South Dakota v. Wayfair, Inc. ( 2018 )

(Slip Opinion) OCTOBER TERM, 2017 1
Syllabus
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
being done in connection with this case, at the time the opinion is issued.
The syllabus constitutes no part of the opinion of the Court but has been
prepared by the Reporter of Decisions for the convenience of the reader.
See United States v. Detroit Timber & Lumber Co., 200 U.S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
SOUTH DAKOTA v. WAYFAIR, INC., ET AL.
CERTIORARI TO THE SUPREME COURT OF SOUTH DAKOTA
No. 17–494. Argued April 17, 2018—Decided June 21, 2018
South Dakota, like many States, taxes the retail sales of goods and ser-
vices in the State. Sellers are required to collect and remit the tax to
the State, but if they do not then in-state consumers are responsible
for paying a use tax at the same rate. Under National Bellas Hess,
Inc. v. Department of Revenue of Ill., 386 U.S. 753, and Quill Corp. v.
North Dakota, 504 U.S. 298, South Dakota may not require a busi-
ness that has no physical presence in the State to collect its sales tax.
Consumer compliance rates are notoriously low, however, and it is
estimated that Bellas Hess and Quill cause South Dakota to lose be-
tween $48 and $58 million annually. Concerned about the erosion of
its sales tax base and corresponding loss of critical funding for state
and local services, the South Dakota Legislature enacted a law re-
quiring out-of-state sellers to collect and remit sales tax “as if the
seller had a physical presence in the State.” The Act covers only
sellers that, on an annual basis, deliver more than $100,000 of goods
or services into the State or engage in 200 or more separate transac-
tions for the delivery of goods or services into the State. Respond-
ents, top online retailers with no employees or real estate in South
Dakota, each meet the Act’s minimum sales or transactions require-
ment, but do not collect the State’s sales tax. South Dakota filed suit
in state court, seeking a declaration that the Act’s requirements are
valid and applicable to respondents and an injunction requiring re-
spondents to register for licenses to collect and remit the sales tax.
Respondents sought summary judgment, arguing that the Act is un-
constitutional. The trial court granted their motion. The State Su-
preme Court affirmed on the ground that Quill is controlling prece-
dent.
Held: Because the physical presence rule of Quill is unsound and incor-
rect, Quill Corp. v. North Dakota, 504 U.S. 298, and National Bellas
2 SOUTH DAKOTA v. WAYFAIR, INC.
Syllabus
Hess, Inc. v. Department of Revenue of Ill., 386 U.S. 753, are over-
ruled. Pp. 5–24.
(a) An understanding of this Court’s Commerce Clause principles
and their application to state taxes is instructive here. Pp. 5–9.
(1) Two primary principles mark the boundaries of a State’s au-
thority to regulate interstate commerce: State regulations may not
discriminate against interstate commerce; and States may not im-
pose undue burdens on interstate commerce. These principles guide
the courts in adjudicating challenges to state laws under the Com-
merce Clause. Pp. 5–7.
(2) They also animate Commerce Clause precedents addressing
the validity of state taxes, which will be sustained so long as they (1)
apply to an activity with a substantial nexus with the taxing State,
(2) are fairly apportioned, (3) do not discriminate against interstate
commerce, and (4) are fairly related to the services the State pro-
vides. See Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279.
Before Complete Auto, the Court held in Bellas Hess that a “seller
whose only connection with customers in the State is by common car-
rier or . . . mail” lacked the requisite minimum contacts with the
State required by the Due Process Clause and the Commerce Clause,
and that unless the retailer maintained a physical presence in the
State, the State lacked the power to require that retailer to collect a
local tax. 386 U.S., at 758. In Quill, the Court overruled the due
process holding, but not the Commerce Clause holding, grounding the
physical presence rule in Complete Auto’s requirement that a tax
have a “substantial nexus” with the activity being taxed. Pp. 7–9.
(b) The physical presence rule has long been criticized as giving
out-of-state sellers an advantage. Each year, it becomes further re-
moved from economic reality and results in significant revenue losses
to the States. These critiques underscore that the rule, both as first
formulated and as applied today, is an incorrect interpretation of the
Commerce Clause. Pp. 9–17.
(1) Quill is flawed on its own terms. First, the physical presence
rule is not a necessary interpretation of Complete Auto’s nexus re-
quirement. That requirement is “closely related,” Bellas Hess, 386
U.S. at 756, to the due process requirement that there be “some defi-
nite link, some minimum connection, between a state and the person,
property or transaction it seeks to tax.” Miller Brothers Co. v. Mary-
land, 347 U.S. 340, 344–345. And, as Quill itself recognized, a busi-
ness need not have a physical presence in a State to satisfy the de-
mands of due process. When considering whether a State may levy a
tax, Due Process and Commerce Clause standards, though not identi-
cal or coterminous, have significant parallels. The reasons given in
Quill for rejecting the physical presence rule for due process purposes
Cite as: 585 U. S. ____ (2018) 3
Syllabus
apply as well to the question whether physical presence is a requisite
for an out-of-state seller’s liability to remit sales taxes. Other aspects
of the Court’s doctrine can better and more accurately address poten-
tial burdens on interstate commerce, whether or not Quill’s physical
presence rule is satisfied.
Second, Quill creates rather than resolves market distortions. In
effect, it is a judicially created tax shelter for businesses that limit
their physical presence in a State but sell their goods and services to
the State’s consumers, something that has become easier and more
prevalent as technology has advanced. The rule also produces an in-
centive to avoid physical presence in multiple States, affecting devel-
opment that might be efficient or desirable.
Third, Quill imposes the sort of arbitrary, formalistic distinction
that the Court’s modern Commerce Clause precedents disavow in fa-
vor of “a sensitive, case-by-case analysis of purposes and effects,”
West Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 201. It treats eco-
nomically identical actors differently for arbitrary reasons. For ex-
ample, a business that maintains a few items of inventory in a small
warehouse in a State is required to collect and remit a tax on all of its
sales in the State, while a seller with a pervasive Internet presence
cannot be subject to the same tax for the sales of the same items.
Pp. 10–14.
(2) When the day-to-day functions of marketing and distribution
in the modern economy are considered, it becomes evident that
Quill’s physical presence rule is artificial, not just “at its edges,” 504
U.S. at 315, but in its entirety. Modern e-commerce does not align
analytically with a test that relies on the sort of physical presence de-
fined in Quill. And the Court should not maintain a rule that ignores
substantial virtual connections to the State. Pp. 14–15.
