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

No. 17-494

In The

Supreme Court of the Anited States

—

SOUTH DAKOTA,

Petitioner,

Vv.

WAYFAIR, INC., ET AL.,

Respondents.

oe

a

On Writ Of Certiorari To The

Supreme Court Of South Dakota

e@

BRIEF FOR STATE OF NEW HAMPSHIRE AS

AMICUS CURIAE SUPPORTING RESPONDENTS

eo

v

GORDON J. MACDONALD CHRISTOPHER T. SUNUNU

Attorney General Governor

LAURA E.B. LOMBARD! OFFICE OF THE GOVERNOR

Senior Assistant State House

Attorney General 107 North Main Street

Concord, NH 03301

ANTHONY J. GALDIERI* (603) 271-2121

Assistant Attorney General

NEW HAMPSHIRE

DEPARTMENT OF JUSTICE

33 Capitol Street

Concord, NH 03301

(603) 271-3658

Laura.Lombardi@doj.nh.gov

Anthony.Galdieri@doj.nh.gov

April 4, 2018

*Counsel of Record

COCKLE LEGAL BRIEFS (800) 225-6964

WWW COCKLELEGALBRIEFS COM

i

TABLE OF CONTENTS

Page

ee Ce GE vitikinsnciesernessctovensiiesccceesens i

TABLE OF AUTHORITIES. ............cccscccscccssecesseees iii

INTEREST OF AMICUS CURIAE.................00066 1

SUMMARY OF THE ARGUMENT ...................4. 2

ED wivbidcusubciarnnntiniemngpngitientatdainainstnmiginiss 4

I. Stare decisis demands adherence to Bellas

Hess’s physical-presence requirements for

UE IE I GI einicitciictettreetnsccaenicees 4

A. Stare decisis applies with enhanced

strength in this Case..............ccccceseeseees 6

1. Overturning Bellas Hess’s physical-

presence requirement for sales and

use taxes will unsettle existing prop-

erty and contract rights.................. 6

2. Congress retains the power to relax

Bellas Hess’s physical-presence re-

quirement in prospective, nuanced

ways that this Court cannot accom-

NO tiacianinnendnieiavetancntinapinipsinnns 14

3. Congress has foregone multiple op-

portunities to change or otherwise

modify Bellas Hess and Quill........... 16

4. Bellas Hess’s physical-presence re-

quirement creates a bright-line rule

of taxation that creates business con-

I cnccssscisusuassicaptaeeincnetiacesiaidaibe 17

ii

TABLE OF CONTENTS -— Continued

Page

B. No special justifications of any signifi-

cance counsel overturning Bellas Hess’s

physical-presence requirement............. 20

C. The considerations in favor of stare deci-

sis outweigh any special justifications.... 25

GNIS crspcecascesesastscincsubisteonenvsusisornessiosonnte 27

iil

TABLE OF AUTHORITIES

Page

CASES

Arizona Dep’t of Revenue v. Blaze Constr. Co.,

Be Ee By CIID ccrciasenchustuléduaptevubocemecmaitansdineneconteen 17

Arkansas Coop. Corp. v. Arkansas Pub. Serv.

Comm'n, 461 U.S. S76 (1968) .....cccccscccccccscscssecces. 200s 19

Case of the State Freight Tax, 82 U.S. 232 (1872)....7, 20

Comptroller of the Treasury of Maryland v.

Mm DB ee 7

Goldberg v. Sweet, 488 U.S. 252 (1989) ...............000008. 10

Halliburton Co. v. Erica P. John Fund, Inc., 134

8 8 ae 5

In re Scholastic Book Clubs, Inc., 920 P.2d 947

nite cians teen cpcteeaediibaas idcampbssningebedensal 21

Kimble v. Marvel Entertainment, LLC, 135 S. Ct.

