Outside SD, Press Sees Sales Tax Case Facing Hesitant, Divided Court

Can Ruth Bader Ginsburg Save Marty Jackley’s Bacon?

How do other assessments of Attorney General Marty Jackley’s performance at the United States Supreme Court Tuesday square with mine?

The Rapid City Journal headlined Jackley’s pitch for cross-stateInternet sales tax with “Jackley Leads Fight…” and featured Jackley’s positive assessment of the argument:

South Dakota Attorney General Marty Jackley stepped to the microphones near a fountain outside the U.S. Supreme Court on an overcast Tuesday morning speaking to national media — but with a local audience in mind.

“Today we were a strong voice for Main Street America,” Jackley said, minutes after his closing argument in South Dakota v. Wayfair….

“We felt good about our argument. I felt strongly that this is really about businesses across south Dakota and our nation; today, I was able to convey that” [Christopher Vondracek, “Jackley Leads Fight to Overturn Quill in U.S. Supreme Court,” Rapid City Journal, 2018.04.18].

RCJ got Jackley’s opinion that the justices’ questions were what he expected and made for “an engaging conversation,” but RCJ offers no evaluation of how that conversation went.

SDPB gave Jackley the mic to saythat the argument was “a great experience” and talked up “the strong South Dakota presence” who got tickets to watch. Jackley said the argument “felt good” and “was received well… exceptionally well.”

Outside the gentle hometown media realm, its hard to find anyone who shares Jackley’s assessment of his exceptional performance. Reuters says the Court “appeared hesitant” to buy South Dakota’s argument. (“Appeared hesitant” and “received well” aren’t perfect antonyms, but they sure aren’t synonyms.) NPR’s Nina Totenberg says yesterday’s hearing reversed expectations:

Going into Tuesday’s arguments at the U.S. Supreme Court, it looked as though the court was headed toward reversing a 50-year-old decision that barred states from collecting taxes on out-of-state purchases.

But after the arguments, it looked as though a court majority just might preserve the status quo, and that would be a huge victory for online sellers.

…Justices Sonia Sotomayor, Stephen Breyer, Elena Kagan, Samuel Alito and perhaps Chief Justice John Roberts all indicated that it might be best to leave the status quo — and the court’s precedents — in place, and to leave Congress to deal with the problem of online taxation [Nina Totenberg, “Will You Soon Have to Pay Sales Tax on Every Online Purchase?” NPR, 2018.04.17].

SCOTUS Blog takes a similar view, saying anyone expecting an easy trip for Jackley “got a reality check” Tuesday when Justice Sotomayor (participating vigorously with a broken shoulder) hammered Jackley with questions:

One concern was about retroactive liability for sellers if the court changes the physical-presence requirement. South Dakota has specifically ruled out retroactivity in the 2016 law it passed that seeks to subject out-of-state sellers to sales tax liability based on an economic presence rather than a physical nexus. But other states could seek such retroactive liability, Sotomayor says.

She had more. “How much contact is enough to justify placing this obligation on an out-of-town seller?” Sotomayor said. And while South Dakota and its allies have pointed to sophisticated software programs that help sellers determine their sales tax obligations from the estimated 12,000 taxing jurisdictions in the United States, Sotomayor asked, “What happens when the tax program breaks down, as it already has for the states who are using it, and merchants can’t keep track of who they’ve sold to?” [Mark Walsh, “Argument Analysis: Justices Are Divided on Whether to Overrule Precedents on Sales-Tax Collection by Remote Sellers,” SCOTUS Blog, 2018.04.17]

Governing agrees that Jackley had a rough go:

But the court’s nine justices quickly made clear that it would not be an easy sell.

Jackley had barely begun explaining that states were losing massive amounts of money and small businesses were being harmed by the 1992 case Quill Corp. v. North Dakota before Justice Sonia Sotomayor interrupted [Daniel C. Vock, “Supreme Court Not Sold on Ending Online Sales Tax Ban,” Governing, 2018.04.17].

The New York Times heard a “closely divided” court:

By the end of arguments on Tuesday, it was not clear whether there were five votes to overrule the 1992 decision, Quill Corporation v. North Dakota, which said the Constitution bars states from collecting sales taxes from companies that do not have a substantial connection to the state [Adam Liptak, “Supreme Court Divided on Sales Taxes for Online Purchases,” New York Times, 2018.04.17].