(3) The physical presence rule of Bellas Hess and Quill is also an
extraordinary imposition by the Judiciary on States’ authority to col-
lect taxes and perform critical public functions. Forty-one States, two
Territories, and the District of Columbia have asked the Court to re-
ject Quill’s test. Helping respondents’ customers evade a lawful tax
unfairly shifts an increased share of the taxes to those consumers
who buy from competitors with a physical presence in the State. It is
essential to public confidence in the tax system that the Court avoid
creating inequitable exceptions. And it is also essential to the confi-
dence placed in the Court’s Commerce Clause decisions. By giving
some online retailers an arbitrary advantage over their competitors
who collect state sales taxes, Quill’s physical presence rule has lim-
ited States’ ability to seek long-term prosperity and has prevented
market participants from competing on an even playing field.
Pp. 16–17.
4 SOUTH DAKOTA v. WAYFAIR, INC.
Syllabus
(c) Stare decisis can no longer support the Court’s prohibition of a
valid exercise of the States’ sovereign power. If it becomes apparent
that the Court’s Commerce Clause decisions prohibit the States from
exercising their lawful sovereign powers, the Court should be vigilant
in correcting the error. It is inconsistent with this Court’s proper role
to ask Congress to address a false constitutional premise of this
Court’s own creation. The Internet revolution has made Quill’s orig-
inal error all the more egregious and harmful. The Quill Court did
not have before it the present realities of the interstate marketplace,
where the Internet’s prevalence and power have changed the dynam-
ics of the national economy. The expansion of e-commerce has also
increased the revenue shortfall faced by States seeking to collect
their sales and use taxes, leading the South Dakota Legislature to
declare an emergency. The argument, moreover, that the physical
presence rule is clear and easy to apply is unsound, as attempts to
apply the physical presence rule to online retail sales have proved
unworkable.
Because the physical presence rule as defined by Quill is no longer
a clear or easily applicable standard, arguments for reliance based on
its clarity are misplaced. Stare decisis may accommodate “legitimate
reliance interest[s],” United States v. Ross, 456 U.S. 798, 824, but a
business “is in no position to found a constitutional right . . . on the
practical opportunities for tax avoidance,” Nelson v. Sears, Roebuck &
Co., 312 U.S. 359, 366. Startups and small businesses may benefit
from the physical presence rule, but here South Dakota affords small
merchants a reasonable degree of protection. Finally, other aspects
of the Court’s Commerce Clause doctrine can protect against any un-
due burden on interstate commerce, taking into consideration the
small businesses, startups, or others who engage in commerce across
state lines. The potential for such issues to arise in some later case
cannot justify retaining an artificial, anachronistic rule that deprives
States of vast revenues from major businesses. Pp. 17–22.
(d) In the absence of Quill and Bellas Hess, the first prong of the
Complete Auto test simply asks whether the tax applies to an activity
with a substantial nexus with the taxing State, 430 U.S., at 279.
Here, the nexus is clearly sufficient. The Act applies only to sellers
who engage in a significant quantity of business in the State, and re-
spondents are large, national companies that undoubtedly maintain
an extensive virtual presence. Any remaining claims regarding the
Commerce Clause’s application in the absence of Quill and Bellas
Hess may be addressed in the first instance on remand. Pp. 22–23.
2017 S.D. 56, 901 N.W.2d 754, vacated and remanded.
KENNEDY, J., delivered the opinion of the Court, in which THOMAS,
Cite as: 585 U. S. ____ (2018) 5
Syllabus
GINSBURG, ALITO, and GORSUCH, JJ., joined. THOMAS, J., and GORSUCH,
J., filed concurring opinions. ROBERTS, C. J., filed a dissenting opinion,
in which BREYER, SOTOMAYOR, and KAGAN, JJ., joined.
Cite as: 585 U. S. ____ (2018) 1
Opinion of the Court
NOTICE: This opinion is subject to formal revision before publication in the
preliminary print of the United States Reports. Readers are requested to
notify the Reporter of Decisions, Supreme Court of the United States, Wash­
ington, D. C. 20543, of any typographical or other formal errors, in order
that corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
_________________
No. 17–494
_________________
SOUTH DAKOTA, PETITIONER v. WAYFAIR, INC.,
ET AL.
ON WRIT OF CERTIORARI TO THE SUPREME COURT OF
SOUTH DAKOTA
[June 21, 2018]
JUSTICE KENNEDY delivered the opinion of the Court.
When a consumer purchases goods or services, the
consumer’s State often imposes a sales tax. This case
requires the Court to determine when an out-of-state
seller can be required to collect and remit that tax. All
concede that taxing the sales in question here is lawful.
The question is whether the out-of-state seller can be held
responsible for its payment, and this turns on a proper
interpretation of the Commerce Clause, U. S. Const.,
Art. I, §8, cl. 3.
In two earlier cases the Court held that an out-of-state
seller’s liability to collect and remit the tax to the consum­
er’s State depended on whether the seller had a physical
presence in that State, but that mere shipment of goods
into the consumer’s State, following an order from a cata­
log, did not satisfy the physical presence requirement.
National Bellas Hess, Inc. v. Department of Revenue of Ill.,
386 U.S. 753 (1967); Quill Corp. v. North Dakota, 504
U.S. 298 (1992). The Court granted certiorari here to
reconsider the scope and validity of the physical presence
rule mandated by those cases.
2 SOUTH DAKOTA v. WAYFAIR, INC.
Opinion of the Court
I
Like most States, South Dakota has a sales tax. It taxes
the retail sales of goods and services in the State. S. D.
Codified Laws §§10–45–2, 10–45–4 (2010 and Supp. 2017).
Sellers are generally required to collect and remit this tax
to the Department of Revenue. §10–45–27.3. If for some
reason the sales tax is not remitted by the seller, then in­
state consumers are separately responsible for paying a
use tax at the same rate. See §§10–46–2, 10–46–4, 10–46–
6. Many States employ this kind of complementary sales
and use tax regime.
Under this Court’s decisions in Bellas Hess and Quill,
South Dakota may not require a business to collect its
sales tax if the business lacks a physical presence in the
State. Without that physical presence, South Dakota
instead must rely on its residents to pay the use tax owed
on their purchases from out-of-state sellers. “[T]he im­
practicability of [this] collection from the multitude of
individual purchasers is obvious.” National Geographic
Soc. v. California Bd. of Equalization, 430 U.S. 551, 555
(1977). And consumer compliance rates are notoriously
low. See, e.g., GAO, Report to Congressional Requesters:
Sales Taxes, States Could Gain Revenue from Expanded
Authority, but Businesses Are Likely to Experience Com­
pliance Costs 5 (GAO–18–114, Nov. 2017) (Sales Taxes
Report); California State Bd. of Equalization, Revenue
Estimate: Electronic Commerce and Mail Order Sales 7
(2013) (Table 3) (estimating a 4 percent collection rate). It
is estimated that Bellas Hess and Quill cause the States to
lose between $8 and $33 billion every year. See Sales
Taxes Report, at 11–12 (estimating $8 to $13 billion); Brief
for Petitioner 34–35 (citing estimates of $23 and $33.9
billion). In South Dakota alone, the Department of Reve­
nue estimates revenue loss at $48 to $58 million annually.
