Amicus Curiae Brief — South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018) (No. 17-494)

REC No. 17-494 | Rioreme Cont US-—

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Supreme Court of the Bnited

SOUTH DAKOTA,

Petitioner,

Vv.

WAYFAIR, INC., OVERSTOCK.COM, INC., AND

NEWEGG, INC.

Respondents.

On Petition for a Writ of Certiorari to the

Supreme Court of South Dakota

BRIEF OF THE NATIONAL GOVERNORS

ASSOCIATION, NATIONAL CONFERENCE OF STATE

LEGISLATURES, COUNCIL OF STATE

GOVERNMENTS, NATIONAL ASSOCIATION OF

COUNTIES, NATIONAL LEAGUE OF CITIES, US

CONFERENCE OF MAYORS, INTERNATIONAL

CITY/COUNTY MANAGEMENT ASSOCIATION,

INTERNATIONAL MUNICIPAL LAWYERS

ASSOCIATION, GOVERNMENT FINANCE OFFICERS

ASSOCIATION, THE INTERNATIONAL PUBLIC

MANAGEMENT ASSOCIATION FOR HUMAN

RESOURCES, NATIONAL SCHOOL BOARDS

ASSOCIATION, NATIONAL AASA: THE SCHOOL

SUPERINTENDENTS ASSOCIATION, AND NATIONAL

ASSOCIATION OF ELEMENTARY SCHOOL

PRINCIPALS SUPPORTING PETITIONER

LISA SORONEN TILLMAN J. BRECKENRIDGE*

EXECUTIVE DIRECTOR BAILEY & GLASSER LLP

STATE AND LOCAL 1054 31st St., NW, Suite 230

LEGAL CENTER Washington, DC 20007

444 N. Capitol St. NW Telephone: 202-463-2101

Suite 515 Facsimile: 202-463-2103

Washington, DC 20001 ‘ tbreckenridge@baileyglasser.com

*Counsel of Record Counsel for Amici Curiae

Additional Counsel on Inside Cover

Library of Congees®

Lew Liteury

PATRICIA E. ROBERTS

WILLIAM & MARY LAW

SCHOOL APPELLATE

AND SUPREME COURT

CLINIC

P.O. Box 8795

Williamsburg, VA 23187

Telephone: 757-221-3821

TABLE OF CONTENTS

TABLE OF AUTHORITIBG.................cccssesescseseessnees 1

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INTEREST OF AMICI CURIAE .............:cccceeeeeeeceeees 1

SUMMARY OF ARGUMENT....... siiitidaleuiniasiiageeimvasidaieie 2

ETS, elaine ideals incaaiiaduaneipitntdacixin 3

I. QUILL HAS RESULTED IN A TIDAL

WAVE OF LITIGATION AND CREATED

A SEA OF UNCERTAINTY AMONG

STATES AS TO HOW TO COLLECT

TAXES IN TODAY'S DIGITAL AGE.................. 3

Il. THIS CASE IS AN OPTIMAL VEHICLE

FOR DECIDING WHETHER QUILL

SHOULD BE OVERRULED....... ibe uanhanknstiaannude 9

A. The South Dakota legislation challenges

Quill and Bellas Hess in response to

Justice Kennedy’s invitation. ................ccccceeeee 9

B. South Dakota’s challenge is in a clean

posture, free from any ancillary

questions or jurisdictional concerns. ............ 10

Il. UNTIL IT IS OVERTURNED, QU/LL

WILL CONTINUE TO WREAK HAVOC

ON STATE AND LOCAL GOVERNMENT

ABILITY TO COLLECT TAXES THAT

ARE ALREADY OWED..|....................ccceseseesereees 12

A. Sales and use taxes are a crucial! source

of revenue for States and local

I opi tncnttintitactaictsntinesinsinsssvegeeneseasies 12

il

B. Quill unreasonably hinders the States

from collecting owed sales and use

I incinendedobeet CSB Be ad ORL oe, Nad OER yee 14

C. The detrimental effect of Quz// has been,

and will continue to be, increasingly

exacerbated by the consistent expansion

Sa REE TT Se ae SN OS € eRe Sep a 18

ID weictesintscnecinresernees seenni oxtenniiduaigunensbuidints

APPENDIX: LIST OF AMICT ......................ceseesereees la

lll

TABLE OF AUTHORITIES

Cases

Am. Target Advert., Inc. v. Giani, 199

F.3d 1241 (10th Cir. 2000), cert.

denied, 531 U.S. 811 (2000)................00004.

Capital One Bank v. Comm r of Revenue,

899 N.E.2d 76 (Mass. 2009), cert.

denied, 557 U.S. 919 (2009)...

Complete Auto Transit, Inc. v. Brady,

Oe i Bere COE Ci isticsiervecsinishvesdesnivtseinsom

Couchot v. State Lottery Comm'n, 659

N.E.2d 1225 (Ohio 1996), cert. denied,

I Pe ees conscicincen ace degdeesanes

Direct Mktg. Ass'n v. Brohl 135 S. Ct.

EIB Ge Sieg os. ae

Geoffrey, Inc. v. S.C. Tax Comm'n, 437

S.E.2d 13 (S.C. 1993), cert. denied, 510

oh <i UMS ve a cae ene

KFC Corp. v. lowa Dept of Revenue, 792

N.W.2d 308 (lowa 2010), cert. denied,

OR Bre We I aSicitivesciccircscensaccnsannseesvens

National Bellas Hess, Inc. v. Department

of Revenue of Illinois, 386 U.S. 753

Overstock.com, Ine. v. N.Y. State Dep't of

Taxation and Fin., 987 N.E.2d 621

(N.Y 2013), cert. denied, 134 S. Ct. 682

III cos ssn soles seiadichebuiepteipan detieahiotiadertemetiniesecosubieunh

Quill Corp. v. North Dakota, 504 U.S.

