Trump’s High Court Pick May Shadow Scalia in State Tax Cases

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By Jennifer McLoughlin

Justice Antonin Scalia’s potential successor may be cut from a similar judicial cloth—but it remains to be seen how the Supreme Court nominee could shape state tax issues.

President Donald Trump’s announcement of Neil Gorsuch as his pick for the high court sparked speculation of how the federal appeals court judge may influence state and local tax controversies, ranging from retroactive legislation to remote sales taxation.

Aligning with the late justice, Gorsuch’s judicial philosophy is largely propped by the two pillars of originalism and textualism. His writings also suggest a similar tilt toward containing the dormant commerce clause—not found in constitutional text, the doctrine is a negative inference from the federal commerce clause, prohibiting state discrimination against interstate commerce.

How that all may feed into state tax controversies is somewhat of a tea-leaf game. However, unlike many of his predecessors, Gorsuch appears to have tipped his hand on at least one tax topic that has dominated the discourse among states, taxpayers and practitioners the past year—the future of the U.S. Supreme Court’s rule in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), which forbids states from imposing sales tax collection obligations on remote retailers without a physical presence in-state.

“It is very unusual that anyone joins the Supreme Court having had any state tax experience,” Richard D. Pomp, the Alva P. Loiselle professor at the University of Connecticut School of Law, told Bloomberg BNA. “Gorsuch is the exception because of his concurrence in DMA.”

Abiding By Precedent

In the U.S. Court of Appeals for the Tenth Circuit’s February 2016 decision upholding Colorado’s notice and reporting statute for remote retailers, Gorsuch authored a concurrence observing that the Supreme Court was bound by the Quill precedent ( Direct Mktg. Ass’n v. Brohl , 2016 BL 49528, 2016 BL 49528, 814 F.3d 1129, 10th Cir., No. 12-1175, 2/22/16 ).

However, Gorsuch noted the narrow scope of the Quill rule, which doesn’t prohibit states from imposing tax and regulatory burdens on out-of-state sellers that are comparable to sales and use tax collection duties. With a “formalistic” and “artificial” distinction between tax collection obligations and other comparable regulatory and tax duties, Quill invited states to impose the latter.

“In this way, 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,” he said, referring to the Supreme Court’s 1967 decision in National Bellas Hess, Inc. v. Dep’t of Revenue of Illinois, 386 U.S. 753, which held that states can’t impose use tax collection obligations on remote vendors.

“And Quill‘s very reasoning—its ratio decidendi—seems deliberately designed to ensure that Bellas Hess‘s precedential island would never expand but would, if anything, wash away with the tides of time.”

Different Authority

Should Gorsuch rise to the bench, his role as a Supreme Court justice brings authority that would allow a break from precedent and could lead to a reversal of Quill.

Joseph Henchman, the Tax Foundation’s vice president of legal and state projects, told Bloomberg BNA that as a lower circuit court judge, Gorsuch was bound by the high court’s precedent in Quill.

“The proper thing that a circuit judge does when you have a contrary Supreme Court precedent is you say, well this is the precedent, and maybe I disagree with it, but that’s what guides me,” Henchman said. “It doesn’t necessarily guide a member of the Supreme Court, just because there’s a past Supreme Court precedent.”

The opportunity to veer away from the Quill rule may be soon approaching. Henchman said the pending litigation over South Dakota’s economic nexus statute will likely reach the Supreme Court on a cert petition in the 2018 term.

“We will see where he stands on Quill,” he said. “It’s hard for me to believe that a judge who used some very, I would say, incendiary language about Quill, would pass on the opportunity to overrule if it came before him.

Dictated By Facts

Jeffrey A. Friedman, a tax partner with Eversheds Sutherland (US) LLP, explained that while Gorsuch may have manifested some hostility toward Quill’s physical-presence standard, the case-specific facts may ultimately control whether he would support a Quill reversal.

With a larger, U.S.-based, remote seller—one that may boast significant sales and sophisticated understanding of sales tax systems—Gorsuch may not have difficulty extending a state’s jurisdiction over that company, despite the lack of a physical presence. However, a case presenting a smaller seller or a foreign retailer may encourage a different ruling.

“This is a situation here where I think the setting that the court is presented with in determining how to apply Quill, if at all, going forward, in many respects it will be dictated by the facts they’re presented with,” Friedman said.

Doubting Dormant Commerce Clause

As noted by the Tax Foundation, Gorsuch also shares Scalia’s criticism of courts reining in states’ taxing authority. Scalia was known for his rebuke of the dormant commerce clause—acknowledging precedent but resisting its expansion—and Gorsuch has suggested he shares the same disdain for the doctrine.

In the Tenth Circuit’s DMA decision, Gorsuch’s concurrence suggested the dormant commerce clause doctrine “might be said to be an artifact of judicial precedent.”

“With Gorsuch, I think it’s pretty clear what he thinks of the dormant commerce clause,” Henchman said. “It’s very similar to where Justice Scalia was. So, it’s kind of just swapping out one guaranteed vote for another on that issue.”

Writing for the court in an earlier opinion ( Energy & Env’t Legal Inst. v. Epel , 10th Cir. App., No. 793 F.3d 1169, 2015 ), Gorsuch declined to strike a Colorado mandate for renewable energy under the dormant commerce clause. The law required electricity generators to ensure that 20 percent of electricity sold to Colorado consumers derives from renewable sources.

Finding that the Colorado law wasn’t discriminatory, Gorsuch wrote that “only price control or price affirmation statutes that link in-state prices with those charged elsewhere and discriminate against out-of-staters are considered by the Court so obviously inimical to interstate commerce.”

Selectively Striking State Laws

However, while Gorsuch isn’t enamored with the negative commerce clause, Friedman noted that there could be scenarios in which he might invoke it.

Scalia peppered his dormant commerce clause jurisprudence with criticism of the doctrine, offering such colorful characterizations as “judicial fraud.” Friedman said that the late justice, who was “the most hostile justice in the modern era towards the dormant commerce clause,” came across circumstances where he would apply the doctrine.

“Even he was offended in certain cases when states overreached and would apply the dormant commerce clause selectively,” Friedman said. “He wasn’t exclusively not applying it,” noting that the late justice had supported striking state laws because of stare decisis and his own opposition.

“So if a state was, for instance, discriminating against interstate commerce, and Congress has not acted, Scalia was supportive of striking down state taxes that overreached,” he said. “And I suspect that Gorsuch also will take a more nuanced view.”

Joining Kennedy’s Call?

Gorsuch’s suggestion that Quill’s reasoning may not last forever came on the heels of Justice Anthony Kennedy’s call for a case to re-evaluate the Quill rule. Gorsuch is a former Kennedy clerk.

In a 2015 concurrence over a procedural dispute in the DMA case, Kennedy found that advancements in “technology and consumer sophistication” required reconsideration of the 25-year-old holding.

Since then, states have increasingly launched “kill Quill” challenges by enacting statutes and adopting regulations that are counter to the physical-presence rule. Many state officials have acknowledged the underlying goal to trigger a lawsuit that eventually climbs to the Supreme Court, with Alabama and South Dakota already embroiled in litigation.

Gorsuch is a person “disinclined to overrule precedent except for compelling circumstances,” Pomp said. “The question will be whether Quill raises those compelling circumstances along the lines of Justice Kennedy’s concurrence in DMA I.”

“If Gorsuch joins Kennedy in voting for cert when the inevitable petition will be filed given the pending litigation, there will only be two more votes needed for the Court to revisit Quill,” he added. “If Gorsuch does join Kennedy and two others in voting for cert, it will more than likely be to overturn Quill.”

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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