ee ED iirtencretstsmeincinannnnieseninnnssenivinntnenseseess passim

McCulloch v. Maryland, 17 U.S. 316 (1819)................. 7

McLeod v. J.E. Dilworth Co., 322 U.S. 327 (1944)....... 18

Michigan v. Bay Mills Indian Community, 134

3 | Ere Tee 4

Miller Bros. Co. v. Maryland, 347 U.S. 340 (1954)...... 24

National Bellas Hess, Inc. v. Department of Rev-

enue of Illinois, 386 U.S. 753 (1967) ............... passim

National Geographic Soc’y v. California Bd. of

Equalization, 430 U.S. 551 (1977) ..........ccccceee 10, 21

iv

TABLE OF AUTHORITIES — Continued

Page

Northwest States Portland Cement Co. v. Minne-

Sate SRS Ui Ge Ce captecntocenenarsemeinansamecstaciiniiiin 24

Oklahoma Tax Comm’n v. Jefferson Lines, Inc.,

oo! @. 7) eae 11,18

Overstock.com, Inc. v New York State Dep’t of

Taxation & Fin. , 987 N.E.2d 621 (N.Y. 2013)......... 21

Payne v. Tennessee, 501 U.S. 808 (1991)................. 4,21

Printup v. Kenner, 180 N.W.2d 512 (S.D. 1920)........... 6

Public Util. Comm’n of Rhode Island v. Attleboro

Steam & Elec. Co., 273 U.S. 83 (1927) ................00 19

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

Scholastic Book Clubs, Inc. v. Commissioner of

Revenue Servs., 38 A.3d 1183 (Conn. 2012)............ 21

Scholastic Book Clubs, Inc. v. State Bd. of Equal-

ization, 207 Cal. App. 3d 734, 255 Cal. Rptr. 77

GE GEE cectincsstiecnistsdnictindiccruntadgidiaeiliaiiisiosacilibeaiiel 21

Scripto, Inc. v. Carson, 362 U.S. 207 (1960)................ 19

Shepherd v. United States, 544 U.S. 13 (20085)........... 16

Sullivan v. United States, 395 U.S. 169 (1969).......... 18

Travelocity.com, LP v. Wyoming Dep't of Reve-

nue, 329 P.3d 131 (Wyo. 2014) ..........ccccccceeeteeeeeeeeee 21

United Air Lines, Inc. v. Mahin, 410 U.S. 623

CII wcsrinnraniansnitsanisiissinigiadenisinumitinalicsscicantgibiiaeinnteds 11

Vasquez v. Hillery, 474 U.S. 254 (1986) .........ccccceceeee 5

Wagnon v. Prairie Band Potawatomi Nation, 546

EA le GI icecrnicciscdnscnsisscsssendidictapeisiaiieniiiadninaa 17

Vv

TABLE OF AUTHORITIES — Continued

Page

Watson v. United States, 552 U.S. 74 (2007) .............. 16

Williams v. Fiat & Slagle Co., 42 A. 431 (Del.

EEE EBLE ee 7

RULES

REE Sa ee a a a 2

OTHER AUTHORITIES

Bloomberg BNA, 2017 Survey of State Tax De-

partments, Special Report, Multistate Tax Re-

port, Vol. 24, No. 4 (Tax Management Inc.

SI rit etait adtcaicariinnatdiiadidanestitiainaiesennsincadeatunessnene 12

H.R.2193, Remote Transactions Parity Act

EE 16

H.R.2887 — No Regulation Without Representa-

tion Act of 2017 (2017-2018) ..........ccccccccceseeeeeeeeees 16

S.976 — Marketplace Fairness Act of 2017 (2017-

NEL a a 16

1

INTEREST OF AMICUS CURIAE

In National Bellas Hess, Inc. v. Department of Reve-

nue of Illinois, 386 U.S. 753 (1967), this Court held in

the context of sales and use taxes that “a vendor whose

only contacts with the taxing State are by mail or com-

mon carrier lacks the ‘substantial nexus’ required by

the Commerce Clause.” Quill Corp. v. North Dakota,

504 U.S. 298, 311 (1992). The Court reaffirmed this

holding in Quill, which has now shaped sales-and-use-

tax dormant Commerce Clause jurisprudence for the

past 51 years.

Amicus curiae, the State of New Hampshire, has a

compelling interest in supporting Bellas Hess’s physical-

presence requirement for sales and use taxes for at

least the following reasons. First, New Hampshire has

a long, proud history of frugality and limited taxation.

It does not impose a sales tax on retail goods and its

retail businesses have never had to face the burden

and expense of attempting to collect, hold, and account

for the sales taxes of different jurisdictions. Second, ab-

rogation of Bellas Hess’s physical-presence require-

ment will harm New Hampshire’s sovereign interests

by permitting other States to reach across its borders

and impose sales tax collection compliance on New

Hampshire retail businesses. Such a result threatens

brick-and-mortar border businesses, as well as small!

Internet retailers, within New Hampshire with sales

tax obligations that promise to be extraordinarily dif-

ficult for them to detect and may expose them to un-

known tax liability in other States. Permitting other

States to extend their sales tax collection obligations

2

into New Hampshire will also dilute an important eco-

nomic advantage that New Hampshire possesses as a

non-sales tax State in attracting new business to open

and settle within its borders. Finally, imposing in-

creased sales tax collection compliance obligations on

New Hampshire businesses will likely increase the

price of retail goods for New Hampshire consumers, as

New Hampshire retailers pass the cost of collections

and compliance with out-of-state taxing jurisdictions

onto local customers. Accordingly, for at least all of the

above reasons, the State of New Hampshire has a com-

pelling interest in supporting Bellas Hess’s physical-

presence requirement for sales and use taxes.

,

—

SUMMARY OF THE ARGUMENT

1. Stare decisis applies with enhanced force in

this case and requires Bellas Hess’s physical-presence

requirement to be retained. Significant property and

contract rights have developed around and in reliance

on this physical-presence requirement, which has

been in place for over 50 years. Congress retains the

power to relax this physical-presence requirement in

prospective, nuanced ways that this Court cannot.

Congress is acutely aware of Bellas Hess’s physical-

presence requirement and has proposed legislation

concerning it on many occasions. Congress’s refusal to

modify Bellas Hess’s physical-presence requirement is

a powerful indication that Congress believes that this

3

Court has struck the correct balance. Also, Bellas

Hess’s physical-presence requirement creates a bright-

line rule in the unique and complex area of sales and

use taxation. A bright-line rule in this context provides

confidence to small business owners and private indi-

viduals regarding their sales and use tax obligations

and enables them to do business over the Internet

without the need to invest in expensive software and

other professional services in order to discern and meet

thousands of different sales and use tax obligations.