Re airs: cncccrailaidinndsesadasmakebecnrebiassns

eee ere er ee &

1V

State v. Wayfair Inc., No. 28160, 2017

WL 4051554, at *1 (S.D. Sept. 13,

inate Seca iuicinstarindote ni slcuieiabiaoes i incnnainicabcadan ll

State v. Wayfair, Inc., 229 F. Supp. 3d

aE CRG) SERRE Saas ESS Ate ae ae her eer seem 10

Tax Comm 'r of Statev. MBNA Am.

Bank, N.A., 640 S.E.2d 226 (W.Va.

2006), cert. denied sub nom FIA Card

Servs., NA. v. Tax Comm'r of West

Wipeosatn. GEE UB. DEGU COOP anos ccsssscncassesccsccsccdenses 5

Statutes

S.D. Codified Laws § 10-64-1 (2016)..............e cee 2,9

S.D. Codified Laws § 10-64-2 (2016)............:cceceeeeeeee 9

Other Authorities

Economic Analysis of Tax Revenue from

E-Commerce in Ohio, Economics

Center 1 (2011),

http://www.efairness.org/pdf/economics

SOI oasis cin ss xs phcerastax tah n dcapivescciecescnte 15

Elliott D. Pollack & Company, Economic

and Fiscal Impact of Uncollected Taxes

on E-Commerce in Arizona (2012),

https://ex.democracydata.com/A160F09

F756BBBF1C6606EA72D6BD 1EE092

B1AB5/35555b34-542c-46ca-b&d6-

a gare de lak ccagvaudaitin oneaes 15

Joe Crosby, Liz Malm, and Ryan

Maness, South Dakota v. Wayfatr:

Three Maps, MultiState Insider (Oct.

4, 2017),

V

https://www.multistate.us/blog/south-

dakota-v-wayfair-three-map5s.....................0-.006- aa, 6

Lila Disque & Helen Hecht, Beyond

Quill and Congress: The Necessity of

Sales Tax Enforcement and the

Invention of a New Approach, 65 AM.

OF Be BE, TI I acne sccvsscesnsiassoseses

Liz Malm, Ryan Maness & Joe Crosby,

Sales Tax Compliance Legislation is

Still a Hot Topic at the State (and

Federal) Level, MultiState Insider

(May 3, 2017),

https://www.multistate.us/blog/sales-

tax-compliance:legislation-is-still-a°

hot-topic-at-the-state-and-federal-level

Lucy Dadayan & Donald J. Boyd, After

Disastrous 2009, States Report Modest

Revenue Growth in Early 2010, The

Nelson A. Rockefeller Institute of

Government (July 2010),

http://www.rockinst.org/pdf/governmen

t_finance/state_revenue_report/2010-

og, & |" Senses

Morgan Scarboro, 7o What Extent Does

Your State Rely on Sales Taxes? (Apr.

27, 2017),

https://taxfoundation.org/sales taxes”

DOTSRS COCRICTAOTIN o.ncccccneccsvcocsesevescoccess.

National Conference of State

Legislatures (NCSL) & International

Council of Shopping Centers (ICSC),

Uncollected Sales & Use Tax from

Remote Sales: Revised Figures (March

2017),

v1

http://www.efairness.org/files/Updated

%20Sales%20Tax%20Loss%20Report.p

National Conference of State

Legislatures (NCSL), State Efforts to

Collect Remote Sales Taxes (Feb.

2014),

http://www.ncsl.org/documents/statefe

d/MFA_intheStatesFeb2014.pdf ..................... 14, 15

No Regulation Without Representation:

H.R. 2887 and the Growing Problem of

States Regulating Beyond Their

Borders Before the H. Comm. On the

Judiciary, 115th Cong. (2017)

(statement of Sen. Deb Peters (SD) on

Or hs oe hasrinebeatiabnn: 16

Quarterly Retail E-Commerce Sales: 2nd

Quarter 2017, U.S. Census Burea"

News (U.S. Dep’t of Commerce,

Washington, D.C.), Aug. 17, 2017..........00....... 19, 20

U.S. Government Accountability Office,

Sales Taxes: Electronic Commerce

Growth Presents Challenges; Revenue

Losses Are Uncertain (June 2000),

http://www.gao.gov/assets/240/230474.

MM Litaacidtcs decd yahe deduce pianicdasadetaealgnntRemeaiadeamacveasiaie 16

BRIEF OF AMICI CURIAE

Amici curiae respectfully submit this brief in

support of Petitioner, the State of South Dakota,

urging that the Court grant review in No. 17-494.

INTEREST OF AMICI

The present amici are organizations representing

state and local elected and appointed officials from

throughout the United States, up to and including

state governors.! These organizations regularly file

amicus briefs in cases, like this one, raising issues of

concern to their members. Additional information on

each of the amici is available in the attached

appendix.

Amici maintain a vital interest in the rules

governing the assessment and collection of sales tax

by state and local governments. These revenues fund

essential benefits and services provided to the citizens

amici represent. Accordingly, amici’s previous brief to

this Court in Direct Marketing Association v. Brohl

laid out the research regarding the harms caused by

Quill Corp. v. North Dakota, 504 U.S. 298 (1992).

Amici strongly believe that this Court needs to

reconsider Qui// in order to prevent further harm to

state revenues. In 2016, in its petition supporting

denial of certiorari in Direct Marketing Association v.

Brohl IT amici advised the Court that, in response to

| No counsel for a party authored this brief in whole or in part,

and no counsel or party made a monetary contribution intended

to fund the preparation or submission of this brief. No person

other than the amici curiae or their counsel made a monetary

contribution to its preparation or submission. The parties have

consented to the filing of this brief and were timely notified.

