Guessing Game: How Will Justices Rule in Digital Sales Tax Tiff?

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By Jennifer McLoughlin

It’s an exercise in reading tea leaves to pin down the U.S. Supreme Court justices’ positions in any case.

Nevertheless, individual ideological leanings and prior opinions might shed light on how the highest judges of the land might come down in South Dakota v. Wayfair. As the high court hears oral argument April 17, retailers, practitioners, and government officials across all states are making predictions in what many consider the “tax case of the millennium,” which could shift how online sales are taxed nationwide.

Several illustrative Supreme Court cases and sources tell Bloomberg Tax that Quill Corp. v. North Dakotais all but overruled. While a guessing game, predictions range from a 5-4 decision (with a couple of justices considered “wild cards") to an 8-1 decision (with Justice Alito as the sole dissenter) to even a unanimous decision.

The underlying lawsuit launched in 2016 after South Dakota enacted its digital sales tax statute, S.B. 106 (S.D. Codified Laws Chapter 10-64). After a state Supreme Court decision last year finding the law unconstitutional, South Dakota brought the case to the high court, pleading for a decision undoing the embattled opinion in Quill.

Since its 1992 release, Quill has curtailed states’ interstate taxation by mandating a vendor must have an in-state physical presence before it is required to collect sales tax. The case has sparked perhaps the largest wave of state and local tax-related activity during the past decade in attempts to “kill Quill”, as the modern marketplace has spilled outside geographic borders and increasingly migrated to e-commerce.

However, the Supreme Court hasn’t waded back into the issue since it found 26 years ago that a mail-order company with no physical presence in North Dakota wasn’t required to remit the state’s sales tax.

In Quill, the high court invoked both the so-called dormant commerce clause—a judge-created legal doctrine that bars states from interfering with interstate commerce unless authorized by Congress—and the doctrine of stare decisis: the principle of following precedent. The negative inference from the federal commerce clause has struck a chord with select justices who haven’t contained their criticism of the doctrine not found in constitutional text—most notably the late Justice Antonin Scalia, who offered such colorful characterizations as “judicial fraud.”

But how do the current justices feel about the dormant commerce clause? About stare decisis ? And how could they each come down in Wayfair?

Bloomberg Tax highlights below some of the relevant prior case law and what it suggests in determining the fate of Quill and online sales taxation across the U.S., according to top practitioners.

Justice Thomas: Not DCC Fan

Many practitioners have singled out Justice Clarence Thomas, who is one of two remaining justices from the Quill Court, as a relatively easy one to predict. While not known for similar trademark zingers, Thomas has paralleled Scalia’s contempt for the dormant commerce clause.

In 2015, the Supreme Court released its decision in Comptroller of Treasury of Maryland v. Wynne that found unconstitutional Maryland’s practice of allowing a credit against the state income tax but not against the local tax to residents who paid income tax to another state.

However, Thomas authored a dissent confirming his unwavering opinion that “the negative Commerce Clause has no basis in the text of the Constitution, makes little sense, and has proved virtually unworkable in application, and, consequently, cannot serve as a basis for striking down a state statute.”

Thomas’ Wynne comments mirrored his dissent in another 1997 case, Camps Newfound/Owatonna Inc. v. Town of Harrison,which struck as unconstitutional a Maine state property tax statute that provided an exemption for property owned by charitable institutions—except those institutions operated principally for the benefit of nonresidents.

“Our negative Commerce Clause jurisprudence has taken us well beyond the invalidation of obviously discriminatory taxes on interstate commerce. We have used the Clause to make policy-laden judgments that we are ill equipped and arguably unauthorized to make,” Thomas wrote, citing Quill as an example.