App. 24. Particularly because South Dakota has no state
income tax, it must put substantial reliance on its sales
Cite as: 585 U. S. ____ (2018) 3
Opinion of the Court
and use taxes for the revenue necessary to fund essential
services. Those taxes account for over 60 percent of its
general fund.
In 2016, South Dakota confronted the serious inequity
Quill imposes by enacting S. 106—“An Act to provide for
the collection of sales taxes from certain remote sellers, to
establish certain Legislative findings, and to declare an
emergency.” S. 106, 2016 Leg. Assembly, 91st Sess. (S. D.
2016) (S. B. 106). The legislature found that the inability
to collect sales tax from remote sellers was “seriously
eroding the sales tax base” and “causing revenue losses
and imminent harm . . . through the loss of critical fund­
ing for state and local services.” §8(1). The legislature
also declared an emergency: “Whereas, this Act is neces­
sary for the support of the state government and its exist­
ing public institutions, an emergency is hereby declared to
exist.” §9. Fearing further erosion of the tax base,
the legislature expressed its intention to “apply South
Dakota’s sales and use tax obligations to the limit of
federal and state constitutional doctrines” and noted the
urgent need for this Court to reconsider its precedents.
§§8(11), (8).
To that end, the Act requires out-of-state sellers to
collect and remit sales tax “as if the seller had a physical
presence in the state.” §1. The Act applies only to sellers
that, on an annual basis, deliver more than $100,000 of
goods or services into the State or engage in 200 or more
separate transactions for the delivery of goods or services
into the State. Ibid. The Act also forecloses the retroac­
tive application of this requirement and provides means
for the Act to be appropriately stayed until the constitu­
tionality of the law has been clearly established. §§5, 3,
8(10).
Respondents Wayfair, Inc., Overstock.com, Inc., and
Newegg, Inc., are merchants with no employees or real
estate in South Dakota. Wayfair, Inc., is a leading online
4 SOUTH DAKOTA v. WAYFAIR, INC.
Opinion of the Court
retailer of home goods and furniture and had net revenues
of over $4.7 billion last year. Overstock.com, Inc., is one of
the top online retailers in the United States, selling a wide
variety of products from home goods and furniture to
clothing and jewelry; and it had net revenues of over $1.7
billion last year. Newegg, Inc., is a major online retailer of
consumer electronics in the United States. Each of these
three companies ships its goods directly to purchasers
throughout the United States, including South Dakota.
Each easily meets the minimum sales or transactions
requirement of the Act, but none collects South Dakota
sales tax. 2017 S. D. 56, ¶¶ 10–11, 901 N.W.2d 754, 759–
760.
Pursuant to the Act’s provisions for expeditious judicial
review, South Dakota filed a declaratory judgment action
against respondents in state court, seeking a declaration
that the requirements of the Act are valid and applicable
to respondents and an injunction requiring respondents to
register for licenses to collect and remit sales tax. App. 11,
30. Respondents moved for summary judgment, arguing
that the Act is unconstitutional. 901 N.W.2d, at 759–
760. South Dakota conceded that the Act cannot survive
under Bellas Hess and Quill but asserted the importance,
indeed the necessity, of asking this Court to review those
earlier decisions in light of current economic realities. 901
N.W.2d, at 760; see also S. B. 106, §8. The trial court
granted summary judgment to respondents. App. to Pet.
for Cert. 17a.
The South Dakota Supreme Court affirmed. It stated:
“However persuasive the State’s arguments on the merits
of revisiting the issue, Quill has not been overruled [and]
remains the controlling precedent on the issue of Com­
merce Clause limitations on interstate collection of sales
and use taxes.” 901 N.W.2d, at 761. This Court granted
certiorari. 583 U. S. ___ (2018).
Cite as: 585 U. S. ____ (2018) 5
Opinion of the Court
II
The Constitution grants Congress the power “[t]o regu­
late Commerce . . . among the several States.” Art. I, §8,
cl. 3. The Commerce Clause “reflect[s] a central concern of
the Framers that was an immediate reason for calling the
Constitutional Convention: the conviction that in order to
succeed, the new Union would have to avoid the tenden­
cies toward economic Balkanization that had plagued
relations among the Colonies and later among the States
under the Articles of Confederation.” Hughes v. Oklaho-
ma, 441 U.S. 322, 325–326 (1979). Although the Com­
merce Clause is written as an affirmative grant of authority
to Congress, this Court has long held that in some
instances it imposes limitations on the States absent
congressional action. Of course, when Congress exercises
its power to regulate commerce by enacting legislation, the
legislation controls. Southern Pacific Co. v. Arizona ex rel.
Sullivan, 325 U.S. 761, 769 (1945). But this Court has
observed that “in general Congress has left it to the courts
to formulate the rules” to preserve “the free flow of inter­
state commerce.” Id., at 770.
To understand the issue presented in this case, it is
instructive first to survey the general development of this
Court’s Commerce Clause principles and then to review
the application of those principles to state taxes.
A
From early in its history, a central function of this Court
has been to adjudicate disputes that require interpretation
of the Commerce Clause in order to determine its mean­
ing, its reach, and the extent to which it limits state regu­
lations of commerce. Gibbons v. Ogden, 9 Wheat. 1 (1824),
began setting the course by defining the meaning of com­
merce. Chief Justice Marshall explained that commerce
included both “the interchange of commodities” and “com­
mercial intercourse.” Id., at 189, 193. A concurring opin­
6 SOUTH DAKOTA v. WAYFAIR, INC.
Opinion of the Court
ion further stated that Congress had the exclusive power
to regulate commerce. See id., at 236 (opinion of Johnson,
J.). Had that latter submission prevailed and States been
denied the power of concurrent regulation, history might
have seen sweeping federal regulations at an early date
that foreclosed the States from experimentation with laws
and policies of their own, or, on the other hand, proposals
to reexamine Gibbons’ broad definition of commerce to
accommodate the necessity of allowing States the power to
enact laws to implement the political will of their people.
Just five years after Gibbons, however, in another opin­
ion by Chief Justice Marshall, the Court sustained what in
substance was a state regulation of interstate commerce.
In Willson v. Black Bird Creek Marsh Co., 2 Pet. 245
(1829), the Court allowed a State to dam and bank a
stream that was part of an interstate water system, an
action that likely would have been an impermissible in­
trusion on the national power over commerce had it been
the rule that only Congress could regulate in that sphere.
See id., at 252. Thus, by implication at least, the Court
indicated that the power to regulate commerce in some
circumstances was held by the States and Congress con­
currently. And so both a broad interpretation of interstate
commerce and the concurrent regulatory power of the
States can be traced to Gibbons and Willson.