2

Justice Kennedy’s invitation, an appropriate vehicle

would be arriving to the Court soon. They write to

inform the Court that South Dakota’s legislation is

the ideal vehicle to reach this important issue and,

therefore, urge the Court to grant this petition.

SUMMARY OF ARGUMENT

States and local governments lost an estimated

$26 billion in 2015 from uncollected sales and use

taxes from out-of-state sellers for one reason: the

Supreme Court’s decisions in Quz// and Bellas Hess

do not allow States to require out-of-state merchants

to collect and remit these taxes on sales to consumers

within the State unless the out-of-state merchant has

a physical presence within the State. The effect of

these decisions in today’s digital economy, where

online sales are a mere click away, is devastating for

States and local governments, who depend on these

revenues. The decisions also create an unfair

disadvantage for traditional brick-and-mortar

retailers—businesses that create jobs within the

states and localities—which must add five to ten

percent to their prices to account for these taxes.

Confronted with the obstacles erected by Qui//

States have enacted various legislative fixes to

attempt to collect the billions of dollars of sales and

use taxes owed to them by out-of-state merchants. In

2016, the South Dakota Legislature enacted, and the

Governor signed, Senate Bill 106, requiring out-of-

state retailers to collect and remit sales and use tax if

they annually conduct with South Dakota residents

either (1) $100,000 worth of business, or (2) 200

separate transactions. S.D. Codified Laws §§ 10-64-1

et seq. (2016).

3

The South Dakota legislation was designed as a

direct response to Justice Kennedy’s invitation in

Direct Marketing Association v. Broh/ to present “an

appropriate case for this Court to reexamine Quz//and

Bellas Hess.” 135 S. Ct. 1124, 1135 (2015) (Kennedy,

J., concurring). Shortly after the law was enacted,

South Dakota sought a declaratory judgment in state

circuit court to permit enforcement against three out-

of-state retailers. After an unsuccessful removal to

federal court, the case quickly worked its way through

the state courts, with both the state circuit court and

the Supreme Court of South Dakota concluding that

this Court’s precedents in Qui//and Bellas Hess forbid

South Dakota from enforcing the legislation against

the out-of-state retailers.

South Dakota's carefully tailored legislation

arrives before this Court in a clean procedural

posture, primed to assist the Court in addressing a

single question—whether Qui// retains constitutional

force in the modern digital economy.

ARGUMENT

I. QUILL HAS RESULTED IN A TIDAL WAVE

OF LITIGATION AND CREATED A SEA OF

UNCERTAINTY AMONG STATES AS TO HOW

TO COLLECT TAXES IN TODAY’S DIGITAL

AGE.

Quill] stands as the single greatest obstacle to

meaningful sales tax reform in today’s digital

economy. Decided before the massive expansion in

online retail, Quz// has caused States and local

governments to lose billions in annual sales and tax

revenue, “inflicting extreme harm and unfairness on

the States.” Direct Mktg. Ass'n v. Brohl, 135 S. Ct.

1124, 1134 (2015) (Kennedy, J., concurring).

4

In Quill Corp. v. North Dakota, this Court

reaffirmed the prohibition on States levying a sales

and use tax on sales by businesses that lack a physical

presence within the state. 504 U.S. 298 (1992). The

Court openly reconsidered the prohibition and

ultimately chose to retain its rule—but did so only to

protect the reliance interests that had grown up

around the rule. Echoing its prior decision in National

Bellas Hess, Inc. v. Department of Revenue, 386 U.S.

753 (1967), the Court held that physical presence was

required to avoid a violation of the “negative” or

“dormant” Commerce Clause’s substantial nexus

requirements. Quz//, 504 U.S. at 312. However, the

Court expressly acknowledged that Bellas Hess very

well might have been decided differently under

“contemporary Commerce Clause jurisprudence” and

cases like Complete Auto Transit, Inc. v. Brady, 430

U.S. 274 (1977).

These holdings have spawned a host of litigation

as States have grappled with how to counter the

irrational tax advantage Quz// erected for online

retailers who avoid physical presence within any

given state. These holdings have also led to countless

cases over the last two decades in which State and

federal courts have enforced various state taxes that

look a lot like—and impose burdens quite similar to—

state sales taxes, against out-of-state companies,

regardless of Qui//2

2 See, e.g., Am. Target Advert., Inc. v. Giani, 199 F.3d 1241, 1255

(10th Cir. 2000), cert. denied, 531 U.S. 811 (2000); AFC Corp. v.

lowa Dep't of Revenue, 792 N.W.2d 308, 323 (lowa 2010), cert.

denied, 565 U.S. 817 (2011); Capital One Bank v. Comm’ of

Revenue, 899 N.E.2d 76 (Mass. 2009), cert. denied, 557 U.S. 919

(2009); Couchot v. State Lottery Comm'n, 659 N.E.2d 1225 (Ohio

5

More specifically, States have resorted to a variety

of “Amazon laws” and a hodgepodge of other

legislation intended to recoup the massive losses

incurred. As of today, over 40 states have proposed or

enacted some form of legislation aimed at

ameliorating the Qu///damage in their State. See Joe

Crosby, Liz Malm & Ryan Maness, South Dakota v.

Wayfair: Three Maps, MultiState Insider (Oct. 4,

2017).3

In 2008, New York initiated this trend by enacting

its so called “Amazon tax,” which Amazon.com and

other online retailers challenged in Overstock.com,

Inc. v. N.Y. State Dep't of Taxation and Finance. 987

N.E.2d 621, 622-23 (N.Y 2013), cert. denied, 134 S. Ct.

682 (2013); see a/so William L. Fletcher, Jr., Note,

Netflix and Quill’ Using Access and Consumption to

Create a Plan for Taxing the Cloud, 58 Wm. & Mary

L. Rev. 1029, 1046-47 (2017). The New York law was

designed to establish the nexus of an out-of-state

vendor through its use of in:state, click-through

advertisements. Overstock.com, Inc., 987 N.E.2d at

622-23. Online vendors were then required to collect

and remit taxes on purchases by New York residents.