2. No special justifications of any significance

justify abandoning Bellas Hess’s physical-presence

requirement. Changes in law have not undermined

Bellas Hess’s physical-presence requirement. Rather,

this Court’s jurisprudence and the jurisprudence of

other States has developed around and in reliance on

Bellas Hess’s physical-presence requirement. State-by-

state innovation and creativity in taxing large Internet

retailers is also enabling States to identify physical

presences potentially substantial enough to permit

the imposition of sales and use taxes, consistent with

Bellas Hess’s physical-presence requirement. Bellas

Hess’s physical-presence requirement is not a detriment

to coherency in the law. It is instead consistent with

this Court’s substantial nexus jurisprudence, while

recognizing the uniqueness of sales and use taxes and

the complexities that surround individual compliance

with them. Bellas Hess’s physical-presence require-

ment is also not badly reasoned, but is a sensible, work-

able rule that is capable of being adapted and applied

to large Internet retailers, while insulating small

4

Internet retailers, small brick-and-mortar businesses,

and private individuals from overly burdensome,

multitudinous sales and use tax obligations. To the

extent the States believe that Bellas Hess’s physical-

presence requirement should be changed or modified

to better accommodate the reality of Internet sales and

mobile transactions, those concerns are better ad-

dressed by Congress than this Court.

3. In short, a “superpowered form of stare decisis”

attaches to Bellas Hess’s physical-presence require-

ment for sales and use taxes that is not outweighed by

any special justifications. Kimble v. Marvel Entertain-

ment, LLC, 135 S. Ct. 2401, 2410 (2015). Accordingly,

Bellas Hess’s physical-presence requirement should be

retained on stare decisis grounds. The judgment below

should therefore be affirmed.

®

a

ARGUMENT

I. Stare decisis demands adherence to Bellas

Hess’s physical-presence requirements for

sales and use taxes.

Stare decisis is the “foundation stone of the rule of

law.” Michigan v. Bay Mills Indian Community, 134

S. Ct. 2024, 2036 (2014). It “is the preferred course be-

cause it promotes the evenhanded, predictable, and

consistent development of legal principles, fosters reli-

ance on judicial decisions, and contributes to the actual

and perceived integrity of the judicial process.” Payne

5

v. Tennessee, 501 U.S. 808, 827 (1991). In this way, stare

decisis “permits society to presume that bedrock prin-

ciples are founded in the law rather than in the pro-

clivities of individuals. . . .” Vasquez v. Hillery, 474 U.S.

254, 265 (1986).

While stare decisis is flexible to a point, like all

self-policing measures, it furthers its intended goals

only if it is applied in a consistent and principled

manner over time. Thus, by necessity, “[rjespecting

stare decisis means sticking to some wrong decisions.”

Kimble, 135 S. Ct. at 2409. “Indeed, stare decisis has

consequence only to the extent it sustains incorrect de-

cisions; correct judgments have no need for that prin-

ciple to prop them up.” Jd. An argument that the

Court got it wrong “cannot by itself justify scrapping

settled precedent.” Jd. Rather, a “‘special justification’

~— over and above the belief that precedent was wrongly

decided” must be shown. /d. (quoting Halliburton Co.

v. Erica P- John Fund, Inc., 134 S. Ct. 2398, 2407

(2014)).

Whether a “special justification” exists and

whether that “special justification” is sufficient to sup-

plant existing precedent is evaluated on a case-by-case

basis. The analysis has three components. First, the

Court determines the strength with which stare decisis

applies. Second, the Court determines the strength of

the “special justifications” asserted. Third, the Court

balances the stare decisis considerations against the

“special justifications” to determine whether to adhere

to or abandon a particular precedent. This Court’s

6

opinion in Kimble follows that basic analytical frame-

work. 135 S. Ct. at 2409-15 (assessing strength of stare

decisis considerations and balancing them against the

special justifications asserted).

A. Stare decisis applies with enhanced

strength in this case.

The doctrine of stare decisis applies with enhanced

strength in this case for at least the following four rea-

sons.

1. Overturning Bellas Hess’s physical-

presence requirement for sales and

use taxes will unsettle existing prop-

erty and contract rights.

Stare decisis is at its “acme” where overturning

precedent means unsettling existing property and con-

tract rights. See, e.g., Kimble, 135 S. Ct. at 2410; Payne,

501 U.S. at 828. “That is because parties are especially

likely to rely on such precedents when ordering their

affairs.” Kimole, 135 S. Ct. at 2410; see Printup v. Ken-

ner, 180 N.W.2d 512, 513 (S.D. 1920) (applying stare

decisis to uphold incorrect decision of statutory con-

struction because that decision established a rule of

property in the state for 16 years). “The maxim of stare

decisis has generally been strictly applied where titles

to real estate have been acquired or commercial usages

have been established under decisions of the court;

even where such decisions may have been erroneous,

for the reason that a reversal of such decisions would

7

disturb property rights already acquired and would

work harm and mischief upon those who have honestly

invested their means upon the faith of such decisions.”

Williams v. Fiat & Slagle Co., 42 A. 431, 438 (Del.

1899).

This Court’s dormant Commerce Clause jurispru-

dence lies inescapably at the confluence of property

and contract rights. Its purpose is to establish the

boundary between congressional power to regulate

interstate commerce and State power to burden inter-

state commerce. “By prohibiting States from discrimi-

nating against or imposing excessive burdens on

interstate commerce without congressional approval,

{the Commerce Clause] strikes at one of the chief evils

that led to the adoption of the Constitution, namely,

State tariffs and other laws that burdened interstate

commerce.” Comptroller of the Treasury of Maryland v.

Wynne, 135 S. Ct. 1787, 1794 (2015).

This Court recognized early on that, absent

some limits on the States to impose tax burdens on in-

terstate commerce, goods in one part of the country

could be effectively excluded from the markets of an-

other part of the country by a crush of multitudinous

State taxes. Case of the State Freight Tax, 82 U.S. 232,

280 (1872); see also McCulloch v. Maryland, 17 U.S.

