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Jackley Gets Tough Reception from Supreme Court on Internet Tax Argument

South Dakota Attorney General Marty J. Jackley at the Supreme Court, by Art Lien, 2018.04.17.
South Dakota Attorney General Marty J. Jackley at the Supreme Court, by Art Lien, 2018.04.17.

…and No Help from Trump!

South Dakota Attorney General Marty Jackley went before the United States Supreme Court yesterday to argue the case for allowing our state to require Internet sellers in other states to collect South Dakota sales tax on purchases by our residents. The Justices responded skeptically to Jackley’s argument… and the Trump Administration lawyer who supposedly came to support Jackley’s argument may have sunk it.

As we can see from the official transcript of the one-hour argument of South Dakota v. Wayfair, Jackley got two sentences into his well-prepared argument before Justice Sonia Sotomayor started grilling him. Jackley opened by saying that Quill v. North Dakota, the 1992 case we are trying to overturn that says a business must have some physical presence in a state (retail store, warehouse, employees) to be subject to sales-tax-collection requirements, creates an “unlevel playing field” that gives “out-of-state remote sellers… a price advantage.” Justice Sotomayor said Quill doesn’t stop South Dakota from collecting sales tax; we have simply declined to come up with “a mechanism to collect from consumers.” When Jackley tried to steer back to a defense of South Dakota’s law as a fair tax-collection scheme, Sotomayor said, “I’m not concerned about your scheme as such”; she’s concerned about all the lawsuits that “the many unanswered questions that overturning precedent will create….”

The principle of letting precedent stand, stare decisis, was prominently on the minds of other justices. While Jackley argued that Congressional inaction was a good reason to overturn the 1992 decision, Justice Elena Kagan said 26 years of Congressional inaction was an additional reason to leave things alone:

But, General, usually, when somebody says something like that, that Congress has not addressed an issue for 25-plus years, you know, it — it gives us reason to pause, because Congress could have addressed the issue and Congress chose not to [Kagan, p. 10].

Justice Stephen Breyer said [p. 12] overturning precedent makes sense when Congress can act, but in this case, Congress can act. He noted a brief from members of Congress that said Congress was about to act but decided to wait to see how this very case played out. Chief Justice John Roberts said, “…it would be very strange for us to tell Congress it ought to do something in any particular area” [p. 42].

Justice Sotomayor expressed concern about the complications of complying with South Dakota’s law. What if the tax lookup software breaks down, she asked. She swept aside Jackley’s contention that compliance software costs as little as $12 a month:

That doesn’t include auditing. It doesn’t include integrating the program with the existing sales program of the company. It doesn’t account for the maintenance of the program.

There’s lots of costs that are inherent in a process of this type [Sotomayor, p. 7].

Online retailers’ lawyer George S. Isaacson concurred, noting that compliance isn’t as simple as making a spreadsheet with the sales tax rate for every state and taxing subdistrict. Vendors have to deal with differing tax rates for different product categorizations—one state might tax a booze-laced cupcake as food, while another state might tax it as alcohol. Vendors have to identify exempt products, exempt uses, and exempt users. Such categorizations are not spreadsheet-friendly.

Jackley contended that many companies are already overcoming these problems and collecting sales tax for other states, including Systemax, a company that originally was a defendant in this case but then bailed out and complied with South Dakota’s law. But Chief Justice Roberts took those examples as another sign that the Court need not act:

…the suggestion in some of the briefs is that this is a problem that has peaked in the sense that the — the bigger e-commerce companies find themselves with physical presence in — in all 50 states. So they’re already covered. And the work-arounds that some of the states have employed are also bringing more in.