Id. Referring to the vendor's “active in-state

solicitation that produceld] a significant amount of

revenue,” the New York state courts held that the

1996), cert. denied, 519 U.S. 810 (1996); Geoffrey, Inc. v. S.C. Tax

Comm'n, 437 S.E.2d 13 (S.C. 1993), cert. denied, 510 U.S. 992

(1993); Tax Comm'r of State v. MBNA Am. Bank, N.A., 640

S.E. 2d 226, 232-34 (W.Va. 2006), cert. denied sub nom. FIA Card

Servs., NA. v. Tax Comm’ of West Virginia, 551 U.S. 1141

(2007).

3 Available at https://www.multistate.us/blog/south-dakota-v-

wayfair-three-maps.

online retailers failed to prove the statute

unconstitutional under the Commerce Clause. /d.

After New York, the flood gates opened. By 2011,

the following states introduced some type of “Amazon”

legislation: Arkansas, Arizona, California, Colorado,

Connecticut, Hawaii, Illinois, lowa, Louisiana,

Maryland, Massachusetts, Minnesota, Mississippi,

Missouri, New Mexico, North Carolina, Rhode Island,

South Dakota, Tennessee, Texas, Vermont and

Virginia. See Sylvia Dion, Amazon Laws: The New

Normal? ZInternet Sales Tax Law Update,

SalesTaxSupport.com (July 17, 2011).4 As of today,

over 40 states have proposed or enacted some form of

legislation aimed at ameliorating the Quz// damage in

their State. See Joe Crosby, Liz Malm & Ryan

Maness, South Dakota v. Wayfair’ Three Maps,

MultiState Insider (Oct. 4, 2017).5

In spite of the initial popularity of “Amazon”

legislation, studies indicated that these laws failed to

generate the anticipated sales tax revenues or to level

the playing field between online retailers and brick-

and-mortar stores because major online retailers, like

Amazon.com, severed their affiliate contracts in

States with an “Amazon” law and failed to register as

sales tax collectors. See Lance Whitney, Amazon Cuts

4 Available at http://www.salestaxsupport.com/blogs/issues/

internet-tax-ecommerce/are-amazon-laws-the-new-normal-an-

update-on-internet-sales-tax-laws/.

5 Available at https://www.multistate.us/blog/south-dakota-v-

wayfair-three-maps.

7

Affiliate Ties in More States Over Taxes, CNet (June

2011).6

Amid a modest recovery from the Great Recession,

States continued to witness declining revenue

collections. Qur//, meanwhile, limited States’ ability

to collect revenue from the simultaneous boom in e-

commerce. See, e.g., Todd Haggerty, “Weakcovery”

State General Fund Revenues, Economic Downturns

& Recoveries, Nat’ Conference State Legislatures

(Jan. 2013)7; Lucy Dadayan & Donald J. Boyd, Afer

Disastrous 2009, States Report Modest Revenue

Growth in Early 2010, The Nelson A. Rockefeller

Institute of Government (July 2010).8

As a result, legislatures began considering a range

of other tools including, but not limited to, notification

and reporting requirements, economic nexus laws,

and affiliate nexus laws.9 In 2017 alone, at least 30

6 Available at https://www.cnet.com/news/amazon-cuts-affiliate

ties"in-more-states-over-taxes/.

7 Available at http://www-ncsl.org/research/fiscal-policy/state-

revenues-downturns-and-recoveries.aspy.

8 Available at http://www.rockinst.org/pdf/government_finance/

state_revenue_report/2010-07-13-SRR_80.pdf.

9 Notification and reporting laws require non-collecting retailers

to provide annual reports to buyers which notify buyers of

potential tax liability. These laws may also require the remote

seller report to the state annual data regarding total purchases.

Economic nexus laws create a tax obligation for remote retailers

that conduct a substantial amount of business activity in the

state (e.g., South Dakota’s creates a tax obligation for retailers

that conduct $100,000 worth of business or 200 separate

transactions). Affiliate (related party) nexus laws attribute

nexus to a seller based on the physical presence of an affiliate in

the state (e.g., a related corporate entity) or the activities of

another party in the state, such as a website in the state

8

States proposed at least one of these types of

legislation. See, e.g, Liz Malm, Ryan Maness & Joe

Crosby, Sales Tax Compliance Legislation is Still a

Hot Topic at the State (and Federal) Level, MultiState

Insider (May 3, 2017).10

While these laws have had varying levels of

success, none apart from an economic nexus law of the

kind that South Dakota enacted, could effectively

captures the rightful share of current taxes due States

by online retailers who generate large revenues

through their business activity in a particular State.

Contrary to the argument posited by many retailers,

overturning Quz// docs not lead to the imposition of a

new tax. Rather, @Quz// prevents States from

effectively collecting a tax that they are already owed.

As such, States have realized that the proper path

forward in this new digital economy is not a challenge

to Quill at the margins, but a direct challenge to the

physical presence requirement that Quz// demands.

In March 2015, Justice Kennedy echoed this

sentiment, writing: “Given these changes in

technology and consumer sophistication, it is unwise

to delay any longer a reconsideration of the Court’s

holding in @ui//.... The legal system should find an

appropriate case for this Court to reexamine Qur//and

Bellas Hess.” Direct Mktg. Ass'n, 135 S. Ct. 1124,

1134-35 (Kennedy, J., concurring).

directing sales to a remote seller. See Joe Crosby, Liz Malm &

Ryan Maness, South Dakota v. Wayfair: Three Maps, MultiState

Insider (Oct. 4, 2017), available at https://www.multistate.

us/blog/south-dakota-v-wayfair-three-maps.