Over the next few decades, the Court refined the doc­
trine to accommodate the necessary balance between state
and federal power. In Cooley v. Board of Wardens of Port
of Philadelphia ex rel. Soc. for Relief of Distressed Pilots,
12 How. 299 (1852), the Court addressed local laws regu­
lating river pilots who operated in interstate waters and
guided many ships on interstate or foreign voyages. The
Court held that, while Congress surely could regulate on
this subject had it chosen to act, the State, too, could
regulate. The Court distinguished between those subjects
that by their nature “imperatively deman[d] a single
Cite as: 585 U. S. ____ (2018) 7
Opinion of the Court
uniform rule, operating equally on the commerce of the
United States,” and those that “deman[d] th[e] diversity,
which alone can meet . . . local necessities.” Id., at 319.
Though considerable uncertainties were yet to be over­
come, these precedents still laid the groundwork for the
analytical framework that now prevails for Commerce
Clause cases.
This Court’s doctrine has developed further with time.
Modern precedents rest upon two primary principles that
mark the boundaries of a State’s authority to regulate
interstate commerce. First, state regulations may not
discriminate against interstate commerce; and second,
States may not impose undue burdens on interstate com­
merce. State laws that discriminate against interstate
commerce face “a virtually per se rule of invalidity.”
Granholm v. Heald, 544 U.S. 460, 476 (2005) (internal
quotation marks omitted). State laws that “regulat[e]
even-handedly to effectuate a legitimate local public inter­
est . . . will be upheld unless the burden imposed on such
commerce is clearly excessive in relation to the putative
local benefits.” Pike v. Bruce Church, Inc., 397 U.S. 137,
142 (1970); see also Southern Pacific, supra, at 779. Al-
though subject to exceptions and variations, see, e.g.,
Hughes v. Alexandria Scrap Corp., 426 U.S. 794 (1976);
Brown-Forman Distillers Corp. v. New York State Liquor
Authority, 476 U.S. 573 (1986), these two principles guide
the courts in adjudicating cases challenging state laws
under the Commerce Clause.
B
These principles also animate the Court’s Commerce
Clause precedents addressing the validity of state taxes.
The Court explained the now-accepted framework for state
taxation in Complete Auto Transit, Inc. v. Brady, 430 U.S.
274 (1977). The Court held that a State “may tax exclu­
sively interstate commerce so long as the tax does not
8 SOUTH DAKOTA v. WAYFAIR, INC.
Opinion of the Court
create any effect forbidden by the Commerce Clause.” Id.,
at 285. After all, “interstate commerce may be required to
pay its fair share of state taxes.” D. H. Holmes Co. v.
McNamara, 486 U.S. 24, 31 (1988). The Court will sus­
tain a tax so long as it (1) applies to an activity with a
substantial nexus with the taxing State, (2) is fairly ap­
portioned, (3) does not discriminate against interstate
commerce, and (4) is fairly related to the services the State
provides. See Complete Auto, supra, at 279.
Before Complete Auto, the Court had addressed a chal­
lenge to an Illinois tax that required out-of-state retailers
to collect and remit taxes on sales made to consumers who
purchased goods for use within Illinois. Bellas Hess, 386
U.S., at 754–755. The Court held that a mail-order com­
pany “whose only connection with customers in the State
is by common carrier or the United States mail” lacked the
requisite minimum contacts with the State required by
both the Due Process Clause and the Commerce Clause.
Id., at 758. Unless the retailer maintained a physical
presence such as “retail outlets, solicitors, or property
within a State,” the State lacked the power to require that
retailer to collect a local use tax. Ibid. The dissent dis-
agreed: “There should be no doubt that this large-scale,
systematic, continuous solicitation and exploitation of the
Illinois consumer market is a sufficient ‘nexus’ to require
Bellas Hess to collect from Illinois customers and to remit
the use tax.” Id., at 761–762 (opinion of Fortas, J., joined
by Black and Douglas, JJ.).
In 1992, the Court reexamined the physical presence
rule in Quill. That case presented a challenge to North
Dakota’s “attempt to require an out-of-state mail-order
house that has neither outlets nor sales representatives in
the State to collect and pay a use tax on goods purchased
for use within the State.” 504 U.S., at 301. Despite the
fact that Bellas Hess linked due process and the Com­
merce Clause together, the Court in Quill overruled the
Cite as: 585 U. S. ____ (2018) 9
Opinion of the Court
due process holding, but not the Commerce Clause hold­
ing; and it thus reaffirmed the physical presence rule. 504
U.S., at 307–308, 317–318.
The Court in Quill recognized that intervening prece­
dents, specifically Complete Auto, “might not dictate the
same result were the issue to arise for the first time to­
day.” 504 U.S., at 311. But, nevertheless, the Quill
majority concluded that the physical presence rule was
necessary to prevent undue burdens on interstate com­
merce. Id., at 313, and n. 6. It grounded the physical
presence rule in Complete Auto’s requirement that a tax
have a “ ‘substantial nexus’ ” with the activity being taxed.
504 U.S., at 311.
Three Justices based their decision to uphold the physi­
cal presence rule on stare decisis alone. Id., at 320 (Scalia,
J., joined by KENNEDY and THOMAS, JJ., concurring in
part and concurring in judgment). Dissenting in relevant
part, Justice White argued that “there is no relationship
between the physical-presence/nexus rule the Court re­
tains and Commerce Clause considerations that allegedly
justify it.” Id., at 327 (opinion concurring in part and
dissenting in part).
III
The physical presence rule has “been the target of criti­
cism over many years from many quarters.” Direct Mar-
keting Assn. v. Brohl, 814 F.3d 1129, 1148, 1150–1151
(CA10 2016) (Gorsuch, J., concurring). Quill, it has been
said, was “premised on assumptions that are unfounded”
and “riddled with internal inconsistencies.” Rothfeld,
Quill: Confusing the Commerce Clause, 56 Tax Notes 487,
488 (1992). Quill created an inefficient “online sales tax
loophole” that gives out-of-state businesses an advantage.
A. Laffer & D. Arduin, Pro-Growth Tax Reform and E-
Fairness 1, 4 (July 2013). And “while nexus rules are
clearly necessary,” the Court “should focus on rules that
10 SOUTH DAKOTA v. WAYFAIR, INC.
Opinion of the Court
are appropriate to the twenty-first century, not the nine­
teenth.” Hellerstein, Deconstructing the Debate Over
State Taxation of Electronic Commerce, 13 Harv. J. L. &
Tech. 549, 553 (2000). Each year, the physical presence
rule becomes further removed from economic reality and
results in significant revenue losses to the States. These
critiques underscore that the physical presence rule, both
as first formulated and as applied today, is an incorrect
interpretation of the Commerce Clause.