And if it is, in fact, a problem that is diminishing rather than expanding, why doesn’t that suggest that there are greater significance to the arguments that we should leave Quill in place? [Roberts, p. 17]

The Court seemed particularly concerned about the practical impact of reversing Quill on small businesses. Here is where the Trump Administration’s lawyer, Deputy Solicitor General Malcolm L. Stewart, stepped all over Jackley’s argument. When Justice Roberts asked if the Court could protect “any micro-business” from other states’ sales tax collection demands based on the greater burden a small business faces compared to Amazon in complying, Stewart said no:

the answer that is most consistent with this Court’s—the body of this Court’s dormant Commerce Clause jurisprudence is there’s no constitutional minimum, that if you have an out-of-state retailer who is deliberately selling a particular physical good within the state, shipping the good into the state for delivery to the customer and transfer of title, that that is a sufficient basis for subjecting that retailer to the tax collection obligation in the same way that if that single good turned out to be defective, the state could be subject to the—I’m sorry, the retailer could be subject to regulatory burdens imposed by the state… [Stewart, p. 22].

Justice Ginsburg asked if Congress could establish some minimum for compliance by law. Stewart said sure, but Justice Kagan said that response only reinforced the idea that the Court should stay out of the matter and let Congress act. And Stewart agreed:

I would certainly agree that Congress has a broader range of options available to it than does the Court and an ability to devise more nuanced solutions [Stewart, p. 24].

While Jackley noted that South Dakota’s law includes protection for small retailers, exempting online vendors with less than $100K in sales or fewer than 200 transactions in South Dakota, Justice Samuel Alito asked if other states and municipalities in tough financial shape wouldn’t try “to grab everything the possibly can?” And again, Stewart agreed with a point that kills South Dakota’s argument:

And, certainly, if the Court issued a decision that said physical presence is no — that adopted our — kind of our view of the correct answer that said you sell — you make one sale into the state, you are obligated to collect the sales tax. I have no doubt that if the Court issued that ruling, many states would adopt regimes that are less hospitable to retailers, unless they were stopped from doing that by Congress [Stewart, p. 27].

The courtroom artist didn’t capture this in his watercolors, but I have to imagine Jackley at the table gritting his teeth and thinking, Whose side are you on, man?!

The Trump Administration’s “assistance” yesterday seemed only to reinforce the hesitation many justices expressed about embracing South Dakota’ argument for Internet sales tax. The Court has strong concerns about overturning precedent and creating undue burdens on small businesses when Congress is capable of crafting better solutions. The oral argument of South Dakota v. Wayfair only emphasized the irony of conservative South Dakota pushing a conservative Supreme Court to engage in judicial activism, overturn stare decisis, and allow states to collect more taxes from entities outside their borders.


  1. Rorschach 2018-04-18 07:26

    You would think the Supreme Court setting would entice a better courtroom artist.

    This case is an uphill battle. Congress should regulate online sales taxes. If the Supreme Court overturns Quill, it does not have the authority to regulate how taxing is done, so that will fall to the states. Can one imagine how states will set up discriminatory tax regimes to keep online retailers out as best they can in favor of local retailers? This would spawn numerous, numerous lawsuits about discriminatory commerce regulations that would eventually work their way to the Supreme Court. Congress should set nationwide regulation of online sales. I believe that’s what the Supreme Court will decide. Still, this case may have moved the ball forward.

  2. Donald Pay 2018-04-18 08:32

    That was a buzzsaw. If I were Ruth Bader Ginsberg I would have said, “But, Mr. Attorney General, you can change your tax system and collect revenue a different way, can’t you? Why not tax in-state income, rather than reach across state lines to make out-of-state businesses collect your tax?”

  3. mike from iowa 2018-04-18 08:36

    My personal view is Jackley was in way above his head. He does not appear to be a truly competent trial attorney and just puts in his time on the road to higher political office.

    Is having your opening salvo hijacked after 2 sentences a modern day record for the court?

  4. Bernie 2018-04-18 08:51

    I was impressed that the Justices expressed an interest and appreciation for how the small business community might suffer under this. I didn’t expect that. We sell to all 50 states. It’s tough enough (and an expense) to collect sales tax across South Dakota’s many jurisdictions. It’s also difficult for some businesses to pass the tax along. I have been curious how it might work across the thousands and thousands of jurisdictions. At least our SD Department of Revenue folks are understanding and helpful. I understand the tax fairness issue but Mr. Pay is right — implementation of a consumer sales tax in today’s world is getting more complicated and expensive all the time. Maybe it’s time to look for smarter and fairer methods rather than trying to make a horse and buggy roll on today’s interstate highways.