10 Available at https://www-.multistate.us/blog/sales-tax-compli

ance: legislation-is-still-a-hot-topic-at-the-state-and-federal-level

g

South Dakota has answered the call and crafted

tailored legislation that addresses Quill directly.

Il. THIS CASE IS AN OPTIMAL VEHICLE FOR

DECIDING WHETHER QUILL SHOULD BE

OVERRULED.

A. The South Dakota legislation challenges

Quill and Bellas Hess in response to Justice

Kennedy’s invitation.

About a year after Justice Kennedy invited States

to find vehicles for Qui//s reconsideration, the South

Dakota legislature passed, and the governor signed,

Senate Bill 106, “An Act to provide for the collection

of sales taxes from certain remote sellers.” S.D.

Codified Laws § 10-64-1 (2016). The Act, which took

effect May 1, 2016, requires out-of-state retailers to

collect and remit sales tax, as though they had a

physical presence in South Dakota, provided they

conduct $100,000 worth of business or 200 separate

transactions annually with South Dakota citizens.

SD. Codified Laws § 10°64-2 (2016). It is not

retroactive, and applies only to future sales. Td.

The Act itself recognizes that the test of

“substantial nexus” it imposes docs not match the

“physical presence” requirement this Court mandated

in Quill and Bellas Hess. The Act accordingly

facilitated the creation of this case to create a clean

vehicle through which the Court could consider

whether the outdated physical presence rule still

applies to the modern challenges of Internet retail.

The Act’s unique structure not only answered Justice

Kennedy's call for expedition but also explicitly

created a cause of action that facilitated its speedy

arrival before this Court.

10

Notably, South Dakota’s initial complaint that

ultimately led to this petition for a writ of certiorari

began with the following statement: “The State—

through this declaratory judgment action—-seeks a

determination that it may require Defendants to

collect and remit state sales tax on sales of tangible

personal property and services for delivery into South

Dakota. The State acknowledges that a declaration in

its favor will require abrogation of the United States

Supreme Court's decision in Qui//. . . and ultimately

seeks a decision from the United States Supreme

Court to that effect in this case.” Compl. at 1-2, State

v. Wayfarr, Inc., 229 F. Supp. 3d 1026, 1028 (D.S.D.

2017).

The South Dakota law frames the problems

created by Qui//with precision, and indicates that the

time for review is now.

B. South Dakota’s challenge is in a clean

posture, free from any ancillary questions

or jurisdictional concerns.

Unlike other cases that have sought certiorari on

the issue of Qui//s viability, this case cleanly

presents the concrete question of whether a

particular company with a particular business model

can lawfully be required to collect a particular state’s

sales tax under the dormant Commerce Clause.

There are no tangential questions that distract from

this primary inquiry.

There are no material issues of fact. The parties

have agreed that each seller had a principal place of

business outside of South Dakota and each lacked a

physical presence in the State. The parties have also

agreed that in the previous calendar year, each seller

had gross revenue from the sale of tangible personal

ll

property in South Dakota in excess of $100,000 and/or

sold tangible personal property in the state in 200 or

more separate transactions. Lastly, the parties

agreed that none of the sellers were registered to

collect South Dakota sales tax. See State v. Wayfair

Inc., No. 28160, 2017 WL 4051554, at *14 (S.D. Sept.

13, 2017).

There are no ancillary issues. The parties have

agreed that the only determinative issue is whether

Quill retains its force in the modern digital economy.

In the state actions below, the State even conceded

that summary judgment was appropriate against it on

that issue because only this Court has the power to

decide the continuing force of Quz//. The state circuit

court and the state supreme court similarly agreed

that the only issue on which this case turns is Quz//s

viability in this brave new world of prolific ec:

commerce. Notably, South Dakota does not have

income tax and, thus, relies on sales tax for its state

revenue. This unique feature of the South Dakota

case further allows the Court to clearly and fully

address the primary Q@ui//issue.

There are no jurisdictional issues. South Dakota’s

initial complaint was filed in state circuit court. The

defendant retailers sought to remove the State’s

action to the United States District Court for South

Dakota on the basis of federal question jurisdiction.

However, the District Court rejected removal and

remanded the case to the South Dakota circuit court

in January 2017. The state circuit granted the

defendants’ motion for summary judgment based on

this Court’s precedent in Qui//. The state supreme

court followed suit, affirming the circuit court's

application of Qui//based on the facts of this case.

12

Furthermore, to promote this Court's ability to

quickly determine Quzi//s vitality free from any

confounding issues and to protect Defendants, who

face a difficult compliance decision (if they collect the

tax, they have to remit it; if they don’t, they may be

personally liable for it), the Legislature provided an

automatic injunction against enforcement of the Act

until completion of any litigation.

Lastly, because this case is free from tangential

issues or jurisdictional concerns, this case guarantees

adequate adversarial presentation. The sole issue

dividing the parties is the applicability of @uz//in the

modern economy. As a result, this important issue

would receive the full and undiluted briefing it

deserves.

The absence of any other complicating issues and

jurisdictional concerns makes this case the ideal

candidate to resolve the @uz// quagmire.

Ill. UNTILIT IS OVERTURNED, QUILL WILL

CONTINUE TO WREAK HAVOC ON STATE

AND LOCAL GOVERNMENTS’ ABILITY TO

COLLECT TAXES THAT ARE ALREADY

OWED.

A. Sales and use taxes are a crucial source of

revenue for States and local governments.