NYT highlighted the same concerns I did from the justices about burdens on small businesses and the preference for Congressional action. Interestingly, Liptak notices that one stirring defense of the free market’s ability to respond to a Quill overturn was the Notorious RBG:

Justice Ruth Bader Ginsburg said there could be a market solution, too. “If we did overrule Quill,” she said, “entrepreneurs would produce software that would meet the market need” [Liptak, 2018.04.17].

Bloomberg News sees Ginsburg leaning toward Kennedy, Gorsuch, and Thomas toward reversal. So does The Economist:

The oral argument added a surprise fourth justice to that list: Ruth Bader Ginsburg, the court’s fiercest liberal. In her questioning of George Isaacson, the lawyer for several online stores including Wayfair, a homewares company, she repeatedly called Quill “obsolete”. Requiring an “out-of-state seller to collect tax on goods shipped in-state” is “equalising sellers”, she said [S.M., “The Supreme Court Seems Divided over Sales Tax on Online Purchases,” The Economist: Democracy in America, 2018.04.18].

The Journal of Accountancy offers this tight summary of the main issues raised and notes the Court’s apparent preference for Congressional action:

The justices seemed quite engaged in the issue but mostly hinted that Congress may be best equipped to deal with it if anything needs to be done. Several justices seemed concerned with the burdens on small businesses and the appropriate minimum threshold for collection as well as the consequences for potential retroactivity if Quill is repealed [Eileen Reichenberg, “Supreme Court Hears Oral Arguments in Sales Tax Nexus Case,” Journal of Accountancy, 2018.04.18].

If anyone would jump to back Jackley’s positive assessment, you’d think it would be the South Dakota Republican Party spin blog. But that mouthpiece, sponsored by Marty Jackley himself, offers no analysis of the ruling, because reading and analyzing a real Supreme Court argument is much harder than copying and pasting press releases… not to mention staying within your political patronage lane.

Also finding it hard to review the actual Supreme Court argument was Donald Trump, who tweeted in last night that online retailers are cheating states and cities and being “very unfair to traditional tax paying stores!” AP appropriately finds those cheaters include Trump’s own stores:

Like other online sellers, however, The Trump Organization’s official retail website doesn’t collect tax on sales to every state. Customers in only three states are charged sales tax on purchases, whether they’re buying a polo shirt or Trump deodorant [“High Court Worries About Abandoning Online Sales Tax Rule,” AP via Crookston Times, 2018.04.18].

Trump’s deputy solicitor general, supposedly trying to help Jackley in court yesterday, just stepped all over our argument. Trump himself frosts that failure with more of his own heedless hypocrisy.

State and city government organizations tried for some positive spin:

“The fact that the court accepted the case in the first place leaves us somewhat optimistic that the ‘physical presence’ test from Quill may finally be overturned,” Brian Egan, principal associate for finance, administration and intergovernmental relations at the National League of Cities, told Government Technology.

…Lisa Soronen, executive director of the State and Local Legal Center, and Max Behlke, director of budget and tax for the National Conference of State Legislatures, also expressed optimism Quill will be overturned, noting four Supreme Court justices seemed favorable to overturning Quill and that only five votes are needed to make a ruling [Dawn Kawamoto, “If Supreme Court Rules in Favor of Online Sales Taxes, Government Needs a Better Way to Collect,” Governing Technology, 2018.04.18].

Note that the former comment ignores what happened in court yesterday, while the latter ignores the fact that Jackley’s argument yesterday seems to have played well with maybe only one of the six justices who wasn’t already making positive signals toward overturning Quill, and none of the analyses above offer any speculation that Sotomayor, Kagan, Breyer, Alito, or Roberts seemed inclined to toss aside the concerns they expressed yesterday and vote to overturn Quill.

Jackley and the state and local governments itching to collect more sales tax say that South Dakota’s case went really well in Washington Tuesday. No one else seems to be expressing the same confidence in South Dakota’s case. If South Dakota has a chance, it may rest with Ruth Bader Ginsburg’s persuading one of her friends on the Court to join her in coming our way.