Online Sales Tax Challenge Headed to Supreme Court

Retailers: 25 Years of Tech Progress Make Quill Outdated

Twenty-five years ago, in 1992, the United States Supreme Court ruled in Quill Corp v. North Dakota that a state could not require out-of-state retailers to collect the taxes owed on sales to consumers within its borders, unless the retailer also had a physical location in the state. Quill Corp was a catalog retailer and the Court reasoned that calculating and remitting sales taxes for jurisdictions across the country was too burdensome for catalog retailers selling their wares to consumers in multiple locations.  

But this was well before the Internet Revolution.  To put Quill in context: Quill was decided roughly three years before Jeff Bezos quit his job on Wall Street to sell books out of a garage in Seattle, before American households first heard “You’ve got Mail” on their home computers, and before virtually any American—at least those without a degree from MIT—knew what the Internet was.   

Katie Couric and Bryant Gumbel proved that point in 1994.  

Although the Court’s 1992 decision was only intended to help catalog sellers with what was an administrative burden at the time, it ultimately became an e-commerce loophole as the World Wide Web took hold and e-commerce was born.  Practically speaking, Quill enabled online retailers like Amazon to begin selling products with a commercial advantage because they were excused from collecting the sales tax that most consumers do not know is already due and that brick and mortar retailers collect on behalf of the state every day.  In the twenty-five years since the Quill decision, online commerce has reached proportions that were unimaginable in 1992 and resulted in unintended economic consequences for state governments and local retailers alike.   

Retailers have appealed to Congress for more than a decade to pass legislation to end the competitive advantage the Quill rule gives growing e-commerce giants over brick and mortar stores, but to no avail. Yesterday, though, South Dakota has asked the U.S. Supreme Court to take a case that will give the Court a chance to revisit its outdated decision and level the sales tax playing field for all retailers.   

"South Dakota has brought a well-designed challenge to Quill that respects the sovereignty of the U.S. Supreme Court and asks the Court to reconsider its decision in light of the sweeping advances in technology that the Court could not possibly have foreseen when it issued its decision 25 years ago,” said Retail Litigation Center President Deborah White.  

Yesterday's petition for certiorari stems from a statute passed overwhelmingly by the South Dakota Legislature and signed by Governor Dennis Daugaard in 2016.  South Dakota’s law requires only those out-of-state retailers that transact more than $100,000 of business in the state or conduct more than 200 sales in any given year to collect and remit the sales taxes that are due. It, thus, provides a “safe harbor” for small online retailers (despite the fact that even the smallest local shop is required to collect and remit taxes). 

The law was signed roughly one year after U.S. Supreme Court Justice Anthony Kennedy recognized in his concurring opinion in DMA v. Brohl that, "[t]he Internet has caused far-reaching systemic and structural changes in the economy" so that "a business may be present in a State in a meaningful way without that presence being physical in the traditional sense of the word."  Noting the significant economic harms that were befalling state treasuries and local retailers, Justice Kennedy said that "it is unwise [for the US Supreme Court] to delay any longer a reconsideration of the Court's holding in Quill" and asked the "legal system [to] find an appropriate case for this Court to reexamine Quill." South Dakota has done just that. 

"The artificial price advantage for online retailers that the United States Supreme Court unknowingly created in Quill has done significant damage to thousands of brick and mortar retailers, and meant billions in lost revenue for state and local governments in the intervening quarter of a century," said White. 

“Although the Quill Court correctly noted that Congress could use its Commerce Clause power here, Congress has not done so and the increasing partisan divide makes that possibility ever more remote. It is time for the Court itself to face and reconcile the harms created by its own Quill rule,” said White, who also serves as General Counsel of the Retail Industry Leaders Association.  

Key excerpts from South Dakota's petition for certiorari in South Dakota v. Wayfair, et. al: 

"This Court should take this opportunity to reconsider a precedent that was 'questionable even when decided, [and] now harms States to a degree far greater than could have been anticipated' when Quill was decided 25 years ago. DMA, 135 S. Ct. at 1135 (Kennedy, J., concurring)." 

"Nor could there be a better or more timely vehicle than this Petition. Answering Justice Kennedy's invitation, South Dakota passed a law designed to challenge Quill's physical-presence requirement for sales-tax obligations head on, while also minimizing the interim burdens on affected tax-payers and facilitating this Court's review." 

"Today, advances in network computing have made it far easier to collect different States' sales taxes. Implementing such technology poses a minimal obstacle for companies, like respondents here, that can instantly tailor their marketing and overnight delivery of hundreds of thousands of products to individual customers based on their IP addresses." 

"Today, consumers purchasing online must input their address before they 'check out' with a credit card, giving online retailers a perfect opportunity to calculate and collect the applicable sales tax." 

"Under contemporary conditions, Quill does not alleviate special burdens on interstate, internet sellers – it just gives them an unfair advantage over their brick-and-mortar rivals." 

"As Justice Gorsuch has emphasized, out-of-state vendors 'don't seek comparable treatment to their in-state brick-and-mortar rivals' when they invoke Quill; rather, "'hey seek more favorable treatment, a competitive advantage, a sort of judicially sponsored arbitrage opportunity or 'tax shelter.'" 

"Meanwhile, the struggles of main-street stores affect not only those businesses and the local and national economy, but the culture of their communities, as well. Empty storefronts and abandoned retail institutions both contribute to creeping economic anxiety and signal the disappearance of shared spaces and experiences, in small towns and big cities alike." 

"Quill does double damage from a federalism perspective: It deprives States and local governments not only of critical revenue, but also of a power the Constitution and Tenth Amendment fully reserved to them. It is no answer to hope (as Quill did) that Congress might "fix" the problem created by this Court's own doctrine by devolving power back to the States. See 504 U.S. at 318-19. The damage to the Framers' design is done when the States must go begging to Congress for powers that belong to them by right, as 25 years of congressional inaction on this issue have vividly shown." 

"Here, in reliance on an express invitation from one of this Court's members, the entire machinery of South Dakota's government came together to bring this issue before this Court. The Legislature passed a statute, the State has prosecuted a suit, and the state courts adjudicated it expeditiously, all to answer Justice Kennedy's request that the system produce a vehicle without further delay. When a State commits itself to such measures in reliance on this Court's statements, this Court should give that State a chance to make its case." 

South Dakota’s petition for certiorari can be found on the Retail Litigation Center website ( along with the other publicly available pleadings in the lawsuits that are pending in several other states. 


The Retail Litigation Center is a public policy organization that identifies and engages in legal proceedings that affect the retail industry.  The RLC, whose members include some of the country's largest retailers, was formed to provide courts with retail industry perspectives on significant legal issues, and highlight the potential industry-wide consequences of legal principles that may be determined in pending cases. 

RILA is the trade association of the world's largest and most innovative retail companies. RILA members include more than 200 retailers, product manufacturers, and service suppliers, which together account for more than $1.5 trillion in annual sales, millions of American jobs and more than 100,000 stores, manufacturing facilities and distribution centers domestically and abroad.

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