Are High Court Tax Precedents Set in Stone After 25 Years?

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By Ryan Prete

The U.S. Supreme Court is dealing with a monumental online sales tax case based on a decades-old precedent. Does this standard’s tenure make it more difficult to reverse?

Before the end of June, the U.S. Supreme Court is expected to rule in South Dakota v. Wayfair, the “tax case of the millennium.” But until then, speculation is at play.

South Dakota v. Wayfair is a long-awaited direct challenge to the 1992 decision in Quill Corp. v. North Dakota.Quill, which states for years have tried to “kill” through lawsuits and legislation, prohibits states from imposing sales tax collection obligations on vendors lacking an in-state physical presence.

Quill’s precedent is interesting in part because of it’s lifespan—26 years. In the legal community, it’s sometimes perceived that precedents become less likely to be taken up and overturned by the high court after 25 years.

But this concept isn’t widely believed.

“Among certain scholars and litigators, a precedent that has reached a certain age is considered hard to overturn,” Richard D. Pomp, the Alva P. Loiselle Professor of Law at the University of Connecticut School of Law, told Bloomberg Tax. “I don’t believe this for a minute.”

Pomp called the Quill ruling a “dishonest and politically bankrupt decision.”

“Have we reached a specific period of time where justices can’t overturn Quill? I don’t think so,” he said.

Not Time, But Societal Changes

Dan Schweitzer, Supreme Court counsel at the National Association of Attorneys General, told Bloomberg Tax that precedents by no means hold an expiration date.

“There isn’t a magic period of time when a precedent is most ripe to be overturned, but it’s fair to say that some precedents become harder to overturn with age as they become more ingrained in our nation’s customs,” Schweitzer said.

Societal changes, not a time span, often play the motive behind a precedent’s reversal, according to Schweitzer. Changes and advancements in technology, e-commerce, and the economy could be principle factors in a theoretical reversal of Quill, he said.

He didn’t single out time as a non-factor, however.

“Other times, it just takes time for a precedent to play out and show that it was an unworkable rule,” Schweitzer said.

Time as a Factor

Schweitzer cited a handful of past high court opinions.

When discussing the rarity of a precedent’s reversal shortly after it’s establishment, Schweitzer referenced the 1991 decision in Payne v. Tennessee—a case surrounding the cruel and unusual punishment clause of the Eight Amendment—which overturned a law established just two years prior in South Carolina v. Gathers.

Schweitzer said the scarcity of decisions such as Payne does illustrate that the court won’t regularly reverse a recently laid down rule.

“The Court doesn’t want to quickly overrule precedents because it would then appear that the Court is issuing rulings based on particular views of composition of the Justices,” Schweitzer said.

Affirmed 25 Years Later

And then there are the examples of cases based on precedents over 25 years old which were affirmed by the court.

Recently in the 2016 decision in Whole Woman’s Health v. Hellerstedt, regarding abortion rights, the court upheld precedents laid down in the 1992 decision in Planned Parenthood v. Caseyand the 1973 decision in Roe v. Wade.

Then there’s the 2016 decision in Fisher v. University of Texas—concerning affirmative action—which challenged the 38-year old landmark ruling in University of California v. Bakke. The court affirmed the Bakke decision by a 4-3 majority.

In the 2014 decision in Halliburton Co. v. Erica P. John Fund Inc., which concerned “fraud-on-the-market theory” in securities litigation, the court affirmed the 26-year-old ruling in Basic Inc. v. Levinson.

Court More Likely to ‘Double Down’

The high court is much more likely to broaden a precedent, and distinguish it, than it is to reverse it outright, according to Brian Kirkell, a Washington-based principal at RSM US LLP.

Kirkell told Bloomberg Tax that a more distinguished version of Quill is an outcome overlooked by many state and local tax practitioners.

Kirkell said the court could use “dicta"—language in an opinion that isn’t part of a specific holding, but is authoritative—and a lot of it, in the Wayfair decision expected later this month.

This means that the court could address issues in the Wayfair decision that aren’t necessarily a part of the original holding.

Kirkell said the dicta could in part be used to expand Quill‘s physical presence rule to include “cookie nexus” regulations, which require online vendors to collect state sales tax if they have property interests in or use in-state apps and “cookies.” Currently, Massachusetts is the only state that has a cookie nexus regime.

With assistance from Kimberly Robinson in Washington

To contact the reporter on this story: Ryan Prete in Washington at rprete@bloombergtax.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

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