Sales and use taxes are essential to State and local

government revenue streams. “Sales tax” refers to a

tax assessed on the sale of a product at the point of

sale. It is typically collected and then remitted to the

State by the merchant. Because our federal system

does not allow a State to impose tax on a sale in which

the seller sits in another State, States need an

alternate way to capture the tax revenue from sales

13

made to its residents from out-of-state sellers. Most

States have approached this issue by enacting a “use

tax”—a tax on consumers of a product or service that

is used, consumed, or stored in the taxing State. The

two taxes are mutually exclusive: a use tax is not

assessed on transactions where a sales tax has

already been collected and remitted by the seller to

the State. But, to fully capture revenue from sales of

products purchased or used in a state, the State must

be permitted to impose and collect both sales and use

taxes.

Qui// mandates that a remote, out-of-state seller

must have a physical nexus in a State before the State

can require the seller to collect sales or use taxes.

Quill Corp. v. North Dakota, 504 U.S. 298, 315-16

(1992). The concrete result of this is that because

States cannot rely on collection and remittance from

the out-of-state sellers, the burden falls to consumers

to report their own out-of-state purchases and to remit

the corresponding taxes. This results in a de facto

“honor system”, where the State’s ability to collect

owed taxes depends entirely on individuals who are

often unaware of this responsibility. As a result,

although it sounds reasonable in theory, the use tax is

an ineffective alternative in practice because most

States are unable to collect the use taxes they are

owed.

For most States, sales taxes account for

approximately a third of all revenues. See National

Conference of State Legislatures (NCSL), State

Efforts to Collect Remote Sales Taxes (Feb. 2014)

14

(hereinafter NCSL, State Efforts to Collect).11 In

some States, the reliance is even more profound.

South Dakota, for example, depends on the sales tax

for over 40 percent of total tax collections. See Morgan

Scarboro, Zo What Extent Does Your State Rely on

Sales Taxes? (Apr. 27, 2017).12 Washington is the

most heavily reliant, relying on sales tax for over 45

percent of total tax collection. Jd. The States’ current

inability to collect use taxes from remote sales

therefore cuts off a vital source of support for State

services related to public safety, infrastructure,

education, and other government services. ‘To

demonstrate, an NCSL survey of state legislative

fiscal officers found that States were forced to endure

significant program reductions in order to close a

cumulative $527.7 billion budget gap between FY

2008-2013. NCSL, State Efforts to Collect. Effective

collection of these owed taxes is imperative for States

and local governments to be able to provide

fundamental services and benefits demanded by their

residents.

B. @uil/ unreasonably hinders the States from

collecting owed sales and use taxes.

Sales and use taxes typically range from five to ten

percent. See, e.g., Scott Drenkard & Nicole Kaeding,

State and Local Sales Tax Rates in 2016. Tax

Foundation.!3 The two taxes, working in tandem,

11 Available at http://www.ncsl.org/documents/statefed/MFA_

intheStatesFeb2014.pdf.

12 Available at https://taxfoundation.org/sales-taxes-percent-

collections/.

13 Available at https://taxfoundation.org/state-and-local-sales-

tax-rates-2016/.

15

would efficiently capture revenue from sales on

tangible personal property purchased in a given

jurisdiction from both in-state retailers (through the

sales tax) and remote retailers (through the use tax).

The practical effect of Qui// is that States are

typically unable to require remote sellers to collect

and remit use taxes. This taxation collection inequity

leads to a distinct disadvantage for the “brick-and-

mortar” stores located within the State. Remote

sellers can afford to set their prices lower to account

for the fact that the State cannot force them to collect

and remit a use tax. Local economies and jobs suffer

as a result. In-state merchants, on the other hand, are

still required to collect and remit sales tax.

In addition to the unfair marketplace advantage

afforded out-of-state retailers under Qui//, States and

local governments also suffer from depressed

economic growth. In Arizona, for example, a study

estimated that the lost impact of e-commerce on the

Arizona economy “could grow to as much as 8,679 jobs,

$302.5 million in wages, and $841.1 million in

economic activity” by 2015. See Elliott D. Pollack &

Company, Economic and Fiscal Impact of Uncollected

Taxes on E-Commerce in Arizona i (2012).14 Another

study found that Ohio suffered a revenue shortfall of

more than $200 million as a result of sales and use tax

non-payment. See Economic Analysis of Tax Revenue

from E-Commerce in Ohio, Economics Center 1

14 Available at https://ex.democracydata.com/A160F09F756BB

BF 1C660GEA72D6BD 1EE092B1AB5/35555b34-542c-46ca-

b8d6-ce045a849330.pdf.

16

(2011).15 The Ohio study further noted that, based on

2011 data, 11,000 direct retail jobs could be

recaptured if tax parity were achieved between store

retail and online retail. /d. In discussing the impact

this has on local economies, the study also identified

a decrease in commercial rent revenues as a

secondary impact of the local stores’ loss of revenue;

this decrease in commercial rent revenue represented

a $120 million decrease in property value. Jd. The

inability to collect owed use taxes thus not only results

in a direct revenue loss; it also further impedes States

abilities to rely on other sources of revenue because

property tax revenue drops when brick-and-mortar

stores close due to depressed sales.

Importantly, Quz//prevents States from effectively

collecting a tax that they are already owed. See No

Regulation Without Representation: H.R. 2887 and

the Growing Problem of States Regulating Beyond

Their Borders Before the H. Comm. On the Judiciary,

115th Cong. (2017) (statement of Sen. Deb Peters (SD)

on behalf of NCSL) (“Remember, this is not a new tax,

it is a due tax.”). If the out-of-state retailers do not

collect and remit use taxes, States are then forced to

rely on its residents to voluntarily self-report and pay

use taxes on their’ out-of-state purchases.

Unsurprisingly, this scheme does not result in high

levels of compliance. Use tax compliance by

individual purchasers has been estimated to be

somewhere between zero and five percent. See U.S.

Government Accountability Office, Sales Taxes:

Electronic Commerce Growth Presents Challenges:

15 Available at http://www.efairness.org/pdf/economicscenter-

study.pdf.