A
Quill is flawed on its own terms. First, the physical
presence rule is not a necessary interpretation of the
requirement that a state tax must be “applied to an activ­
ity with a substantial nexus with the taxing State.” Com-
plete Auto, 430 U.S., at 279. Second, Quill creates rather
than resolves market distortions. And third, Quill im-
poses the sort of arbitrary, formalistic distinction that the
Court’s modern Commerce Clause precedents disavow.
1
All agree that South Dakota has the authority to tax
these transactions. S. B. 106 applies to sales of “tangible
personal property, products transferred electronically, or
services for delivery into South Dakota.” §1 (emphasis
added). “It has long been settled” that the sale of goods or
services “has a sufficient nexus to the State in which the
sale is consummated to be treated as a local transaction
taxable by that State.” Oklahoma Tax Comm’n v. Jeffer-
son Lines, Inc., 514 U.S. 175, 184 (1995); see also 2 C.
Trost & P. Hartman, Federal Limitations on State and
Local Taxation 2d §11:1, p. 471 (2003) (“Generally speak­
ing, a sale is attributable to its destination”).
The central dispute is whether South Dakota may re­
quire remote sellers to collect and remit the tax without
some additional connection to the State. The Court has
Cite as: 585 U. S. ____ (2018) 11
Opinion of the Court
previously stated that “[t]he imposition on the seller of the
duty to insure collection of the tax from the purchaser does
not violate the [C]ommerce [C]lause.” McGoldrick v.
Berwind-White Coal Mining Co., 309 U.S. 33, 50, n. 9
(1940). It is a “ ‘familiar and sanctioned device.’ ” Scripto,
Inc. v. Carson, 362 U.S. 207, 212 (1960). There just must
be “a substantial nexus with the taxing State.” Complete
Auto, supra, at 279.
This nexus requirement is “closely related,” Bellas Hess,
386 U.S., at 756, to the due process requirement that
there be “some definite link, some minimum connection,
between a state and the person, property or transaction it
seeks to tax,” Miller Brothers Co. v. Maryland, 347 U.S.
340, 344–345 (1954). It is settled law that a business need
not have a physical presence in a State to satisfy the
demands of due process. Burger King Corp. v. Rudzewicz,
471 U.S. 462, 476 (1985). Although physical presence
“ ‘frequently will enhance’ ” a business’ connection with a
State, “ ‘it is an inescapable fact of modern commercial life
that a substantial amount of business is transacted . . .
[with no] need for physical presence within a State in
which business is conducted.’ ” Quill, 504 U.S., at 308.
Quill itself recognized that “[t]he requirements of due
process are met irrespective of a corporation’s lack of
physical presence in the taxing State.” Ibid.
When considering whether a State may levy a tax, Due
Process and Commerce Clause standards may not be
identical or coterminous, but there are significant paral­
lels. The reasons given in Quill for rejecting the physical
presence rule for due process purposes apply as well to the
question whether physical presence is a requisite for an
out-of-state seller’s liability to remit sales taxes. Physical
presence is not necessary to create a substantial nexus.
The Quill majority expressed concern that without the
physical presence rule “a state tax might unduly burden
interstate commerce” by subjecting retailers to tax­
12 SOUTH DAKOTA v. WAYFAIR, INC.
Opinion of the Court
collection obligations in thousands of different taxing
jurisdictions. Id., at 313, n. 6. But the administrative
costs of compliance, especially in the modern economy
with its Internet technology, are largely unrelated to
whether a company happens to have a physical presence
in a State. For example, a business with one salesperson
in each State must collect sales taxes in every jurisdiction
in which goods are delivered; but a business with 500
salespersons in one central location and a website accessi­
ble in every State need not collect sales taxes on otherwise
identical nationwide sales. In other words, under Quill, a
small company with diverse physical presence might be
equally or more burdened by compliance costs than a large
remote seller. The physical presence rule is a poor proxy
for the compliance costs faced by companies that do busi­
ness in multiple States. Other aspects of the Court’s
doctrine can better and more accurately address any
potential burdens on interstate commerce, whether or not
Quill’s physical presence rule is satisfied.
2
The Court has consistently explained that the Com­
merce Clause was designed to prevent States from engag­
ing in economic discrimination so they would not divide
into isolated, separable units. See Philadelphia v. New
Jersey, 437 U.S. 617, 623 (1978). But it is “not the pur­
pose of the [C]ommerce [C]lause to relieve those engaged
in interstate commerce from their just share of state tax
burden.” Complete Auto, supra, at 288 (internal quotation
marks omitted). And it is certainly not the purpose of the
Commerce Clause to permit the Judiciary to create market
distortions. “If the Commerce Clause was intended to put
businesses on an even playing field, the [physical pres­
ence] rule is hardly a way to achieve that goal.” Quill,
supra, at 329 (opinion of White, J.).
Quill puts both local businesses and many interstate
Cite as: 585 U. S. ____ (2018) 13
Opinion of the Court
businesses with physical presence at a competitive disad­
vantage relative to remote sellers. Remote sellers can
avoid the regulatory burdens of tax collection and can offer
de facto lower prices caused by the widespread failure of
consumers to pay the tax on their own. This “guarantees a
competitive benefit to certain firms simply because of the
organizational form they choose” while the rest of the
Court’s jurisprudence “is all about preventing discrimina­
tion between firms.” Direct Marketing, 814 F.3d, at 1150–
1151 (Gorsuch, J., concurring). In effect, Quill has come to
serve as a judicially created tax shelter for businesses that
decide to limit their physical presence and still sell their
goods and services to a State’s consumers—something that
has become easier and more prevalent as technology has
advanced.
Worse still, the rule produces an incentive to avoid
physical presence in multiple States. Distortions caused
by the desire of businesses to avoid tax collection mean
that the market may currently lack storefronts, distribu­
tion points, and employment centers that otherwise would
be efficient or desirable. The Commerce Clause must not
prefer interstate commerce only to the point where a
merchant physically crosses state borders. Rejecting the
physical presence rule is necessary to ensure that artificial
competitive advantages are not created by this Court’s
precedents. This Court should not prevent States from
collecting lawful taxes through a physical presence rule
that can be satisfied only if there is an employee or a
building in the State.
3
The Court’s Commerce Clause jurisprudence has “es­
chewed formalism for a sensitive, case-by-case analysis of
purposes and effects.” West Lynn Creamery, Inc. v. Healy,
512 U.S. 186, 201 (1994). Quill, in contrast, treats eco­
nomically identical actors differently, and for arbitrary
14 SOUTH DAKOTA v. WAYFAIR, INC.
Opinion of the Court
reasons.
