WASHINGTON — The Supreme Court on Tuesday handed a victory to a trade group challenging a Colorado law seeking to aid state authorities in the collection of sales taxes on out-of-state purchases made online.
The legal issue in the case was minor, and the decision was unanimous. But it was nonetheless notable for a concurrence from Justice Anthony M. Kennedy saying that the Supreme Court went badly astray in a 1992 decision that said states may not collect taxes from companies without some local physical presence.
Justice Kennedy invited a fresh challenge to that decision, Quill Corporation v. North Dakota.
“It is unwise to delay any longer a reconsideration of the court’s holding in Quill,” Justice Kennedy wrote. “A case questionable even when decided, Quill now harms states to a degree far greater than could have been anticipated earlier.”
“When the court decided Quill, mail-order sales in the United States totaled $180 billion,” he wrote, adding that “by 2008, e-commerce sales alone totaled $3.16 trillion per year in the United States.”
Though he seemed eager to re-examine the Quill decision, Justice Kennedy said Tuesday’s case, Direct Marketing Association v. Brohl, No. 13-1032, “does not raise this issue in a manner appropriate for the court to address it.”
“It does provide, however, the means to note the importance of reconsidering doubtful authority,” Justice Kennedy wrote. “The legal system should find an appropriate case for this court to re-examine Quill.”
The law at issue in Tuesday’s decision was enacted in 2010. It required out-of-state merchants to report transactions to their customers and to state tax authorities. The goal was to encourage Colorado consumers to pay taxes on such purchases.
The trade group, the Direct Marketing Association, challenged the law, saying it violated the Constitution’s commerce clause by discriminating against interstate commerce. A federal trial court agreed, but the United States Court of Appeals for the 10th Circuit, in Denver, ruled that the lower court had been without jurisdiction to hear the case.
A federal law, the Tax Injunction Act, requires that some tax cases be brought in state court rather than federal court. It says federal courts “shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under state law.”
In Tuesday’s ruling, Justice Clarence Thomas, writing for the court, said the law did not bar the trade group’s suit. He added that the court took no position on the legal merits of its challenge.
Justice Thomas wrote that the Colorado law merely concerned the reporting of information. “The federal tax code has long treated information-gathering as a phase of tax administration procedure that occurs before assessment, levy or collection,” he wrote.
“Enforcement of the notice and reporting requirements” of the state law, Justice Thomas wrote, “may improve Colorado’s ability to assess and ultimately collect its sales and use taxes from consumers,” but the federal tax law barring some suits “is not keyed to all activities that may improve a state’s ability to assess and collect taxes.”
Tuesday’s ruling was not especially consequential. But Justice Kennedy’s concurrence seemed likely to prompt new suits on Internet sales taxes.
“The Internet has caused far-reaching systemic and structural changes in the economy, and, indeed, in many other societal dimensions,” Justice Kennedy wrote. “A connection to a shopper’s favorite store is a click away — regardless of how close or far the nearest storefront.”
“Today buyers have almost instant access to most retailers via cellphones, tablets and laptops,” he wrote. “As a result, a business may be present in a state in a meaningful way without that presence being physical in the traditional sense of the term.”
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