17

Revenue Losses Are Uncertain (June 2000).16 Relying

on residents to (1) be aware of and understand how

the use tax laws work, (2) track out-of-state purch-

ases, and (3) note any purchases where the retailer

did not collect sales tax so that the resident can

voluntarily self-report and pay a use tax is an

ineffective and unrealistic collection plan. See, e.g.,

Lila Disque & Helen Hecht, Beyond Quill and

Congress: The Necessity of Sales Tax Enforcement

and the Invention of a New Approach, 65 AM. U. L.

REV. 1163, 1179-80 (2016) (observing that many in-

state consumers are “unaware of the reporting

requirement and have failed to keep records of their

purchases” and noting efforts made by States to

simplify use tax reporting). However, this plan, with

its zero to five percent compliance rate, is what States

have been forced to accept under Qui//.

As the amicus brief for the Streamlined Sales Tax

Governing Board explains, the majority of states have

joined the Streamline Sales and Use Tax Agreement.

This agreement has made calculating taxes owed

simple—for any seller whether it has an invstate

physical presence or not. Among many other things,

this agreement provides sellers with a database of tax

rates for all jurisdictions levying taxes and relieves

sellers from liability if there are errors in the

database. So as a practical matter, the Streamline

Sales and Use Tax Agreement has abated the undue

burden concerns facing out-of-state sellers in all state

where it has been adopted. While states have done the

hard work of simplifying their tax systems and

making collection easy, their work makes little

16 Available at http://www.gao.gov/assets/240/230474.pdf.

18

difference as long as Qui// remains on the books and

out-of-state sellers don’t have to collect use tax no

matter how easy states have made doing so.

C. The detrimental effect of @uil/ has been,

and will continue to be, increasingly

exacerbated by the consistent expansion of

e-commerce.

Remote sales (largely consisting of orders made

over the phone, through the mail, and online) have

increased considerably over the past several decades.

In the year @ui// was decided, e-commerce did not

even exist; the first legitimate online sales transaction

was not completed until 1994. See Marissa

Fessenden, What Was the First Thing Sold on the

Internet?, Smithsonian.com (Nov. 30, 2015).17 Today,

online shopping is rampant; about 190 million U.S.

consumers were expected to shop online in 2016.

Madeline Farber, Consumers Are Now Doing Most of

Their Shopping Online (June 8, 2016).18

Over twenty years after Qui// was decided, Justice

Kennedy issued a concurring opinion in Drrect

Marketing Association v. Brohl calling the decision

“questionable even when decided” and noting that the

decision “harms States to a degree far greater than

could have been anticipated earlier.” 135 S. Ct. 1124,

1135 (2015) (Kennedy, J., concurring). Justice

Kennedy further called for a reevaluation of the

Court’s holding in Qu/i//, observing that “[t]here is a

powerful case to be made that a retailer doing

17 Available at https://www.smithsonianmag.com/smart-

news/what-was’first-thing-sold-internet- 18095741 4/.

18 Available at http-//fortune.com/2016/06/08/online-shopping-

increases/.

19

extensive business within a State has a sufficiently

‘substantial nexus’ to justify imposing some minor

tax-collection duty, even if that business is done

through mail or the Internet.” /d. As Justice

Kennedy predicted, the strength of this argument has

increased with time, as the prevalence of remote sales

has continued to increase. Similarly, then-Judge

Gorsuch noted in his concurrence on remand to the

Tenth Circuit that “Qui//s very reasoning—its ratio

decideni—seems deliberately designed to ensure that

Bellas Hess's precedential island would never expand

but would, if anything, wash away with the tides of

time.” Direct Mktg. Ass'n v. Brohi, 814 at 1151

(Gorsuch, J., concurring). The drastic expansion of e-

commerce over the past two decades has indicated

that Bellas Hess and Quil/will not wash away on their

own; their damaging effects will continue to harm

States until they are overturned.

The expansion of e-commerce has shown no signs

of slowing down over the course of 2017. The Census

Bureau of the Department of Commerce reported that

an estimated $111.5 billion in U.S. retail e-commerce

sales were conducted in the second quarter of 2017.

Quarterly Retail E-Commerce Sales: 2nd Quarter

2017, U.S. Census Bureau News (U.S. Dep't of

Commerce, Washington, D.C.), Aug. 17, 2017, at 1.19

This accounted for 8.2 percent of total sales, and it

represented a 4.8 percent increase in e-commerce

sales from the first quarter of 2017. During this time

period, total retail sales increased by only 0.5 percent.

Further, the $111.5 billion in second quarter e-

19 Available at https://www.census.gov/retail/mrts/www/data/

pdf/ec_current.pdf.

20

commerce sales represented a substantial 16.2

percent increase from the second quarter of 2016,

compared to a 4.1 percent increase in total retail sales

over the same period.2° E-commerce sales are not only

rapidly expanding; they are expanding at almost four-

times the rate of total retail sales. It is estimated that

they will account for 17 percent of total U.S. retail

sales within the next five years. See Matt Lindner, E-

Commerce is Expected to Grow to 17% of US Retail

Sales by 2022(Aug. 9, 2017).21

The effect of the States’ inability to collect taxes

that are owed on these sales is impossible to overstate.

In 2015, for example, uncollected U.S. sales and use

taxes from remote sales were estimated to be almost

$26 billion. Of this $26 billion, over $17 billion

uncollected taxes were projected to be from electronic

sales. National Conference of State Legis-latures

(NCSL) & International Council of Shopping Centers

(ICSC), Uncollected Sales & Use Tax from Remote

Sales: Revised Figures.22

The fundamental problem that Qui// and Bellas

Hess imposes on the States remains the same: States

are unable to collect owed taxes, and their revenue

streams suffer as a result. As Justice Kennedy has

20 Quarterly Retail E-Commerce Sales: 2nd Quarter 2017, U.S.

Census Bureau News (U.S. Dep't of Commerce, Washington,

D.C.), Aug. 17, 2017, at 1 (available at https://www.census.gov/

retail/mrts/www/data/pdf/ec_current.pdf). The estimated $111.5

billion in U.S. retail e-commerce sales was adjusted for seasonal

variation, but it was not adjusted for price changes.