Consider, for example, two businesses that sell furniture
online. The first stocks a few items of inventory in a small
warehouse in North Sioux City, South Dakota. The sec­
ond uses a major warehouse just across the border in
South Sioux City, Nebraska, and maintains a sophisticated
website with a virtual showroom accessible in every State,
including South Dakota. By reason of its physical pres­
ence, the first business must collect and remit a tax on all
of its sales to customers from South Dakota, even those
sales that have nothing to do with the warehouse. See
National Geographic, 430 U.S., at 561; Scripto, Inc., 362
U.S., at 211–212. But, under Quill, the second, hypothet­
ical seller cannot be subject to the same tax for the sales of
the same items made through a pervasive Internet pres­
ence. This distinction simply makes no sense. So long as
a state law avoids “any effect forbidden by the Commerce
Clause,” Complete Auto, 430 U.S., at 285, courts should
not rely on anachronistic formalisms to invalidate it. The
basic principles of the Court’s Commerce Clause jurispru­
dence are grounded in functional, marketplace dynamics;
and States can and should consider those realities in
enacting and enforcing their tax laws.
B
The Quill Court itself acknowledged that the physical
presence rule is “artificial at its edges.” 504 U.S., at 315.
That was an understatement when Quill was decided; and
when the day-to-day functions of marketing and distribu­
tion in the modern economy are considered, it is all the
more evident that the physical presence rule is artificial in
its entirety.
Modern e-commerce does not align analytically with a
test that relies on the sort of physical presence defined in
Quill. In a footnote, Quill rejected the argument that
“title to ‘a few floppy diskettes’ present in a State” was
Cite as: 585 U. S. ____ (2018) 15
Opinion of the Court
sufficient to constitute a “substantial nexus,” id., at 315,
n. 8. But it is not clear why a single employee or a single
warehouse should create a substantial nexus while “physi­
cal” aspects of pervasive modern technology should not.
For example, a company with a website accessible in
South Dakota may be said to have a physical presence in
the State via the customers’ computers. A website may
leave cookies saved to the customers’ hard drives, or cus­
tomers may download the company’s app onto their
phones. Or a company may lease data storage that is per­
manently, or even occasionally, located in South Dakota.
Cf. United States v. Microsoft Corp., 584 U. S. ___ (2018)
(per curiam). What may have seemed like a “clear,”
“bright-line tes[t]” when Quill was written now threatens
to compound the arbitrary consequences that should have
been apparent from the outset. 504 U.S., at 315.
The “dramatic technological and social changes” of our
“increasingly interconnected economy” mean that buyers
are “closer to most major retailers” than ever before—
“regardless of how close or far the nearest storefront.”
Direct Marketing Assn. v. Brohl, 575 U. S. ___, ___, ___
(2015) (KENNEDY, J., concurring) (slip op., at 2, 3). Be­
tween targeted advertising and instant access to most
consumers via any internet-enabled device, “a business
may be present in a State in a meaningful way without”
that presence “being physical in the traditional sense of
the term.” Id., at ___ (slip op., at 3). A virtual showroom
can show far more inventory, in far more detail, and with
greater opportunities for consumer and seller interaction
than might be possible for local stores. Yet the continuous
and pervasive virtual presence of retailers today is, under
Quill, simply irrelevant. This Court should not maintain
a rule that ignores these substantial virtual connections to
the State.
16 SOUTH DAKOTA v. WAYFAIR, INC.
Opinion of the Court
C
The physical presence rule as defined and enforced in
Bellas Hess and Quill is not just a technical legal prob­
lem—it is an extraordinary imposition by the Judiciary on
States’ authority to collect taxes and perform critical
public functions. Forty-one States, two Territories, and
the District of Columbia now ask this Court to reject the
test formulated in Quill. See Brief for Colorado et al. as
Amici Curiae. Quill’s physical presence rule intrudes on
States’ reasonable choices in enacting their tax systems.
And that it allows remote sellers to escape an obligation to
remit a lawful state tax is unfair and unjust. It is unfair
and unjust to those competitors, both local and out of
State, who must remit the tax; to the consumers who pay
the tax; and to the States that seek fair enforcement of the
sales tax, a tax many States for many years have consid­
ered an indispensable source for raising revenue.
In essence, respondents ask this Court to retain a rule
that allows their customers to escape payment of sales
taxes—taxes that are essential to create and secure the
active market they supply with goods and services. An
example may suffice. Wayfair offers to sell a vast selection
of furnishings. Its advertising seeks to create an image of
beautiful, peaceful homes, but it also says that “ ‘[o]ne of
the best things about buying through Wayfair is that we
do not have to charge sales tax.’ ” Brief for Petitioner 55.
What Wayfair ignores in its subtle offer to assist in tax
evasion is that creating a dream home assumes solvent
state and local governments. State taxes fund the police
and fire departments that protect the homes containing
their customers’ furniture and ensure goods are safely
delivered; maintain the public roads and municipal ser­
vices that allow communication with and access to cus­
tomers; support the “sound local banking institutions to
support credit transactions [and] courts to ensure collec­
tion of the purchase price,” Quill, 504 U.S., at 328 (opin­
Cite as: 585 U. S. ____ (2018) 17
Opinion of the Court
ion of White, J.); and help create the “climate of consumer
confidence” that facilitates sales, see ibid. According to
respondents, it is unfair to stymie their tax-free solicita­
tion of customers. But there is nothing unfair about re­
quiring companies that avail themselves of the States’
benefits to bear an equal share of the burden of tax collec­
tion. Fairness dictates quite the opposite result. Helping
respondents’ customers evade a lawful tax unfairly shifts
to those consumers who buy from their competitors with a
physical presence that satisfies Quill—even one ware­
house or one salesperson—an increased share of the taxes.
It is essential to public confidence in the tax system that
the Court avoid creating inequitable exceptions. This is
also essential to the confidence placed in this Court’s
Commerce Clause decisions. Yet the physical presence
rule undermines that necessary confidence by giving some
online retailers an arbitrary advantage over their competi­
tors who collect state sales taxes.
In the name of federalism and free markets, Quill does
harm to both. The physical presence rule it defines has
limited States’ ability to seek long-term prosperity and has
prevented market participants from competing on an even
playing field.
IV
“Although we approach the reconsideration of our deci­
sions with the utmost caution, stare decisis is not an inex­
orable command.” Pearson v. Callahan, 555 U.S. 223, 233
(2009) (quoting State Oil Co. v. Khan, 522 U.S. 3, 20
(1997); alterations and internal quotation marks omitted).
Here, stare decisis can no longer support the Court’s prohi­
bition of a valid exercise of the States’ sovereign power.
If it becomes apparent that the Court’s Commerce
Clause decisions prohibit the States from exercising their
lawful sovereign powers in our federal system, the Court
should be vigilant in correcting the error. While it can be
18 SOUTH DAKOTA v. WAYFAIR, INC.
Opinion of the Court
conceded that Congress has the authority to change the
physical presence rule, Congress cannot change the consti­
tutional default rule. It is inconsistent with the Court’s
proper role to ask Congress to address a false constitu­
tional premise of this Court’s own creation. Courts have
acted as the front line of review in this limited sphere; and
hence it is important that their principles be accurate and
logical, whether or not Congress can or will act in re­
sponse. It is currently the Court, and not Congress, that
is limiting the lawful prerogatives of the States.
