically prepared to jettison Quill if the court were prepared to go that way.”

Rothfeld, who has argued 31 cases before the Supreme Court, added, “In that sense, I don’t know that a new justice is going to be any more hostile to the Quill doctrine or more willing to reconsider it than Scalia would.”

In his concurring opinion, Scalia agreed with the Quill court that the commerce clause holding of Nat'l Bellas Hess v. Ill. Dep't of Revenue shouldn't be overruled, but on the grounds of stare decisis, a doctrine that was a strong influence in his opinions.

“Even with his seemingly ironclad view that the Commerce Clause should not have a negative component that could be used to create ‘judge-invented law,' Justice Scalia did note limited exceptions to that rule,” Grant Thornton LLP principal Jamie C. Yesnowitz said in a Feb. 17 e-mail. “Bowing in part to stare decisis concerns,” Scalia would enforce the negative commerce clause against a state law that is facially discriminatory against interstate commerce or is indistinguishable from prior law that the court held unconstitutional.

Also embedded within Scalia's concurring opinion in Quill was language instructing lower courts to follow Supreme Court precedent that “has direct application in a case, yet appears to rest on reasons rejected in some other line of decisions,” leaving the Supreme Court with the sole authority to overturn its decisions.

This instruction may be put to the test as courts start to contend with state schemes that test the boundaries of Quill.

“Starting with the legislatures who are considering, and in some cases passing, laws that are clearly running head-long into the Quill/National Bellas Hess line,” Friedman questioned how courts will respond when those laws are challenged. “Will courts kind of adhere to Scalia's admonition—let the Supreme Court decide and in the interim you're stuck with Quill? Or will they do something different? That's going to keep us busy for the next two to five years, while this gets further hashed out.”

Outlook for Dormant Commerce Clause

As the highest court’s staunchest champion of strict constitutional construction, Scalia artfully penned numerous opinions that rejected the “negative” commerce clause as beyond the confines of the constitution, including Tyler Pipe Indus., Inc. v. Washington State Dep't of Revenue and Itel Containers Int'l Corp. v. Huddleston. With his final attack in Wynne, Scalia seemed to coalesce his prior opinions into one composite that offers a clean, and colorful, closing argument against the doctrine .

Richard D. Pomp, the Alva P. Loiselle professor at the University of Connecticut School of Law, told Bloomberg BNA in a Feb. 17 e-mail that Scalia’s dissent in Wynne elevated his views on the dormant commerce clause to their “zenith (or nadir depending on your own views).”

Pointing out what he termed the court's “ad hocery,” Scalia branded the negative commerce clause a “judicial fraud,” as evident by “the utterly illogical holding that congressional consent enables States to enact laws that would otherwise constitute impermissible burdens upon interstate commerce. How could congressional consent lift a constitutional prohibition?”

“There is a lot of uncertainty. And I don't think we'll have any guess as to where this body of law is all going without allowing for the passage of time and more cases to be decided.”Jeffrey A. FriedmanSutherland Asbill & Brennan LLP

Countering the majority's claim that the doctrine “has deep roots,” he responded, “So it does, like many weeds.”

This last stand against the dormant commerce clause was a final curtain call for a justice who, while not voicing the popular view, managed to minimize the number of state tax challenges that found favor with the Supreme Court.

“Even though the court didn’t buy into the full extent of his views, it probably diminished its willingness to expansively read these commerce clause restrictions on state taxation,” Rothfeld said. “With him gone, that kind of damper on tax challenges will be removed. There is some chance the court will be more open to expansive readings of the commerce clause and more restrictions on state taxation.”

Pomp suggested that there may be movement on the bench to preserve Scalia’s position.

“Taxpayers now challenging the constitutionality of a state tax will not start off with two votes against them, but only one,” he said. “Of course, it is possible that some of the more liberal justices will move to Scalia’s views if only to give states more latitude to tax.”

However, as Scalia often stood in the minority, his absence may not alter the outcome of future state tax cases, but his devotion to the tenets of textualism may continue to guide the court.

“More often than not he was in the dissent on a lot of the state cases,” said Steve Wlodychak, a Washington-based principal with EY LLP’s Indirect (State and Local Tax) Practice. “So, I don't think it's going to change the majority view. But I do think he did serve as governor on folks to think about the positions they were taking.”

Limited Judiciary Role

Noting that “you’re going to miss that intellectual breathe of fresh air, if you will, with respect to the concepts of the dormant commerce clause,” Wlodychak said that Scalia’s rhetoric on the dormant commerce clause wasn't a solitary argument against the judiciary’s role in that context, but rather feeds into a larger legacy regarding separation of powers.

He characterized Scalia as an “activist judge in the sense of telling the liberal court to hold back and just be a textualist,” adding that the justice's body of law was a reminder that “there are three branches of government. They all have separate functions. And the judiciary should not intrude on the others.”

This confined approach, however, favored the government with “unenumerated rights or ambiguous phrases or balancing tests,” including the tax issues of retroactivity and the dormant commerce clause, said Joseph Henchman, vice president of Legal & State Projects at the Tax Foundation.

“This was very frustrating to someone who believes the role of the court is to protect individual rights from majoritarian abuses like retroactive and discriminatory taxation, but Scalia would have said to sort it out in the state legislators or the halls of Congress,” Henchman said in a Feb. 16 e-mail. “Not because he prized or valued legislators as infallible angels but I think because he didn’t consider courts better equipped procedurally or credibly to handle them instead.”

Energized Court Dynamics

While Scalia’s tenure is documented in written prose considered “poetic,” “provocative” and “acerbic,” it remains to be seen whether his unwritten influence will continue to steer attorneys presenting before the Supreme Court.

“There was a dramatic change in how people argue cases before the Supreme Court, pre-Scalia and post-Scalia,” said Mayer Brown's Rothfeld. “His relentless focus on the text has really changed the way people argue,” pointing out that the focus shifted from the legislative history to a plain language analysis.

Likewise, Scalia ushered in a Socratic approach to oral arguments, whereas before justices rarely engaged or questioned attorneys.

Remembering the force of Scalia’s writing and personality, combined with his dominant presence during oral arguments, Rothfeld said the late justice had a unique impact “on how people approach the court.”

To contact the reporter on this story: Jennifer McLoughlin in Washington at jmcloughlin@bna.com

To contact the editor responsible for this story: Cheryl Saenz at csaenz@bna.com

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