316, 431 (1819) (recognizing that “the power to tax in-

volves the power to destroy”). As a result, this Court’s

dormant Commerce Clause jurisprudence has not

just engendered significant reliance interests, it has

shaped and formed industries and, in some cases, has

permitted the creation of businesses that might not

8

otherwise exist. It is therefore critical that the Court

treat its dormant Commerce Clause jurisprudence as

establishing clear, fixed, decisional boundaries that, if

they are to be moved at all, move slowly, incrementally,

and almost imperceptibly over time, without irrepara-

bly damaging the property and contract rights of es-

tablished businesses and private individuals, or, even

worse, wiping them out entirely.

Quill reaffirmed Bellas Hess at the dawn of the e-

commerce boom. Since then, many businesses, includ-

ing small businesses, have established an online pres-

ence in order to generate wealth and compete in the

marketplace. Brick-and-mortar retail establishments

have been steadily declining, either by shifting to an e-

commerce business model in whole or in part or by go-

ing out of business. Society has similarly been devoting

more resources to educating private citizens on how to

create, develop, and sustain businesses that rely in

whole or in part on retail sales driven by the Internet.

This massive shift in how America does business

has been aided in part by Bellas Hess’s physical-pres-

ence requirement. Under Bellas Hess, small business

owners can solicit customers via e-mail at little to no

expense and sell their goods to customers over the In-

ternet without having to worry about collecting sales

or use taxes from jurisdictions in which they do not

have a physical presence. Undoing Bellas Hess makes

the sales and use tax obligations of these small busi-

nesses highly uncertain.

9

If Bellas Hess’s physical-presence requirement is

abandoned, small Internet retail businesses will have

to navigate and comply with the sales-and-use tax

requirements of approximately 10,000 to 12,000 differ-

ent jurisdictions. The task will be significantly burden-

some, if not impossible, for many small Internet retail

businesses to meet. There exists no uniform system

of laws for sales and use taxes. Every State has its

own exemptions, deductions, credits, and rates and

some declare temporary tax holidays. Small businesses

will have to employ sophisticated, expensive software

to manage these various different tax obligations and

will have to invest additional resources, including

potentially seeking legal and accounting advice, to

determine what precisely their sales-and-use tax

obligations are. See Bellas Hess, 386 U.S. at 759-60

(observing that the “many variations in rates of tax,

in allowable exemptions, and in administrative and

recordkeeping requirements could entangle |a mail-or-

der house] in a virtual welter of complicated obliga-

tions”).

The prevalence of remote Internet transactions

only complicates matters. For example, it is not uncom-

mon in today’s world that a customer who is domiciled

in California may review an e-mail solicitation that ex-

ists on a computer server in Virginia on her iPhone

while traveling through Kansas. She may then pur-

chase a product based on that solicitation using her

iPhone from a New Hampshire business, provide her

California address as her billing address, and have the

product shipped to her college dormitory at Kentucky

10

State University. Let’s say all of foregoing jurisdictions

except for New Hampshire have a sales tax potentially

applicable to the transaction. The seller has to collect

and remit the tax. In the absence of Bellas Hess’s phys-

ical-presence requirement, the following questions

arise: does this small New Hampshire business have a

“substantial nexus” to any of the sales and use taxing

jurisdictions mentioned and, if so, to which ones? If the

small business owner cannot divine the answers to

these questions, it can never meaningfully meet its

sales tax obligations and, more importantly, can never

feel secure that someday a particular State will not as-

sess it for years of back sales taxes it could not identify

and collect from customers in real time.

Perhaps the answer to the above questions is that

a small business in this scenario has no “substantial

nexus” to any of the sales and use taxing jurisdictions

mentioned above, other than the jurisdiction in which

the small business is physically present. This Court’s

existing jurisprudence would appear to support that

result. See, e.g., Quill Corp., 504 U.S. at 315 n. 8 (sug-

gesting that having “title to ‘a few floppy diskettes’ pre-

sent in a State” in addition to common carrier contacts

does not constitute a “substantial nexus” under the

Commerce Clause); Goldberg v. Sweet, 488 U.S. 252,

263 (1989) (“We also doubt that termination of an in-

terstate telephone call, by itself, provides a substantial

enough nexus for a State to tax a call.”); National Geo-

graphic Soc’y v. California Bd. of Equalization, 430

U.S. 551, 556 (1977) (refusing to endorse a “‘slightest

presence’ standard of constitutional nexus”); United

11

Air Lines, Inc. v. Mahin, 410 U.S. 623, 631 (1973) (hold-

ing that State has no nexus to tax an airplane based

solely on its flight over the State).

But that result will effectively create a mobile cus-

tomer exception in place of Bellas Hess’s physical-pres-

ence requirement. Such an exception will inevitably

permit certain types of businesses to flourish over oth-

ers. It may also cause industries to restructure and

adapt their business models in different ways to try to

ensure a “substantial nexus” is not created with any

particular sales tax jurisdiction other than the sales

tax jurisdiction in which the business itself is physi-

cally located. Then, in another 25 to 30 years, this

Court will be asked by another State to overrule that

exception and further dilute dormant Commerce

Clause requirements in the sales and use tax space.

That does not seem like the preferred course.