  5. Wayne 2018-04-18 09:58

    It intrigues me that the Court thinks about their potential workload in deciding whether a previous decision should be vacated, or whether a matter is / is not constitutional…

    My challenge with this case is, living in a rural area I am only obligated to pay state sales tax. But I often get charged from sites like Best Buy for the sales tax which it thinks should go to the town on my mailing address. I don’t live in that town, but that’s where the mail is routed.

    I miss the Rural Routes. That was a clear signal you lived out of town.

    Bernie, I would contend we have to be careful with words like “fair” when we’re dealing with these issues. In the traditional sense of the word, fairness is “impartial and just treatment or behavior without favoritism or discrimination.”

    A flat tax on consumption would adhere to the definition of fairness because it treats everyone the same.

    A flat tax on income would adhere to the definition of fairness because it treats everyone the same.

    A progressive tax on income would not adhere to the definition of fairness because it structurally discriminates against certain individuals.

  6. Nick Nemec 2018-04-18 10:11

    I think the courtroom artist did a fairly good job of rendering Jackley’s likeness. I sure recognize it as him.

    The way to correct this “problem”, if it is indeed a problem, is for Congress to reserve internet taxation to the Federal government, adopt some uniform sales tax rate, remit the tax to the IRS and then the IRS prorates it back to the states based on population. One jurisdiction, one rate, one calculation.

  7. o 2018-04-18 10:20

    Nick, would your idea of federalizing internet commerce create a new problem of states creating sales-tax havens for businesses? A state could register a business as aa state entity, then give tax breaks to that entity by offering lower tax rates than the fed – thereby creating a competitive advantage over other sellers. It would become akin to bank regulation that sees SD with huge bank holdings (as well as Mass.) that drain other states of revenue potential.

  8. o 2018-04-18 10:51

    Wayne, I disagree. Flat taxation is not fair because you assume all income and spending is the same; there definitely is a difference between essential and disposable income and spending. Taxing on necessary (food, clothing, housing) is very different from taxing on yachts, vacations, dvd’s . . . In the same way, taking 15% (to take a number of then used as a “fair” flat tax rate) from someone at the poverty line has a HUGE effect in making ends meet; taking 15% from someone making a million dollars really has no effect on lifestyle.

    Your mistake here is making the leap that “same” means “fair”; that is just not accurate. Don’t get sucked into the arguments for the 1% (or 0.1%) to horde private wealth away from their social responsibilities.

  9. Donald Pay 2018-04-18 11:14

    Nick, should they prorate it back based on population or based on sales? Should food, medicine, medical care, certain other necessities be exempt? Should advertising be taxed? And wouldn’t the feds taking this tax over and then handing all the revenue back to the states to decide where to spend it, spendation without representation, which is what I call block grants and other such gimmicks.

    I think states and state politicians should take responsibility for their own tax systems. If they have a consumer-based sales tax based on a tax on buggy whips, then they ought to go bankrupt when they refuse to tax automobiles when they displace buggy whips in the marketplace.

  10. mike from iowa 2018-04-18 13:56

    How does Jackley fund raise off this moment in the spotlight where he was overshadowed by extremely competent, knowledgeable, legal, liberal minds?

    Tis a pity none of them billionaires hiding assets in South Dakota can afford to pay anything for their asset protection.

  11. ColtarTheBarbarian 2018-04-18 14:55

    Thanks for the recap! Very enjoyable read!

  12. Roger Elgersma 2018-04-18 15:16

    “The complications are not spreadsheet friendly”, NO, actually this is all possible because of computers. If their computer is down, sometimes they close the store. So it is possible.
    What ever laws state that the states can tax commerce, should apply to interstate commerce which is what internet sales is. Quill and the Congress set up a situation so that internet commerce could have an advantage to get started. It was not because it was fair but just to start a new industry. Internet sales is no longer a new industry. The original purpose is gone and now brick and mortar stores do not need an extra special deal like the internet has had for a while, they just need a level playing field. Keeping this relic is just a simplistic, ‘we never did it that way before’ closed minded attitude, and not a logical fair reason to it.

