Retailers’ Careful Strategy to Overturn Sales-Tax Precedent
WASHINGTON—This week’s Supreme Court decision expanding state sales-tax collections from online retailers culminated a yearslong campaign by state governments and big-box stores determined to close a loophole they argued was draining state treasuries and disadvantaging brick-and-mortar shops.
That alliance appeared defeated as recently as 2014, after the House killed a bill to allow states to require that remote sellers collect sales taxes. Under Supreme Court decisions dating back a half-century, only Congress could authorize states to impose such collection duties, and it seemed clear that Congress would do no such thing.
“Our legislative prospects were looking dim,” said
president of the Retail Litigation Center, whose members include
and other major brick-and-mortar sellers.
issued an opinion in a Colorado tax dispute suggesting the Supreme Court should find an “appropriate case” to re-examine its previous rulings.
“We decided to take that opportunity,” Ms. White said, beginning an intense period to craft a challenge that would satisfy Justice Kennedy’s expectations.
The episode underscores that Supreme Court cases don’t always arise by happenstance. Many major decisions, most famously Brown v. Board of Education, which in 1954 held school segregation unconstitutional, were carefully developed to appeal to sympathetic justices. Such strategies don’t always work—challenges to the Affordable Care Act engineered by conservative groups fell short in 2012 and 2015—but the court clearly prefers to consider cases that have been prepackaged to address potential legal or procedural pitfalls.
In the collections case, Eric Citron, a lawyer with the Maryland-based firm Goldstein & Russell PC, took the lead, studying cases and looking for clues in the justices’ opinions that could attract five votes to get the court to overrule its precedents.
One of the coalition’s advisers had firsthand knowledge of the hurdles: U.S. Sen. Heidi Heitkamp (D., N.D.), who as her state’s tax commissioner in the early 1990s spearheaded Quill Corp. v. North Dakota, a failed lawsuit seeking to overrule the collections restriction.
“I’ve been watching this very closely for a lot of years, she said rather bitterly,” Ms. Heitkamp said with a laugh Thursday. “I’ve been working very hard to get these decisions reversed.”
She said her biggest tip was to suggest any test law only affect future purchases and not apply retroactively because the justices would be more receptive to a statute that didn’t impose extraordinary burdens on businesses.
In January 2016, Mr. Citron presented his findings at the National Conference of State Legislatures, then meeting in Salt Lake City. Deb Peters, a Republican state senator in attendance from South Dakota, had been concerned with the issue and decided the time was ripe to act.
South Dakota proved an ideal state to frame the challenge, Mr. Citron said, since “South Dakota doesn’t have an income tax—it’s reliant on its sales tax.” Less tangibly, “North Dakota and South Dakota have a little sibling rivalry,” and the chance to win before the Supreme Court where North Dakota had failed was an added bonus.
The South Dakota Legislature, then meeting in Pierre, quickly passed a bill meeting Mr. Citron’s specifications.
Even South Dakota’s opponents offered grudging praise Thursday for the carefully-crafted statute.
The Supreme Court was “struck by the reasonableness of the South Dakota legislation in some respects,” said Paul Clement, who filed a friend-of-the-court brief for the National Taxpayers Union Foundation and other conservative groups opposed to extending collection authority.