Perhaps instead the answer to the above hypothet-

ical is that Kansas, in addition to New Hampshire, has

a “substantial nexus” to the sale sufficient to tax it. Af-

ter all, a sales tax is a tax on the incidence of a partic-

ular transaction, i.e., the passing of title in exchange

for consideration. If the sale of the retail good is

deemed consummated in Kansas, then Kansas sales

tax should apply. See Oklahoma Tax Comm’n v. Jeffer-

son Lines, Inc., 514 U.S. 175, 184 (1995) (“It has long

been settled that a sale of tangible goods has a suffi-

cient nexus to the State in which the sale is consum-

mated to be treated as a local transaction taxable by

the State.”).

12

But that begs the next question: How does the

small business Internet retailer in New Hampshire

know the sale was con ummated in Kansas, as opposed

to California (the billing address) or Kentucky (the de-

livery address)? After all, the purchaser was simply

passing through Kansas at the time the purchase was

consummated and may have only been technically pre-

sent in Kansas for a short period of time. If the small

business Internet retailer cannot discern where the

sale was consummated, it cannot appropriately collect,

account for, and remit the sales tax owed.

The problem of “sourcing” — the way in which the

location of the consummation of the sale is determined

— would be exacerbated by overruling Bellas Hess and

Quill. “Every state imposing sales and use taxes pro-

vides sourcing rules to identify the location of a sale

and to determine which jurisdiction is entitled to the

revenue generated from the transaction.” Bloomberg

BNA, 2017 Survey of State Tax Departments, Special

Report, Multistate Tax Report, Vol. 24, No. 4 at S-357

(Tax Management Inc. 2017). “Yet sourcing has become

a complicated endeavor for taxpayers.” Jd. “Sourcing

rules vary from state to state and may depend upon

the object of the transaction; they may be further com-

plicated by the type of transaction and mode of deliv-

ery.” Id. As complicated as these varying sourcing rules

may be now, they will only get worse without the

bright-line test which currently bounds the question in

the sales and use tax realm.

Thus, even setting aside the burden each State’s

substantive sales and use tax laws will impose on

13

small businesses and private individuals, the added

burden on those entities and persons to understand

and comply with the various State sourcing rules for

sales and use taxation without a bright-line physical-

presence rule could force those businesses and persons

out of the Internet retail market. Such a potential re-

sult militates strongly in favoring of retaining Bellas

Hess’s physical-presence requirement.

Brick-and-mortar border businesses in New Hamp-

shire also face the loss of their property and contract

rights if Bellas Hess’s physical-presence requirement

is overturned. New Hampshire borders Vermont, Mas-

sachusetts, Maine, and the Province of Quebec. New

Hampshire has no sales tax, a feature which draws

residents of neighboring States across the border to

make purchases from New Hampshire border busi-

nesses. These border businesses may advertise into

these bordering jurisdictions, but otherwise lack a

physical presence in them. If Bellas Hess’s physical-

presence requirement is overturned, these border

stores may now be faced with the burden of having to

collect, account for, and remit sales tax to those neigh-

boring States. That obligation will likely force those

businesses to increase their prices to consumers, in-

cluding New Hampshire consumers, who have chosen

through their elected representatives to keep the price

of retail goods in their State low by not imposing a

statewide sales tax on retail goods.

In short, significant reliance interests, including

significant property and contract rights, have developed

around Bellas Hess’s physical-presence requirement

14

over the past 51 years. Bellas Hess and Quill cannot be

overturned without unsettling those property and con-

tract rights and potentially putting certain small busi-

nesses or private individuals out of business. Moreover,

to the extent there is even uncertainty as to whether

overturning Bellas Hess’s physical-presence require-

ment will unsettle existing property and contract

rights (and the amicus curiae suggests that there is

plenty), this Court has held that such uncertainty cuts

in favor of stare decisis. See Kimble, 135 S. Ct. at 2410

(*[Elven uncertainty .. . cuts in Marvel’s direction. So

long as we see a reasonable possibility that parties

have structured their business transactions in light of

Brulotte, we have one more reason to let it stand.”).

Accordingly, stare decisis considerations should

be given great weight in this context because of the

significant property and contract rights that have

developed around and in reliance on Bellas Hess's

physical-presence rule.

2. Congress retains the power to relax

Bellas Hess’s physical-presence re-

quirement in prospective, nuanced

ways that this Court cannot accom-

modate.

This Court has recognized that stare decisis car-

ries special weight where Congress retains the power

to resolve the matter. See, e.g., Kimble, 135 S. Ct. at

2409; Quill Corp., 504 U.S. at 318. Congress possesses

the legislative tools necessary to resolve the debate

15

regarding Bellas Hess’s physical-presence requirement

in a responsible manner without unduly harming

small businesses and private individuals. For example,

Congress can set an effective date for a law lifting Bel-

las Hess’s physical-presence requirement out far

enough to ensure that persons have enough time to re-

structure their businesses to comply with any new

sales and use tax obligations they might face. Congress

can also hear testimony and review evidence related to

the impact any proposed legislation may have on the

States, the e-commerce industry, large businesses,

small businesses, and private individuals. Congress

can then weigh the various interests involved and

fashion a solution that is far more comprehensive, nu-

anced, and protective of existing property and contract

rights than this Court is capable of crafting. Among

other things, Congress could provide tax deductions,

compensatory schemes, or other forms of financial re-

lief to small businesses and private individuals to help

them shoulder the cost and burden of compliance with

any new sales and use tax obligations.

