Supreme Court Justice Kennedy Weighs In on Online Sales Tax Legislation

Wednesday, March 11, 2015

On March 3, 2015, Supreme Court Justice Anthony Kennedy invited a legal challenge over whether states can require out-of-state and online retailers to collect sales taxes. Justice Kennedy’s opinion was issued as part of the Supreme Court’s unanimous ruling in Direct Marketing Association v. Brohl. Kennedy’s comments reveal the court’s awareness of the need for federal intervention that would enable states to collect e-commerce taxes. In his opinion, Kennedy added that he believes that the Quill and National Bellas Hess decisions, which establish the physical presence rule for sales tax, are “now inflicting extreme harm and unfairness on the states.” The justice cited the growth of Internet commerce; the reality of business presence, even in the absence of physical presence; and his view that “it is unwise to delay any longer a reconsideration of the court’s holding in Quill…. The legal system should find an appropriate case for this court to reexamine Quill and Bellas Hess.” Background on the Quill and Bellas Hess cases is available here.


Kennedy’s opinion comes as federal lawmakers face a stalemate on legislation that would allow states to enforce sales taxes on remote online vendors. Though a bipartisan group of senators reintroduced legislation this week that would enable state collection of e-commerce taxes, and the House is also discussing a legislative path forward on this issue, significant disagreement over the contents of these bills still remains. In the face of these obstacles, the GFOA and its state and local association partners continue their work to meet with congressional offices to build support for enacting online sales tax legislation this year. As this campaign continues, the GFOA will continue to keep its members informed about the status of these discussions and, where appropriate, engage our members to weigh in directly with their federal elected leaders in this campaign.