Both Steven N. Wlodychak, a principal with Ernst & Young LLP’s indirect tax practice, and Professor Brannon Denning, an associate dean and professor at Cumberland School of Law, predict Thomas will adhere to his view that the dormant commerce clause isn’t a legitimate doctrine and therefore side with South Dakota. Likewise, Joseph Bishop-Henchman, executive vice president of the Washington-based Tax Foundation, said in an April 10 posting that Thomas “doesn’t think the courts can strike down state laws on commerce clause grounds absent congressional authorization.”

Justices Kennedy & Gorsuch: Ready to Kill ‘Quill’?

Should the high court favor the state, history likely will look back on Justice Anthony Kennedy as the grandfather of Quill’s demise.

The Supreme Court ruled in 2015 that the Tax Injunction Act didn’t bar a legal challenge contesting a Colorado notice/reporting statute for sales tax purposes. However, it was a Kennedy concurrence in Direct Marketing Association v. Brohl in 2015 that kindled a firestorm of state statutes and regulations seeking to capture revenue from remote retailers—and striving to spark a Supreme Court appeal that ultimately overturns Quill.

Justice Neil Gorsuch, a former Kennedy clerk, likewise has suggested that Quill is outdated. After the Brohl case returned to the U.S. Court of Appeals for the Tenth Circuit, the Colorado law was upheld as constitutional. Then-Tenth Circuit Judge Gorsuch authored a concurrence to acknowledge that the appellate court was bound by Quill and obliged to follow the Supreme Court precedent “out of fidelity to our system of precedent whether or not we profess confidence in the decision itself.”

However, he wrote that “ Quill might be said to have attached a sort of expiration date for mail order and internet vendors’ reliance interests on Bellas Hess’s rule by perpetuating its rule for the time being while also encouraging states over time to find ways of achieving comparable results through different means. In this way too Quill is perhaps unusual but hardly unprecedented, for while some precedential islands manage to survive indefinitely even when surrounded by a sea of contrary law (e.g., Federal Baseball), a good many others disappear when reliance interests never form around them or erode over time.”

“Justice Gorsuch telegraphed his view that Quill should be restricted to its facts, i.e., it applies only to mail order companies,” Wlodychak told Bloomberg Tax in an email. “I think he will distinguish the old mail order companies and the complications of sales tax compliance in the 1990s to today’s digital world.”

And Denning noted that Gorsuch likewise is a mild dormant commerce clause skeptic, which might persuade him to overrule Quill.

Justices Ginsburg & Kagan: Siding With State?

Several practitioners also told Bloomberg Tax that Justices Ruth Bader Ginsburg and Elena Kagan might be inclined to uphold South Dakota’s statute. In particular, Bishop-Henchman said that in three cases, Ginsburg “upheld the challenged state law with little credence given to challengers’ arguments.”

Ginsburg wrote a Wynne dissent, joined by Kagan, in which she said the majority decision “veers from a principle of interstate and international taxation repeatedly acknowledged by this Court: A nation or State ‘may tax all the income of its residents, even income earned outside the taxing jurisdiction.’”

Likewise, Ginsburg and Kagan joined the majority in Armour v. City of Indianapolis, a 2012 decision that disagreed with an equal protection challenge against local assessments to fund a sewer project. Property owners had the option to pay a lump sum or provide installment payments. After 38 owners paid the assessments in their entirety, and the others started to submit installment payments, the city forgave all future installment payments. Those who submitted lump sums were denied refund requests.

One practitioner characterized the decision as “an example of substantial deference to the ability of governmental units to define and structure their tax systems, even with substantially different treatment of relatively similar taxpayers.” Bishop-Henchman also noted the Armour majority “said the city could classify however it wants, and since there’s no violation of fundamental rights or suspect classes, the city has wide latitude to do whatever it wants.”

And earlier in 2008, Ginsburg joined in part the plurality in Department of Revenue of Kentucky v. Davis, which upheld a Kentucky income tax exemption for interest on bonds issued by it or its political subdivisions, but not on bonds issued by other states and their subdivisions.

Justice Alito: Single Dissenter?