But Congress cannot cede authority to the States

that this Court deems Congress never had in the first

place. Thus, if overturning Bellas Hess’s physical-pres-

ence requirement for sales and use taxes turns out to

be a problematic economic decision, only this Court

will be able to correct that decision and only in an ap-

propriate case. Accordingly, stare decisis considera-

tions should be given considerable weight in this case

because Congress retains the power to relax Bellas

16

Hess’s physical-presence requirement in prospective,

nuanced ways that this Court cannot.

3. Congress has foregone multiple op-

portunities to change or otherwise

modify Bellas Hess and Quill.

Considerations favoring stare decisis also apply

with added force where Congress “has spurned multi-

ple opportunities to reverse” the decision. Kimble, 135

S. Ct. at 2404; see, eg., Watson v. United States, 552

U.S. 74, 82-83 (2007) (“What is more, in 14 years Con-

gress has taken no step to modify Smith’s holding, and

this long congressional acquiescence has enhanced

even the usual precedential force we accord to our in-

terpretations of statutes.”) (internal quotations omit-

ted); Shepherd v. United States, 544 U.S. 13, 23 (2005)

(“In this instance, time has enhanced even the usual!

precedential force, nearly 15 years having passed since

Taylor came down, without any action by Congress to

modify the statute. . . .”).

Congress has been well aware of Bellas Hess’s

physical-presence requirement for over half a century

and has proposed legislation concerning the require-

ment on many occasions, including very recently.

See, e.g., H.R.2193, Remote Transactions Parity Act

(2017-2018); H.R.2887 — No Regulation Without Rep-

resentation Act of 2017 (2017-2018); 8.976 — Market-

place Fairness Act of 2017 (2017-2018); see also Quill

Corp., 504 U.S. at 318 n.11. Congress is therefore

acutely aware of Bellas Hess’s physical-presence

17

requirement and has nonetheless spurned multiple op-

portunities to change or alter it. This state of affairs

also cuts in favor of applying stare decisis.

4. Bellas Hess’s physical-presence re-

quirement creates a bright-line rule

of taxation that creates business

confidence.

This Court has recognized that bright-line rules in

the area of transaction taxation are preferable over

more amorphous balancing or factor-driven tests. See,

e.g., Quill Corp., 504 U.S. at 315-16; Wagnon v. Prairie

Band Potawatomi Nation, 546 U.S. 95, 113-14 (2005)

(“The application of the interest-balancing test to the

Kansas motor fuel tax is not only inconsistent with the

special geographic sovereignty concerns that gave rise

to that test, but also with our efforts to establish

‘bright line standard|s]’ in the context of tax admin-

istration.”) (quoting Arizona Dep’t of Revenue v. Blaze

Constr. Co., 526 U.S. 32, 37 (1999)). Indeed, this Court

identified the bright-line test Bellas Hess created as a

virtue in Quill: “Such a rule firmly establishes the

boundaries of legitimate state authority to impose a

duty to collect sales and use taxes and reduces litiga-

tion concerning those taxes.” Quill Corp., 504 U.S. at

315-16.

Approximately 10,000 to 12,000 different jurisdic-

tions exist in the United States capable of levying a

sales and use tax on retail goods. The sale of retail

goods is commonplace throughout the United States

18

and is engaged in daily by millions of small businesses

and consumers. Sales taxes differ substantially from

income taxes and other kinds of taxes, and this Court

has properly recognized sales and use taxes as unique.

The incidence of a sales tax “is not the property itself

or its presence within the State,” but “is the transfer of

title for consideration, a legal act which can be accom-

plished without the property ever entering the State.”

Sullivan v. United States, 395 U.S. 169, 175-76 (1969);

McLeod v. J.E. Dilworth Co. , 322 U.S. 327, 330 (1944)

(“A sales tax is a tax on the freedom of purchase. . . .”);

see Jefferson Lines, 514 U.S. at 186 (“A sale of goods is

most readily viewed as a discrete event facilitated by

the laws and amenities of the place of sale, and the

transaction itself does not readily reveal the extent to

which completed or anticipated interstate activity af-

fects the value on which the buyer is taxed.”).

Moreover, with a typical retail sale, the consumer

pays the sales tax and the seller is responsible for hold-

ing the funds as a trustee for the State or local juris-

diction permitted to collect it. See Jefferson Lines, 514

U.S. at 190 (differentiating from an income tax on a

seller and a sales tax which “falls on the buyer”). The

seller becomes, in effect, an agent for the State tax col-

lector, to move tax dollars from the buyer to the State.

At the same time, in many jurisdictions, the conse-

quences to a seller who does not faithfully fulfill their

obligations with respect to such “trust fund taxes” can

be severe. Typically, failure to comply encompasses

personal liability, stiff penalties, and, potentially, crim-

inal jeopardy. The seller must therefore know precisely

19

which States or local jurisdictions are taxing the trans-

action, account carefully for the collected funds, and

appropriately remit those collected funds for a multi-

tude of individual transactions.

The same burdens do not accompany income

taxes, which are levied by a small fraction of the num-

ber of jurisdictions that can levy a sales or use tax and

which are based on the gross taxable income or re-

ceipts of the business, subject to deductions, credits,

etc., and are apportioned based on the extent of the

business’ activity in the State. The distinction and the

justification for the bright line in sales and use taxes is

manifest. If the State wishes to require the seller to

serve as its agent for tax collection and expose the

seller to the kinds of consequences noted above, it must

establish a solid jurisdictional basis to fix liability, and

a bright-line rule makes it fair and puts the seller on

notice of what it may be getting itself, and the individ-

uals involved, into. See, e.g., Quill Corp., 504 U.S. at

315-16 (explaining that, though a bright-line rule in

the sales and use tax space may be artificial, its “arti-

ficiality . . . is more than offset by the benefits of a clear

rule”); Scripto, Inc. v. Carson, 362 U.S. 207, 211-13

(1960) (discussing need for due process when tasking

seller to be State’s sales and use tax collector).