Further, the real world implementation of Commerce
Clause doctrines now makes it manifest that the physical
presence rule as defined by Quill must give way to the
“far-reaching systemic and structural changes in the
economy” and “many other societal dimensions” caused by
the Cyber Age. Direct Marketing, 575 U. S., at ___
(KENNEDY, J., concurring) (slip op., at 3). Though Quill
was wrong on its own terms when it was decided in 1992,
since then the Internet revolution has made its earlier
error all the more egregious and harmful.
The Quill Court did not have before it the present reali­
ties of the interstate marketplace. In 1992, less than 2
percent of Americans had Internet access. See Brief for
Retail Litigation Center, Inc., et al. as Amici Curiae 11,
and n. 10. Today that number is about 89 percent. Ibid.,
and n. 11. When it decided Quill, the Court could not have
envisioned a world in which the world’s largest retailer
would be a remote seller, S. Li, Amazon Overtakes Wal-Mart
as Biggest Retailer, L. A. Times, July 24, 2015, http://www.
latimes.com/business/la-fi-amazon-walmart-20150724­
story.html (all Internet materials as last visited June 18,
2018).
The Internet’s prevalence and power have changed the
dynamics of the national economy. In 1992, mail-order
sales in the United States totaled $180 billion. 504 U.S.,
at 329 (opinion of White, J.). Last year, e-commerce retail
Cite as: 585 U. S. ____ (2018) 19
Opinion of the Court
sales alone were estimated at $453.5 billion. Dept. of
Commerce, U. S. Census Bureau News, Quarterly Retail
E-Commerce Sales: 4th Quarter 2017 (CB18–21, Feb. 16,
2018). Combined with traditional remote sellers, the total
exceeds half a trillion dollars. Sales Taxes Report, at 9.
Since the Department of Commerce first began tracking e-
commerce sales, those sales have increased tenfold from
0.8 percent to 8.9 percent of total retail sales in the United
States. Compare Dept. of Commerce, U. S. Census Bu­
reau, Retail E-Commerce Sales in Fourth Quarter 2000
(CB01–28, Feb. 16, 2001), https://www.census.gov/mrts/
www/data/pdf/00Q4.pdf, with U. S. Census Bureau News,
Quarterly Retail E-Commerce Sales: 4th Quarter 2017.
And it is likely that this percentage will increase. Last
year, e-commerce grew at four times the rate of traditional
retail, and it shows no sign of any slower pace. See ibid.
This expansion has also increased the revenue shortfall
faced by States seeking to collect their sales and use taxes.
In 1992, it was estimated that the States were losing
between $694 million and $3 billion per year in sales tax
revenues as a result of the physical presence rule. Brief
for Law Professors et al. as Amici Curiae 11, n. 7. Now
estimates range from $8 to $33 billion. Sales Taxes Re­
port, at 11–12; Brief for Petitioner 34–35. The South
Dakota Legislature has declared an emergency, S. B. 106,
§9, which again demonstrates urgency of overturning the
physical presence rule.
The argument, moreover, that the physical presence
rule is clear and easy to apply is unsound. Attempts to
apply the physical presence rule to online retail sales are
proving unworkable. States are already confronting the
complexities of defining physical presence in the Cyber
Age. For example, Massachusetts proposed a regulation
that would have defined physical presence to include
making apps available to be downloaded by in-state resi­
dents and placing cookies on in-state residents’ web
20 SOUTH DAKOTA v. WAYFAIR, INC.
Opinion of the Court
browsers. See 830 Code Mass. Regs. 64H.1.7 (2017). Ohio
recently adopted a similar standard. See Ohio Rev. Code
Ann. §5741.01(I)(2)(i) (Lexis Supp. 2018). Some States
have enacted so-called “click through” nexus statutes,
which define nexus to include out-of-state sellers that
contract with in-state residents who refer customers for
compensation. See e.g., N. Y. Tax Law Ann.
§1101(b)(8)(vi) (West 2017); Brief for Tax Foundation as
Amicus Curiae 20–22 (listing 21 States with similar stat­
utes). Others still, like Colorado, have imposed notice and
reporting requirements on out-of-state retailers that fall
just short of actually collecting and remitting the tax. See
Direct Marketing, 814 F.3d, at 1133 (discussing Colo. Rev.
Stat. §39–21–112(3.5)); Brief for Tax Foundation 24–26
(listing nine States with similar statutes). Statutes of this
sort are likely to embroil courts in technical and arbitrary
disputes about what counts as physical presence.
Reliance interests are a legitimate consideration when
the Court weighs adherence to an earlier but flawed prec­
edent. See Kimble v. Marvel Entertainment, LLC, 576
U. S. ___, ___–___ (2015) (slip op., at 9–10). But even on
its own terms, the physical presence rule as defined by
Quill is no longer a clear or easily applicable standard, so
arguments for reliance based on its clarity are misplaced.
And, importantly, stare decisis accommodates only “legit­
imate reliance interest[s].” United States v. Ross, 456
U.S. 798, 824 (1982). Here, the tax distortion created by
Quill exists in large part because consumers regularly fail
to comply with lawful use taxes. Some remote retailers go
so far as to advertise sales as tax free. See S. B. 106,
§8(3); see also Brief for Petitioner 55. A business “is in no
position to found a constitutional right on the practical
opportunities for tax avoidance.” Nelson v. Sears, Roebuck
& Co., 312 U.S. 359, 366 (1941).
Respondents argue that “the physical presence rule has
permitted start-ups and small businesses to use the Inter­
Cite as: 585 U. S. ____ (2018) 21
Opinion of the Court
net as a means to grow their companies and access a
national market, without exposing them to the daunting
complexity and business-development obstacles of nation­
wide sales tax collection.” Brief for Respondents 29.
These burdens may pose legitimate concerns in some
instances, particularly for small businesses that make a
small volume of sales to customers in many States. State
taxes differ, not only in the rate imposed but also in the
categories of goods that are taxed and, sometimes, the
relevant date of purchase. Eventually, software that is
available at a reasonable cost may make it easier for small
businesses to cope with these problems. Indeed, as the
physical presence rule no longer controls, those systems
may well become available in a short period of time, either
from private providers or from state taxing agencies them­
selves. And in all events, Congress may legislate to ad­
dress these problems if it deems it necessary and fit to
do so.
In this case, however, South Dakota affords small mer­
chants a reasonable degree of protection. The law at issue
requires a merchant to collect the tax only if it does a
considerable amount of business in the State; the law is
not retroactive; and South Dakota is a party to the
Streamlined Sales and Use Tax Agreement, see infra
at 23.