21 Available at https://www.digitalcommerce360.com/2017/08/

09/e-commerce- grow: 17-us-retail-sales-2022/.

22 Available at March 2017), http://www.efairness.org/files/

Updated%20Sales%20Tax% 20Less%20 Report.pdf.

21

highlighted, the cause grows “more urgent” with time.

Brohl, 135 S. Ct. at 1135 (Kennedy, J., concurring).

The detrimental effects will continue to grow

alongside the growth of e-commerce.

CONCLUSION

For the foregoing reasons, the petition should be

granted.

Respectfully submitted,

LISA SORONEN TILLMAN J. BRECKENRIDGE*

EXECUTIVE DIRECTOR RUSSELL SOLLOWAY

STATE AND LOCAL BAILEY & GLASSER LLP

LEGAL CENTER 1054 31st St., NW, Suite 230

444 N. Capitol St. NW Washington, DC 20007

Suite 515 Telephone: 202-463-2101

Washington, DC 20001 Facsimile: 202-463-2103

tbreckenridge@baileyglasser.com

PATRICIA E. ROBERTS

WILLIAM & MARY LAW

SCHOOL APPELLATE AND

SUPREME COURT CLINIC

P.O. Box 8795

Williamsburg, VA 23187

Telephone: 757-221-3821

*(Counsel of Record Counsel for Amici Curiae

la

APPENDIX

The National Governors Association (NGA),

founded in 1908, is the collective voice of the Nation’s

governors. NGA’s members are the governors of the

50 states, three territories, and two commonwealths.

The National Conference of State Legislatures

(NCSL) is a bipartisan organization that serves the

legislators and staffs of the nation’s 50 states, its

commonwealths, and its territories. NCSL provides

research, technical assistance, and opportunities for

policymakers to exchange ideas on the most pressing

state issues. NCSL advocates for the interests of

state governments before Congress and federal

agencies, and regularly submits amicus briefs to this

Court in cases raising issues of vital state concern.

The Council of State Governments (CSG) is the

Nation's only organization serving all three branches

of state government. CSG is a region-based forum that

fosters the exchange of insights and ideas to help

state officials shape public policy. It offers regional,

national, and international opportunities for its

members to network, develop leaders, collaborate, and

create problem-solving partnerships.

The National Association of Counties (NACo) is

the only national organization that represents county

governments in the United States. Founded in 1935,

NACo provides essential services to the nation’s 3,069

counties through advocacy, education, and research.

The National League of Cities (NLC) is dedicated

to helping city leaders build better communities. NLC

is a resource and advocate for 19,000 cities, towns

and villages, representing more than 218 million

Americans, and 49 state municipal leagues.

Za

The US Conference of Mayors (USCM), founded in

1932, is the official nonpartisan organization of all

United States cities with a population of more than

30,000 people, which includes over 1,200 cities at

present. Each city is represented in the USCM by its

chief elected official, the mayor.

The International City/County Management

Association (ICMA) is a nonprofit professional and

educational organization of over 9,000 appointed chief

executives and assistants serving cities, counties,

towns, and regional entities. ICMA’s mission is to

create excellence in local governance’ through

advocacy and by developing the professional

management of local governments throughout the

world.

The International Municipal Lawyers Association

(IMLA) has been an advocate and resource for local

government attorneys since 1935. Owned solely by its

more than 2,500 members, IMLA serves as an

international clearinghouse for legal information and

cooperation on municipal legal matters.

The Government Finance Officers Association

(GFOA) is the professional association of state,

provincial, and local finance officers in the United

States and Canada. The GFOA has served the public

finance profession since 1906 and continues to pro-

vide leadership to government finance professsionals

through research, education, and the identification

and promotion of best practices. Its 18,000 mem-

bers are dedicated to the sound management of

government financial resources.

3a

The International Public Management Association

for Human Resources (IPMA-HR) represents human

resource professionals and human_ resource

departments at the federal, state, and local levels of

government. IPMA-HR was founded in 1906 and

currently has over 8,000 members. IPMA-HR

promotes public-sector human resource management

excellence through research, publications, profess-

sional development and conferences, certification,

assessment, and advocacy.

The National School Boards Association (NSBA)

represents state associations of school boards across

the country and their more than 90,000 local school

board members. NSBA’s mission is to promote equity

and excellence in public education through school

board leadership. NSBA regularly represents its

members interests before Congress and in federal and

state courts, and frequently in cases involving the

impact of federal] employment laws on public school

districts.

AASA, the School Superintendents Association,

advocates for the highest quality public education for

all students, and develops and supports school system

leaders. Founded in 1865, AASA is the professional

organization for more than 13,000 educational leaders

in the United States and throughout the world. AASA

members range from chief executive officers, superin’

tendents and senior Jevel school administrators to

cabinet members, professors and aspiring school

system leaders.

The National Association of Elementary School

Principals (NAESP), founded in 1921, is a professional

organization serving elementary and middle school

principals and other education leaders throughout the

da

United States, Canada, and overseas. NAESP

advocates for the support principals need to be

successful 21st century leaders—to achieve the

highest results for children, families, and

communities. And, we support the continual

development of our members—principals in many

different stages of their careers—through benefits,

and awards. All of our activities are designed to help

principals and learning communities achieve desired

results for every child. The mission of the National

Association of Elementary School Principals (NAESP)

is to lead in the advocacy and support for elementary

and middle level principals and other education

leaders in their commitment for all children.