That places Bellas Hess’s physical-presence re-

quirement in a unique context that other Commerce

Clause precedents did not find themselves at the time

this Court overruled them. See, e.g., Arkansas Coop.

Corp. v. Arkansas Pub. Serv. Comm'n, 461 U.S. 375

(1983); Public Util. Comm’n of Rhode Island v.

20

Attleboro Steam & Elec. Co., 273 U.S. 83 (1927). Indeed,

the number of taxing jurisdictions that can legiti-

mately tax a particular item or transaction has been a

relevant consideration in this Court’s dormant Com-

merce Clause jurisprudence since the beginning. Case

of the State Freight Tax, 82 U.S. at 280. Additionally,

the number of sales transactions that occur on a daily

basis across the United States far exceeds the number

of times during a year a State can levy an income tax

on a particular entity. Thus, certainty for small busi-

nesses and private individuals in the area of sales and

use tax obligations is critical as they may not have the

resources to comply with multi-jurisdictional tax obli-

gations or to purchase the software and other services

needed to ensure compliance with those obligations, in-

cluding the services necessary to facilitate the careful

accounting for and remittance of trust fund taxes.

Consequently, for all of the above reasons, the

same “superpowered form of stare decisis” that existed

in Kimble exists in this case. 135 S. Ct. at 2410. Thus,

to overcome it, there must be “a superspecial justifica-

tion.” Jd. For the reasons described in detail below, no

such justification exists.

B. No special justifications of any signifi-

cance counsel overturning Bellas Hess’s

physical-presence requirement.

This Court has recognized at least the following

special justifications that may advise overturning ex-

isting precedent: (1) whether changes in the law have

21

undermined the precedent; (2) the need to bring the

law into line with experience and newly ascertained

facts; (3) whether the precedent has become a detri-

ment to coherence and consistency in the law; and (4)

whether the precedent is unworkable in practice or

badly reasoned. See Payne, 501 U.S. at 828; id. at 842

(Scalia, J., concurring); id. at 849 (Marshall, J., dissent-

ing). None of these special justifications counsels in fa-

vor of overturning Bellas Hess’s physical-presence

requirement for sales and use taxes.

First, changes in law have not undermined Bellas

Hess’s physical-presence requirement. Rather, this

Court’s jurisprudence has developed around and in re-

liance on Bellas Hess’s physical-presence requirement.

Not only have many cases directly relied on Bellas

Hess and Quill, but many have distinguished them-

selves from those cases in order to bring further clarity

to the boundary between congressional authority to

regulate interstate commerce in the area of sales and

use taxes and State authority to impose such taxes.

See, e.g., National Geographic Soc’y v. California Bd. of

Equalization, 430 U.S. 551 (1977); Travelocity.com, LP

v. Wyoming Dep’t of Revenue, 329 P.3d 131 (Wyo. 2014);

Overstock.com, Inc. v New York State Dep’t of Taxation

& Fin., 987 N.E.2d 621 (N.Y. 2013); Scholastic Book

Clubs, Inc. v. Commissioner of Revenue Servs. , 38 A.3d

1183 (Conn. 2012); In re Scholastic Book Clubs, Inc.,

920 P.2d 947 (Kan. 1996); Scholastic Book Clubs, Inc. v.

State Bd. of Equalization, 207 Cal. App. 3d 734, 738,

255 Cal. Rptr. 77 (Cal. 1989).

22

State-by-state innovation and creativity in taxing

large Internet retailers is also enabling States to iden-

tify physical presences that may be substantial enough

to permit the imposition of sales and use taxes. See

Brief of the Tax Foundation as Amicus Curiae in Sup-

port of Neither Party at 19-26, 27-28. Indeed, if a busi-

ness desires to grow beyond a certain point, it almost

certainly needs to have some form of physical presence

in many or all States, even if that physical presence is

through unwritten agreements with in-state agents to

promote their business on local websites or through

downloadable “apps” or “cookies” or data-harvesting

equipment or devices. These new forms of physical

presence may be capable of meeting Bellas Hess’s

physical-presence requirement and demonstrate that

legislative innovation is capable of meeting and at-

tempting to solve the challenges presented by new

modes of doing business.

Moreover, to the extent Bellas Hess’s physical-

presence requirement could be refined for the digital

age, Congress is better equipped to bring it into con-

formance with current experience in a much more com-

prehensive and nuanced fashion than this Court.

Second, Bellas Hess’s physical-presence require-

ment has not become a detriment to coherence and

consistency in the law nor is it unworkable in practice.

Rather, as this Court observed in Quill, the physical-

presence requirement for sales and use taxes is

consistent with this Court’s substantial nexus juris-

prudence and creates a bright-line rule that provides

23

business confidence in a unique and complex area of

taxation.

Additionally, overruling Bellas Hess’s physical-

presence requirement will not make this Court’s

dormant Commerce Clause jurisprudence any more co-

herent or consistent. As technology advances and soci-

ety changes, businesses will adapt and find new

business models that seek to minimize tax obligations.