However, if there is one justice that might favor the e-retailers, it could be Justice Samuel Alito, who authored the Wynne majority opinion, and either wrote or joined dissents in Armour and Davis.

“I would not be at all surprised to see this as a unanimous case, or 8-1 with Alito dissenting,” Denning told Bloomberg Tax in an email. Alito is a pretty staunch supporter of the dormant commerce clause doctrine (DCCD)—"one of the few,” Denning said.

“I proceed in this case, as I did in United Haulers Assn., Inc. v. Oneida-Herkimer Solid Waste Management Authority,550 U. S. ___, ___ (2007) (dissenting opinion), on the assumption that the Court’s established dormant Commerce Clause precedents should be followed,” Alito wrote in Davis.

In his posting, Bishop-Henchman called Alito the “Champion of the Commerce Clause” and “foe of states burdening interstate commerce with their taxes.” He added that Alito “could try to preserve Quill, or join a narrowing ruling upholding South Dakota but not what other states are doing.”

“Justice Alito seems to be the current champion on state tax cases ( MeadWestvaco, Polar Tankers v. Valdez, and of course Wynne),” Wlodychak said. “I think he may hold that the state statute still violates the commerce clause.”

Justices Roberts, Breyer & Sotomayor: Question Marks

Finally, it seems more of a toss-up with Justices John Roberts, Stephen Breyer, and Sonia Sotomayor.

Denning noted that Roberts is a “mild DCCD skeptic,” as demonstrated by his votes in United Haulers and Davis, in which he joined the plurality in part. However, Roberts came down on the taxpayers’ sides in Armour and Wynne.

“Justice Roberts will I think side with the other conservative justices,” Wlodychak said. “But I think there may be a strong articulation of the role of the Court in deciding cases and not acting on matters appropriately left to Congress.”

Bishop-Henchman likewise observed that Roberts is a “fan of narrow decisions that don’t venture much beyond the case at issue, but evidence of disparate treatment can catch his attention.”

Meanwhile, practitioners have labeled both Breyer and Sotomayor as “wild cards.” Breyer decided against the state by joining in the Wynne majority, but favored the officials in Armour and Davis. And Sotomayor was also in the Wynne and Armour majorities.

What About Stare Decisis?

Some practitioners have told Bloomberg Tax that the case turns on the doctrine of stare decisis and the interests of thousands of sellers, particularly smaller-sized sellers, that have relied on Supreme Court precedent dating back 50 years through Quill and National Bellas Hess Inc. v. Department of Revenue of Illinois.

The Quill Court relied in part on stare decisis and found that Bellas Hess wasn’t inconsistent with recent cases, including the four-part test in Complete Auto Transit Inc. v. Brady—but noted that “contemporary Commerce Clause jurisprudence might not dictate the same result were the issue to arise for the first time today.” Both Kennedy and Thomas joined in Scalia’s dissent, which didn’t agree with revisiting the merits of Bellas Hess, but agreed to adhere to Bellas Hess solely on stare decisis grounds.

However, Kennedy said in his DMA concurrence that the “ Quill majority acknowledged the prospect that its conclusion was wrong when the case was decided"—and that the Quill Court should have taken the opportunity to re-evaluate Bellas Hess not only in light of Complete Auto but also in consideration of technological and social changes. Many practitioners expect the e-commerce explosion, and the Wayfair facts outside the mail-order context, will encourage Kennedy to move away from precedent. Likewise, with his disfavor for the dormant commerce clause, Thomas probably won’t feel bound by stare decisis .

Wlodychak singled out Kagan’s opinion in Kimble v. Marvel Entertainment LLC (which isn’t a tax case) as “one of the best articulations of stare decisis I have seen. She may find that stare decisis is more important and that the Court should not change its standing opinions absent substantial changes.” However, Wlodychak further noted that Kagan also invited those opposing the decision to persuade Congress to intervene.

To contact the reporter on this story: Jennifer McLoughlin in Washington at

To contact the editor responsible for this story: Ryan C. Tuck at

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