GFOA, along with Big Seven members of the State and Local Legal Center (SLLC), have filed amicus briefs in every stage of Direct Marketing Association v. Brohl, a Colorado law requiring remote sellers to provide Colorado purchasers with an annual summary of their purchases and to send the same information to the Colorado Department of Revenue. Each amicus brief has cited the devastating impact that the 1992 Quill Corp. v. North Dakota Supreme Court ruling has had on state and local governments in light of the rise of Internet purchases, Congress’s failure to pass the Marketplace Fairness Act, and states’ need to improve use tax collection through statutes like Colorado’s.
In Quill Corp. v. North Dakota, decided in 1992, the Supreme Court held that states cannot require retailers with no in-state physical presence to collect sales tax. Justice Kennedy criticized Quill in Direct Marketing Association v. Brohl, stating that the “legal system should find an appropriate case for this Court to reexamine Quill.” A new challenge from South Dakota this month might be just the case Justice Kennedy had in mind.
While a number of state legislatures have considered or passed legislation requiring remote vendors to collect sales tax at the state level, South Dakota’s law is the first to generate a lawsuit. On April 28, 2016, South Dakota filed a declaratory judgment action asking a state circuit court to declare its law constitutional. The next day, the American Catalog Mailers Association and Netchoice filed a declaratory judgment action asking for the opposite result.
Numerous features of the South Dakota law indicate that it is fast-tracked for U.S. Supreme Court review. First, the law requires the circuit court to act on the state’s declaratory judgment “as expeditiously as possible.” Second, any appeal must only be made to the South Dakota Supreme Court, who must also hear the case “as expeditiously as possible.” While the law is being litigated, South Dakota cannot require out-of-state vendors to collect sales tax.
A hearing before the U.S. Supreme Court is not a sure thing. South Dakota may very well lose before both the state circuit court and the South Dakota Supreme Court, and in addition, four of the nine Supreme Court Justices must agree to hear the case for the U.S. Supreme Court to review it. Then, South Dakota needs five votes to win.
GFOA continues to work with the SLLC to help communicate the necessity of states’ ability to enforce the collection of use taxes already due to the courts. We will continue to keep members updated on any developments of this case, as well as the keeping the success of the Marketplace Fairness Act a priority in GFOA’s legislative activities.