It is therefore inevitable that the quandary this Court

faces today will re-emerge in the future, even in the

absence of Bellas Hess’s physical-presence require-

ment. Thus, this case presents a critical sub-question

for this Court: is its dormant Commerce Clause juris-

prudence an ongoing effort in national economic poli-

cymaking or is it an attempt to discern the boundary

between congressional power to regulate interstate

commerce and State authority to burden it? If this

Court’s dormant Commerce Clause jurisprudence is an

ongoing effort in national economic policymaking, then

coherency and consistency in the law with respect to it

will never be achieved.

Third, while some may believe that Bellas Hess’s

physical-presence requirement established an eco-

nomic error, stare decisis “does not ordinarily bend to

wrong on the merits-type arguments; it instead as-

sumes Congress will correct whatever mistakes [the

Court] commit|s].” Kimble, 135 S. Ct. at 2413. In any

event, far from an economic error, Bellas Hess’s physi-

cal-presence requirement represents a sensible, work-

able rule for the Internet age that is capable of being

adapted and applied to large Internet retailers, while

24

insulating small Internet retailers, small brick-and-

mortar businesses, and private individuals from overly

burdensome, multitudinous sales and use tax obliga-

tions that threaten to make the price of doing business

over the Internet too high for them. Bellas Hess was

well reasoned and considered and should not be lightly

overturned.

Moreover, any attempt by this Court to correct

whatever economic problems it believes that Bellas

Hess and Quill may have created is, at this stage,

fraught with the same perils as the creation of that

precedent in the first instance. See, e.g., Northwest

States Portland Cement Co. v. Minnesota, 358 U.S. 450,

458 (1959); Miller Bros. Co. v. Maryland, 347 U.S. 340,

344 (1954). Indeed, scrapping over 50 years of sales

and use tax jurisprudence and attempting to reform a

body of physical-presence precedent to accommodate

the unique challenges and aspects those types of taxes

present promises only to deepen the quagmire in which

this Court’s dormant Commerce Clause jurisprudence

finds itself. Northwest States Portland Cement Co., 358

US. at 458. Consequently, preservation of Bellas Hess

and Quill ought to be the preferred course.

Fourth, the claim that Bellas Hess’s physical-pres-

ence requirement works a disadvantage on certain

States and localities has not been clearly established

and, in any event, is insufficient to overcome stare de-

cisis. Legislative innovation is proving potentially ca-

pable of extending sales and use taxes to certain

Internet retailers and should be given the room and

opportunity to continue to expand within Bellas Hess’s

25

physical-presence requirement. Additionally, claims

that a precedent capable of being changed by Congress

may have harmful consequences on the economies of

the States or its localities are more appropriately left

to Congress to resolve. See Kimble, 135 S. Ct. at 2414.

Congress is better equipped to weigh claims of harm

by the States and localities against the harm private

businesses and individuals may suffer and to develop

innovative, nuanced policy solutions to resolve those

competing interests. Congress is also better equipped

to manage those solutions in order to mitigate any ad-

verse effects on public and private parties. This Court

does not make national economic policy and is there-

fore not well equipped to fashion a solution without

risking the creation of further problems.

C. The considerations in favor of stare de-

cisis outweigh any special justifications.

As explained above, a “superpowered form of stare

decisis” attaches to Bellas Hess’s physical-presence re-

quirement for sales and use taxes that is not out-

weighed by any special justifications. Bellas Hess’s

physical-presence requirement has been in existence

for approximately 51 years and, during that time, has

engendered significant reliance interests, including

the vesting of substantial property and contract rights.

Congress retains the power to reverse, change, or oth-

erwise modify Bellas Hess’s physical-presence require-

ment in ways that protect those important reliance

interests.

26

In the meantime, Bellas Hess and Quill provide a

bright-line rule in a complex, unique area of taxation

that affects millions of American businesses every day,

including many small businesses, private individuals,

and consumers. Removing that bright-line rule has the

potential of making the cost of doing business over the

Internet too high and too uncertain for many small

business owners and private individuals who rely to

varying degrees on Internet-based retail sales made

through websites like eBay or Etsy. It also has the po-

tential of increasing consumer costs in States that

have chosen through their elected representatives not

to impose a sales tax on retail goods in order to keep

retail prices low.

Given these established interests and expecta-

tions, no special justifications of any significance exist

for departing from Bellas Hess and Quill. The States

must work instead within Bellas Hess’s physical-pres-

ence requirement and, if they are concerned about

their present inability to impose antiquated sales and

use tax laws on large Internet retailers, they must em-

ploy innovative, legislative solutions capable of reach-

ing those companies or otherwise persuade their

federal representatives in Congress to change Bellas

Hess’s physical-presence requirement through the leg-

islative process.

2

27

CONCLUSION

For all of the above reasons, this Court should de-

cline to overrule the physical-presence requirement for

sales and use taxes established in Bellas Hess and re-

affirmed in Quill on stare decisis grounds. The judg-

ment below should therefore be affirmed.

Respectfully submitted,

GORDON J. MACDONALD CHRISTOPHER T. SUNUNU

Attorney General Governor

LAURA E.B. LOMBARDI OFFICE OF THE GOVERNOR

Senior Assistant State House

Attorney General 107 North Main Street

ANTHONY J. GALDIERI* paren pi 3301

Assistant Attorney General .

NEW HAMPSHIRE

DEPARTMENT OF JUSTICE

33 Capitol Street

Concord, NH 03301

(603) 271-3658

Laura.Lombardi@doj.nh.gov

Anthony.Galdieri@doj.nh.gov

April 4, 2018

*Counsel of Record