  13. Roger Elgersma 2018-04-18 15:22

    Both Congress and the Court have set precident in creating this problem of an unlevel playing field. Both have responsibility to fix it. Neither has the right to say that they are not going to do what is right just because the other has not. The reason that we have separation of powers is so if one branch of government makes a mistake, the other can correct it. Now neither wants to correct either their own problem or the other ones problem. Irresponsibility on both sides. I really was not for executive orders before, but when incompetence gets this much precident, then it might be possible, although letting a trump have executive privilage is a scary thought.

  14. Nick Nemec 2018-04-18 16:06

    As I envision it the Federal government would be the only entity allowed to charge a sales tax on internet sales, the Federal internet sales tax would be uniform across all sales and all jurisdictions. I would divide it among the states based on population since that is the easiest number to use as a divisor. It could be divided among the states based on sales, that would require a little more record keeping but could be done.

    o, I don’t understand your tax haven concern. As I envision it the federal government would be the only entity collecting sales tax on online sales.

  15. Rorschach 2018-04-18 18:16

    Here’s my proposal for SD. The state ought to implement a corporate income tax using single sales factor apportionment, and exempt the first $x of in-state sales from taxation.

    Single sales factor means that taxes are not based upon the value of a company’s property or payroll within the state – just revenues. The exemption can be set at a level so that small businesses both inside and outside of SD won’t pay any corporate income tax. Larger multi-state corporations (think big retailers) are used to paying corporate income tax in the states they do business. When SD doesn’t charge them corporate income tax, oftentimes their home state will charge them tax on SD sales. So we’re leaving money on the table by not having a corporate income tax, and big multi-state companies may not be saving anything by us not charging corporate income tax. But even if they are saving something by us not chaging corporate income tax, wouldn’t they still be here if we did charge it? Set the exemption at the right level, and SD can really benefit without punishing small businesses.

  16. Jake 2018-04-18 18:53

    Thanks Cory for this post! Been waiting for it knowing that in reading your blog we’d get the info on the case from the Supremes without going thru the GOP filtration system of the So Dak mainline press agents with GOP slant! A “tinkle” into the TIPS JAR for ya guy!

  17. Cory Allen Heidelberger Post author | 2018-04-18 20:45

    Like Bernie, I was impressed with the Court’s concern for small businesses… but I’m also surprised. I would think the Supreme Court would tend to set practical matters aside and focus more strictly on the Constitutional issues at hand.

    No one in the oral arguments mentioned this, but I wonder: if South Dakota can dragoon a businessman in New York to serve as one of our tax collectors, can South Dakota also dragoon a businesswoman in France or Russia?

    I’m all for an income tax argument, but notice how Jackley completely sidestepped the alternative mechanism Sotomayor suggested at the top: why doesn’t South Dakota seek compliance from the people clearly under its jurisdiction, South Dakota buyers, instead of wading into the murky constitutional area of forcing compliance from people not under its jurisdiction, the out-of-state sellers?

  18. John Kennedy Claussen, Sr. 2018-04-18 21:45

    I am still shocked that few, if any, are bothered by the idea that a state legislature would pass a law that is knowingly in violation of a stare decisis law or precedence. Is not such an act by a legislative body, and further signed into law by a governor, a blatant violation of their oaths of office to uphold the law, the U.S. Constitution, and the State Constitution as well?

  19. Jason 2018-04-18 22:05


    Did you miss the marijuana laws passed around the Country?

  20. Rorschach 2018-04-18 22:19

    John Claussen brings up the elephant in the room. We as Democrats (at least some of us Democrats) decry the unconstitutional abortion laws passed by our legislature and other state legislatures as potential test cases to run up the flagpole. Here is another example of such a law, passed knowing it’s unconstitutional under current US Supreme Court jurisprudence, yet Democrats are mostly in support.

    So do we like unconstitutional laws designed to create test cases, or don’t we? The one difference I can see between this law and the abortion laws is that abortion laws are designed to undermine a fundamental right subject to strict scrutiny by the court, while this law only reaches a matter of interstate commerce.

