There is no way to know for sure why Justice Kennedy wrote a concurring opinion in Direct Marketing Association v. Brohl stating that the “legal system should find an appropriate case for this Court to reexamine Quill.” But even if you don’t read the State and Local Legal Center (SLLC) amicus brief’s criticism of Quill and merely scan its table of authorities, you will notice that two of the three non-case related citations in Justice Kennedy’s opinion come from the SLLC’s brief.
In Quill Corp. v. North Dakota, decided in 1992, the Court held that states cannot require retailers with no in-state physical presence to collect use tax. To improve tax collection, in 2010 the Colorado legislature began requiring remote sellers to inform Colorado purchasers annually of their purchases and send the same information to the Colorado Department of Revenue. The Direct Marketing Association sued Colorado in federal court claiming that the notice and reporting requirements are unconstitutional under Quill.
The Court held unanimously that the Tax Injunction Act (TIA) does not bar a federal court from deciding this case. The TIA states that federal courts may not “enjoin, suspend or restrain the assessment, levy or collection of any tax under State law” where a remedy is available in state court. The TIA was modelled on the Anti-Injunction Act, which concerns federal taxes. According to the Court, “the Federal Tax Code has long treated information gathering as a phase of tax administration that occurs before assessment, levy, or collection.” And, while DMA’s lawsuit sought to “limit, restrict, or hold back” tax collection in Colorado, it did not “restrain” tax collection in the narrow sense— by stopping it.
The SLLC amicus brief discusses the devastating impact Quill has had on state and local governments in light of the rise of internet purchases, Congress’s failure to pass the Marketplace Fairness Act, and states’ need to improve use tax collection through statutes like Colorado’s. According to NCSL, at least three other states (Oklahoma, South Dakota, and Vermont) have enacted reporting requirements on remote sellers.
Interestingly, while DMA won before the Supreme Court, regardless, its challenge to the constitutionality of Colorado’s notice and reporting requirements may ultimately be decided in state court. The Court noted that a “comity” argument may still be available to Colorado. Per the comity doctrine, federal courts refrain from deciding cases that would interfere with the “fiscal operations of state governments.”
Ron Parsons of Johnson, Heidepriem & Abdallah in Sioux Falls, South Dakota, wrote the SLLC’s brief which was joined by all of the Big Seven and the Government Finance Officers Association.