In a seeming victory for online retailers, the U.S. Supreme Court last week ruled that the Tax Injunction Act does not bar a retailer from bringing a suit in federal court. The suit originally brought by the Direct Marketing Association involved whether Colorado could force online retailers to report purchases made by their Colorado customers for tax purposes.
The Tax Injunction Act holds that federal district courts are barred from hearing a state tax case if the state courts could easily address the issue themselves. But the high court overturned an appeals court ruling that the TIA barred the district court from hearing the suit regarding Colorado legislation HB10-1193. This law required “non-collecting retailers” with Colorado sales in excess of $100,000 to notify the State and the purchaser of the purchaser’s use tax liability.
While the high court ruling was a victory for online retailers, it may be premature to start doing Snoopy’s happy dance and multistate retailers should be cautiously enthusiastic. In his concurring opinion, Justice Kennedy appears ready to take on a larger issue that could strike even greater fear into the online retail community – in clear language, he indicates his desire to limit – if not overturn, the Quill decision.
Key Take Away From the Court’s Decision
Justice Thomas’s opinions set forth several significant legal findings. First, the Court found that the Tenth Circuit’s finding that TIA barred DMA’s suit was incorrect. The Tenth Circuit’s determination that TIA was applicable to DMA’s suit versus Colorado was wrong due to the Tenth Circuit’s broad interpretation of the TIA’s term “restrain.”The Court held that by applying the Congressional intended interpretation to the TIA’s “restrain,” a suit against a state “cannot be understood to “restrain” the “assessment, levy or collection” of a state tax if it merely inhibits those activities.”
Secondly, it did not take a position on whether DMA’s suit might be barred under the “comity doctrine.” Justice Thomas’ decision, citing Levin v. Commerce Energy, Inc., 560 U. S. 413, indicates that the “comity doctrine” may bar DMA’s suit based on its principle that “counsels lower federal courts to resist engagement in certain cases falling within their jurisdiction.” Thomas added that pursuant to this doctrine federal courts are to refrain from “interfer[ing] . . . with the fiscal operations of the state governments . . . in all cases where the Federal rights of the persons could otherwise be preserved unimpaired.” The Court left it to the Tenth Circuit to determine “whether the comity argument remains available to Colorado.”
Finally, Justice Thomas’ opinion indicates that the Court, in its ruling that the TIA does not bar DMA’s suit in federal district court, is not expressing a view “on the merits of” the case’s claims and “remand the case for further proceedings consistent with this opinion.”
Justice Kennedy’s “Concurrence” Should Concern Multistate Retailers
Justice Kennedy’s concurring decision provides a valuable window into at least one of the Justice’s desire to revisit the Court’s decision in Quill. As Justice Thomas notes in his opinion for the Court, it is in the Quill decision that the Court established the precedence that “under our negative Commerce Clause precedents, Colorado may not require retailers who lack a physical presence in the State to collect these taxes on behalf of the Department. See Quill Corp. v. North Dakota, 504 U. S. 298, 315–318 (1992).”
Justice Kennedy’s concurring opinion stridently sets forth his view that Quill was “[A] case questionable even when decided…” and that Quill now harms the States “to a degree far greater than could have been anticipated earlier.”
One may wonder why Justice Kennedy felt it necessary to set forth his view on Quill in his concurring opinion to the Court’s decision in DMA. Especially since the Court’s decision in DMA expressly does not address DMA’s constitutional arguments against Colorado’s statute as set forth in the district court.
Justice Kennedy’s concurring opinion appears to tacitly provide an answer. In his opinion, he discusses the concept of “stare decisis.” “Stare Decisis,” as defined in Cornell University Law School’s Legal Information Institute website, is a concept based on the translation and interpretation of the phrase: “to stand by things decided.” Stare decisis is essentially the doctrine of precedent. Courts cite stare decisis when an issue has been previously brought to the court and a ruling already issued. Generally, courts will adhere to the previous ruling, though this is not universally true.
Justice Kennedy’s opinion, citing Pearson v. Callahan 555 U. S. 223, 233 (2009), is that the Court’s adherence to the stare decisis is “weakened where “experience has pointed up the precedent’s shortcoming.” Kennedy’s concurring opinion appears to be referring to Quill when he continues “It should be left in place only if a powerful showing can be made that its rationale is still correct.”
Justice Kennedy’s concurring opinion concludes with the following:
“The instant case does not raise this issue in a manner appropriate for the Court to address it. It does provide, however, the means to note the importance of reconsidering doubtful authority. The legal system should find an appropriate case for this Court to reexamine Quill and Bellas Hess.”
According to The Law Dictionary’s definition of “CONCURRING OPINION” as contained on its website, a concurring opinion is “an opinion that is given by another authority that is in agreeance and upholds the opinion of the first authority.” Justice Kennedy’s “concurring opinion” in the Court’s decision in DMA appears to interpret the term “agreeance” quite broadly.
The take away from the Court’s decision is ”caveat emptor” for both multistate retailers and those Colorado purchasers from “non-collecting retailers.” First, the Court’s decision is limited to its finding with respect to the TIA. Next, the Court’s opinion points the Tenth Circuit to revisit whether the “comity doctrine” bars DMA from bringing the suit in the federal district court. Finally, Justice Kennedy’s concurring opinion clearly indicates his desire to “reexamine Quill and Bellas Hess.” This taxpayer friendly decision should be viewed in context of the concurring opinion. In such context it is representative of a successful battle in a continuing conflict between the States’ desire for sales tax revenue and the current Constitutional limitations upon them.