  21. Jason 2018-04-18 22:32


    Where is the fundamental right to an abortion in the Constitution?

  22. Cory Allen Heidelberger Post author | 2018-04-18 22:42

    It’s certainly more fundamentally seated in the Fourth Amendment than the state’s right to impose its laws on people/entities entirely outside its jurisdiction, in violation of nearly all past Commerce Clause jurisprudence, that South Dakota is trying to persuade the Supreme Court to create.

    JKC, I share your surprise out our conservative Legislature’s willingness to assault stare decisis and most of the electorate’s tolerance of that behavior. I guess South Dakotans like spending lots of tax dollars on lawyers and lawsuits.

  23. Jason 2018-04-18 22:46


    I don’t think our Gov. is a conservative and Jackley isn’t winning my vote.

    My question is did the Gov have him do this or not.

  24. Cory Allen Heidelberger Post author | 2018-04-18 22:56

    Jason, if I understand your question, it wasn’t just the Governor who sent Jackley to Washington. It was the entire Legislature (save two House nays) who voted to pass SB 106 in Feb–Mar 2016, eight months before Jackley declared his bid for Governor.

  25. John Kennedy Claussen, Sr. 2018-04-18 22:59


    To answer your question, nope. I was just zeroing in on what our South Dakota legislature seems to like to do.

    However, there is a difference between states trying to collect sales taxes and the marijuana laws in this country, in that the latter has to do with the Feds not enforcing laws, while the former has to do with a law being intact because it is almost impossible to collect and or to not be kept enforced.

  26. Jason 2018-04-18 23:03


    I’m not sure about the laws regarding the AG in SD. Do they have a choice to defend SD law or not?

  27. Jason 2018-04-18 23:34


    The IRS does enforce the law though regarding pot.

  28. John Kennedy Claussen, Sr. 2018-04-19 00:47


    But to the IRS it is not pot, it’s income.

  29. dg 2018-04-19 02:15

    This is the beat conversation ever.

  30. Cory Allen Heidelberger Post author | 2018-04-19 06:59

    That’s actually an interesting question, Jason, about the AG’s duties. SDCL 1-11-1 says the Attorney General shall “appear for the state and prosecute and defend all actions and proceedings, civil or criminal, in the Supreme Court, in which the state shall be interested as a party” and “When requested by the Governor or either branch of the Legislature, or whenever in his judgment the welfare of the state demands, …appear for the state and prosecute or defend, in any court or before any officer, any cause or matter, civil or criminal, in which the state may be a party or interested.”

  31. Jason 2018-04-19 20:43

    Thanks for looking that up Cory.

    It appears the AG can pretty much do what they want. Of course, the voters have the last say on that.

  32. Cory Allen Heidelberger Post author | 2018-04-20 13:38

    Jason, I think we’re looking at the same text and coming to different conclusions.

    The law is clear: if South Dakota goes to court, Jackley represents South Dakota. That’s his job.

    Jackley can pretty much do what he wants outside court. He could choose to simply argue the case in court and then be quiet about it. He could choose to make lots of noise in public about the case in order to litigate it in the court of public opinion in a weak attempt to influence the judges and a stronger attempt to influence Congress to get off its keester and do something. He could choose to turn his appearance before the Supreme Court as a campaign photo op. Jackley has clearly decided that the publicity is too good for his campaign to pass up. But I do not believe that the case originated as an effort to boost Jackley’s campaign… and doing so would have been dumb campaigning, because, as we see from the transcript, there’s no guarantee that arguments before the Supreme Court will go the way you hope. They could throw egg all over Jackley’s face in June.

    Jackley may have invited the DOJ Asst. Sol. Gen. to join him in making the argument, thinking it would be a chance to show him and the Trump Administration working side by side. That ploy clearly backfired: as we might expect, anyone speaking for the Trump Administration does more harm than good. Strangely, though, ASG Stewart appears to predate Trump, so we can’t blame the incompetence on Trump or Sessions.

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