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Revisiting Justice Scalia’s Quill Opinion

by Clark Packard / /

A few weeks ago, National Taxpayers Union (NTU) highlighted a troubling decision recently handed down by the Ohio Supreme Court.

The case in question, Crutchfield Corp. v. Testa, was straightforward. In 2005, Ohio instituted a commercial activities tax (CAT) based on the gross receipts of every person or corporation for the privilege of doing business in the state. Between 2005-2010, Ohio’s Tax Commissioner levied a CAT on Crutchfield, a Virginia-based electronics retailer, for its sales to Buckeye State residents. Citing the U.S. Supreme Court’s decision in Quill Corp. v. North Dakota, Crutchfield refused to pay the levy. Decided by the Supreme Court in 1992, Quill held that for a state to levy taxes on sellers, such sellers must have a “substantial nexus” with that particular state. If remote, out-of-state sellers lacked nexus, a state’s powers to tax such sellers are non-existent under the United States Constitution’s Commerce Clause.

In deciding Quill, the Supreme Court overturned its prior decision in National Bellas Hess, Inc. v. Department of Revenue of Illinois, decided in 1967, which held that the Commerce Clause prohibited a state from imposing a sales tax on a seller whose only connection to customers in that state was using common carriers or the mail. Writing in concurrence in Quill, Justice Scalia suggested the Court was mistaken in overturning the Commerce Clause holding in Bellas Hess – instead it should have let the decision stand on the basis of stare decisis. In Quill, Justice Scalia wrote, “Congress has the final say over regulation of interstate commerce, and it can change the rule of Bellas Hess by simply saying so. We have long recognized that the doctrine of stare decisis has ‘special force’ where “Congress remains free to alter what we have done. “ He continues by arguing that stare decisis is of particular import where, as in Quill, reliance on Bellas Hess, was substantial. “[T]he demands of the doctrine are ‘at their acme’ … where reliance interests are involved. … As the Court notes, ‘the Bellas Hess rule has engendered substantial reliance and has become part of the basic framework for a sizable industry.’”

Why does Justice Scalia’s Quill concurrence matter? Simply put, it highlights the appropriate framework for considering the ability of states to tax out-of-state retailers in a manner consistent with the demands of the Commerce Clause of the Constitution.  Specifically, Congress has plenary authority to regulate interstate commerce and states cannot chip away at these constitutional protections unless and until Congress grants states such authority. NTU has long cautioned against Congress acting precipitously in this area, and has opposed extraterritorial tax enforcement legislation such as the Marketplace Fairness Act. That is why the Ohio Supreme Court’s decision in Crutchfield is so dangerous – it ignores that Congress alone has the authority to determine the contours of interstate commerce, and must do so with abundant care for taxpayers and businesses.