Recently, the South Dakota Sixth Judicial Circuit Court granted Wayfair’s motion for summary judgment, finding South Dakota’s remote sales tax statute, S.B. 106, unconstitutional under Quill v. North Dakota, 504 U.S. 298 (1992). South Dakota v. Wayfair, Inc., S.D. Cir. Ct., No. 32 Civ. 16-000092 (Mar. 6, 2017) (“Wayfair”). The case appears to be headed directly to the South Dakota Supreme Court, assuming the state appeals. As a brief recap, S.B. 106 requires retailers to collect and remit sales tax if they have annual sales exceeding $100,000 or 200 separate transactions in the state, regardless of physical presence. See our prior coverage The Possible Upshot of South Dakota’s Master Plan to “Kill Quill”. The statute was purposefully designed to directly challenge the Quill physical presence standard. As of our last report on Wayfair, the defendants had the case removed to the U.S. District Court for the District of South Dakota. However, in January, the federal district court granted the state’s motion for remand to the South Dakota Sixth Judicial Circuit Court after determining that it lacked jurisdiction to hear the case. This was a victory for the state as S.B. 106 specifically provides for fast-track litigation through the state court system.
Once remanded, the state circuit court acknowledged that it had to act “as expeditiously as possible” in deciding Wayfair. The state circuit court found that it was duty bound to follow Quill “even when changing times and events clearly suggest a different outcome; it is not the role of the state circuit court to disregard a ruling from the United States Supreme Court.” Despite summary judgment being granted in favor of the defendants in Wayfair, this could be viewed as just one more stepping stone to the U.S. Supreme Court by the state.
Regardless of what happens at the South Dakota Supreme Court (assuming the state appeals), the big questions surrounding Wayfair are will the U.S. Supreme Court grant certiorari (again, assuming an appeal), and will Quill be overturned? Although these questions are anyone’s guess, Judge Neil Gorsuch, President Trump’s nominee to replace Justice Antonin Scalia, could be influential in the outcome. Judge Gorsuch, who currently sits on the U.S. Court of Appeals for the Tenth Circuit, is familiar with the kill-Quill controversy based on his concurring opinion in Direct Marketing Association v. Brohl, 814 F.3d 1129 (10th Cir. 2016). Combining Judge Gorsuch’s thoughts with Justice Kennedy’s concurring opinion in Direct Marketing Association v. Brohl, 135 S. Ct. 1124 (2015) indicates that there may be at least two votes in favor of granting certiorari.
Even if certiorari is granted, the outcome of repealing Quill remains uncertain. Justice Kennedy tipped his hand at overturning Quill in his DMA decision. Judge Gorsuch’s concurring opinion in his DMA decision also tends to indicate the potential for his support overturning Quill (noting Judge Gorsuch clerked for Justice Kennedy),but it is less than completely clear. On one hand, Judge Gorsuch appears committed to the doctrine of stare decisis. On the other hand, Judge Gorsuch has a reputation as a strict constructionist, leery of the Dormant Commerce Clause. The other Justices have yet to directly weigh in on this issue with published guidance; although, speculation is abound based on prior decisions and general philosophy.
In the event the U.S. Supreme Court reverses Quill, we can expect most, if not all, states that impose sales tax to adopt their own remote sales tax laws. Depending on how the opinion is written, we may even see some states slow or stop their push for federal legislation (e.g., the Marketplace Fairness Act). However, other states may still want uniformity on certain issues, such as dollar thresholds for nexus and exceptions for small businesses – thus continuing the federal legislation discussion. Conversely, if the U.S. Supreme Court affirms Quill, we can expect states to re-focus their efforts toward passing federal remote sales tax legislation.