In March 2015 Justice Kennedy wrote a concurring opinion stating that the “legal system should find an appropriate case for this Court to reexamine Quill.” A new challenge coming out of South Dakota might be just the case Justice Kennedy had in mind.
In Quill Corp. v. North Dakota, decided in 1992, the Supreme Court held that states cannot require retailers with no in-state physical presence to collect sales tax. Justice Kennedy criticized Quill in Direct Marketing Association v. Brohl for many of the same reasons the State and Local Legal Center stated in its amicus brief. Specifically, internet sales have risen astronomically since 1992 and states are unable to collect most taxes due on sales from out-of-state vendors.
While a number of state legislatures have considered or passed legislation requiring remote vendors to collect sales tax, South Dakota’s law is the first to generate a lawsuit. On April 28, South Dakota filed a declaratory judgment action asking a state circuit court to declare its law constitutional. The next day the American Catalog Mailers Association and Netchoice filed a declaratory judgment action asking for the opposite result.
South Dakota acknowledges that, for it to win, the circuit court will have to abrogate Quill v. North Dakota, a step that any lower court would be more than reticent to take. All lower courts are required to follow rulings of the United States Supreme Court.
Numerous features of the South Dakota law indicate it is fast-tracked for U.S. Supreme Court review. First, the law requires the circuit court to act on the state’s declaratory judgment “as expeditiously as possible.” Second, any appeal must only be made to the South Dakota Supreme Court, who must also hear the case “as expeditiously as possible.”
While the law is being litigated South Dakota cannot require out-of-state vendors to collect sales tax.
South Dakota may very well lose before both the state circuit court and the South Dakota Supreme Court. For U.S. Supreme Court review, four of the nine Supreme Court Justices must agree to hear the case. Then South Dakota needs five votes to win.