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Congressional Gridlock Plays Central Role in Internet Tax Case

Supreme Court could reshape online commerce nationwide this term

Senate Budget Chairman Michael B. Enzi, R-Wyo., introduced a bill on the online sales taxation issue last year. (Tom Williams/CQ Roll Call file photo)
Senate Budget Chairman Michael B. Enzi, R-Wyo., introduced a bill on the online sales taxation issue last year. (Tom Williams/CQ Roll Call file photo)

The Supreme Court will hear oral arguments Tuesday in a major internet sales tax case, and it won’t be the first or last time the justices will try to figure out whether gridlock in Congress plays a role in their decision.

But usually the gridlock is not quite on this scale. The Supreme Court could reshape online commerce nationwide when it decides this term whether to overturn its 1992 ruling that bars states from collecting sales tax from out-of-state vendors.

That decision, in Quill Corp v. North Dakota, said Congress “remains free to disagree with our conclusions” and may be better qualified and have the ultimate power to resolve the interstate commerce issue.

Congress hasn’t acted in the 26 years since.

In the meantime, the emergence of e-commerce allowed online retailers such as Amazon and eBay to capture a significant chunk of the country’s retail sales from brick-and-mortar stores. States say that prevents them from collecting billions of sales and use taxes per year.

Ahead of Tuesday’s arguments in the new case, the justices have been given an array of theories from the U.S. government, states, businesses and industry groups about how their decision could influence the politics and potential of congressional action on the taxation issue.

[Opinion: Stop the Next Internet Power Grab]

The Supreme Court even got conflicting views from lawmakers themselves. One bipartisan group of senators used a brief to tell the justices that overturning the 1992 ruling would allow Congress to act.

That group included Senate Budget Chairman Michael B. Enzi of Wyoming, who introduced a bill on the issue last year, and Republican Sen. Lamar Alexander of Tennessee and Democratic Sens. Heidi Heitkamp of North Dakota and Richard J. Durbin of Illinois.

Two other groups of lawmakers argued in separate briefs that the justices should leave the decision alone or they could “chill” ongoing congressional efforts to address the issue. One of those briefs was by GOP Sens. Ted Cruz of Texas, Mike Lee of Utah and Steve Daines of Montana.

The other brief in this category was led by House Judiciary Chairman Robert W. Goodlatte of Virginia, and Oregon Sen. Ron Wyden, the top Democrat on the Finance Committee. 

The arguments could reveal how much congressional gridlock is on the justices’ minds as they decide what to do before the term ends in June.

Overturning themselves

The twist in this case is that the Supreme Court hasn’t been asked to strike down a federal law, just overturn its own decision that threw a ball to a Congress only to have lawmakers drop it.

Three justices have already expressed a desire to re-examine the Quill decision, including Justice Anthony M. Kennedy, who often casts the deciding vote on the nine-member court.

Lawmakers have pointed to bills and other draft legislation to show that Congress is not ignoring the issue or considering it half-heartedly. South Dakota GOP Rep. Kristi Noem was unsuccessful in her attempt to get her internet sales tax legislation added to the fiscal 2018 omnibus spending measure. But nothing has passed.

South Dakota, which passed a law specifically to give the Supreme Court a chance to revisit the Quill decision, told the justices that they need to overturn the old ruling and give back to states and local governments the right to tax, because 26 years of inaction demonstrates Congress is unlikely to do so.

“Congress has little incentive to act here because it would be (or appear to be) authorizing new or greater tax collections from its constituents, while receiving none of the revenue in return,” South Dakota’s brief states. “And even if Congress did act, whatever compromise legislation emerged would bear the fingerprints of how the physical-presence rule changed the default and forced the States to beg or bargain for their powers back.”

The Trump administration told the Supreme Court that a decision to overturn the Quill decision might actually enhance the chance of congressional action.

“Congress’s ability to regulate interstate commerce will be enhanced if this Court clarifies the appropriate default constitutional rule that will apply absent congressional intervention,” the government said in its brief.

And just because Congress can act, it doesn’t mean the Supreme Court shouldn’t overturn the Quill decision, the government said.

Wayfair, the company on the other side of the case, told the high court the opposite would happen: that overturning Quill would make congressional action harder because states would be protective of their newfound ability to tax.

“If Quill is overruled, the states will have no incentive to seek compromise federal legislation,” Wayfair wrote. “Freed of Commerce Clause restraint on their taxing authority, states will oppose any congressionally-mandated restrictions on their cross-border taxing power.”


The Supreme Court and other federal judges generally start from the premise that they don’t have a legislative role and should defer to Congress, said Michael Ellement, a lawyer at Bernabei & Kabat who wrote about the justices’ troubles with congressional gridlock for The George Washington Law Review.

But justices might be tempted to uphold a law because they think Congress wouldn’t be able to fix bad consequences resulting from striking down that law, Ellement said. Or they could hesitate to strike down law on a presumption Congress can fix it, “when the reality is the political situation is not going to fix it one way or the other.”

“The court is cognizant of what Congress can and can’t do, and so you worry that is making its way into their decisions,” Ellement said.

When the Supreme Court struck down in 2013 a key enforcement formula in the Voting Rights Act for states with a history of discriminatory voting laws, Chief Justice John G. Roberts Jr. wrote in the opinion, “Congress may draft another formula.”

But Republicans have blocked legislation that would do that.

North Carolina, one of the states now free to enact laws without pre-approval from the Justice Department because of the voting rights decision, used the opportunity to pass election laws that federal courts later struck down as discriminatory.

Congressional dysfunction even became a punchline during arguments about President Barack Obama’s signature health care law in 2015, when Justice Antonin Scalia asked why Congress couldn’t act to rectify any “disastrous consequences” of a Supreme Court decision against the landmark law.

“Well, this Congress, your honor …” Solicitor General Donald B. Verrilli Jr. said, causing laughter in the courtroom. “You know, I mean, of course, theoretically of course, theoretically they could.”

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