Finally, other aspects of the Court’s Commerce Clause
doctrine can protect against any undue burden on inter­
state commerce, taking into consideration the small busi­
nesses, startups, or others who engage in commerce across
state lines. For example, the United States argues that
tax-collection requirements should be analyzed under the
balancing framework of Pike v. Bruce Church, Inc., 397
U.S. 137. Others have argued that retroactive liability
risks a double tax burden in violation of the Court’s appor­
tionment jurisprudence because it would make both the
buyer and the seller legally liable for collecting and remit­
22 SOUTH DAKOTA v. WAYFAIR, INC.
Opinion of the Court
ting the tax on a transaction intended to be taxed only
once. See Brief for Law Professors et al. as Amici Curiae
7, n. 5. Complex state tax systems could have the effect of
discriminating against interstate commerce. Concerns
that complex state tax systems could be a burden on small
business are answered in part by noting that, as discussed
below, there are various plans already in place to simplify
collection; and since in-state businesses pay the taxes as
well, the risk of discrimination against out-of-state sellers
is avoided. And, if some small businesses with only de
minimis contacts seek relief from collection systems
thought to be a burden, those entities may still do so
under other theories. These issues are not before the
Court in the instant case; but their potential to arise in
some later case cannot justify retaining this artificial,
anachronistic rule that deprives States of vast revenues
from major businesses.
For these reasons, the Court concludes that the physical
presence rule of Quill is unsound and incorrect. The
Court’s decisions in Quill Corp. v. North Dakota, 504 U.S.
298 (1992), and National Bellas Hess, Inc. v. Department
of Revenue of Ill., 386 U.S. 753 (1967), should be, and now
are, overruled.
V
In the absence of Quill and Bellas Hess, the first prong
of the Complete Auto test simply asks whether the tax
applies to an activity with a substantial nexus with the
taxing State. 430 U.S., at 279. “[S]uch a nexus is estab­
lished when the taxpayer [or collector] ‘avails itself of the
substantial privilege of carrying on business’ in that juris­
diction.” Polar Tankers, Inc. v. City of Valdez, 557 U.S. 1,
11 (2009).
Here, the nexus is clearly sufficient based on both the
economic and virtual contacts respondents have with the
State. The Act applies only to sellers that deliver more
Cite as: 585 U. S. ____ (2018) 23
Opinion of the Court
than $100,000 of goods or services into South Dakota or
engage in 200 or more separate transactions for the deliv­
ery of goods and services into the State on an annual
basis. S. B. 106, §1. This quantity of business could not
have occurred unless the seller availed itself of the sub­
stantial privilege of carrying on business in South Dakota.
And respondents are large, national companies that un­
doubtedly maintain an extensive virtual presence. Thus,
the substantial nexus requirement of Complete Auto is
satisfied in this case.
The question remains whether some other principle in
the Court’s Commerce Clause doctrine might invalidate
the Act. Because the Quill physical presence rule was an
obvious barrier to the Act’s validity, these issues have not
yet been litigated or briefed, and so the Court need not
resolve them here. That said, South Dakota’s tax system
includes several features that appear designed to prevent
discrimination against or undue burdens upon interstate
commerce. First, the Act applies a safe harbor to those
who transact only limited business in South Dakota.
Second, the Act ensures that no obligation to remit the
sales tax may be applied retroactively. S. B. 106, §5.
Third, South Dakota is one of more than 20 States that
have adopted the Streamlined Sales and Use Tax Agree­
ment. This system standardizes taxes to reduce adminis­
trative and compliance costs: It requires a single, state
level tax administration, uniform definitions of products
and services, simplified tax rate structures, and other
uniform rules. It also provides sellers access to sales tax
administration software paid for by the State. Sellers who
choose to use such software are immune from audit liabil­
ity. See App. 26–27. Any remaining claims regarding the
application of the Commerce Clause in the absence of
Quill and Bellas Hess may be addressed in the first in­
stance on remand.
The judgment of the Supreme Court of South Dakota is
24 SOUTH DAKOTA v. WAYFAIR, INC.
Opinion of the Court
vacated, and the case is remanded for further proceedings
not inconsistent with this opinion.
It is so ordered.
Cite as: 585 U. S. ____ (2018) 1
THOMAS, J., concurring
SUPREME COURT OF THE UNITED STATES
_________________
No. 17–494
_________________
SOUTH DAKOTA, PETITIONER v. WAYFAIR, INC.,
ET AL.
ON WRIT OF CERTIORARI TO THE SUPREME COURT OF
SOUTH DAKOTA
[June 21, 2018]
JUSTICE THOMAS, concurring.
Justice Byron White joined the majority opinion in
National Bellas Hess, Inc. v. Department of Revenue of Ill.,
386 U.S. 753 (1967). Twenty-five years later, we had the
opportunity to overrule Bellas Hess in Quill Corp. v. North
Dakota, 504 U.S. 298 (1992). Only Justice White voted to
do so. See id., at 322 (opinion concurring in part and
dissenting in part). I should have joined his opinion.
Today, I am slightly further removed from Quill than
Justice White was from Bellas Hess. And like Justice
White, a quarter century of experience has convinced me
that Bellas Hess and Quill “can no longer be rationally
justified.” 504 U.S., at 333. The same is true for this
Court’s entire negative Commerce Clause jurisprudence.
See Comptroller of Treasury of Md. v. Wynne, 575 U. S.
___, ___ (2015) (THOMAS, J., dissenting) (slip op., at 1).
Although I adhered to that jurisprudence in Quill, it is
never too late to “surrende[r] former views to a better
considered position.” McGrath v. Kristensen, 340 U.S.
162, 178 (1950) (Jackson, J., concurring). I therefore join
the Court’s opinion.
Cite as: 585 U. S. ____ (2018) 1
GORSUCH, J., concurring
SUPREME COURT OF THE UNITED STATES
_________________
No. 17–494
_________________
SOUTH DAKOTA, PETITIONER v. WAYFAIR, INC.,
ET AL.
ON WRIT OF CERTIORARI TO THE SUPREME COURT OF
SOUTH DAKOTA
[June 21, 2018 ]
JUSTICE GORSUCH, concurring.
Our dormant commerce cases usually prevent States
from discriminating between in-state and out-of-state
firms. National Bellas Hess, Inc. v. Department of Reve-
nue of Ill., 386 U.S. 753 (1967), and Quill Corp. v. North
Dakota, 504 U.S. 298 (1992), do just the opposite. For
years they have enforced a judicially created tax break for
out-of-state Internet and mail-order firms at the expense
of in-state brick-and-mortar rivals. See ante, at 12–13;
Direct Marketing Assn. v. Brohl, 814 F. 3d, 1129, 1150
(CA10 2016) (Gorsuch, J. concurring). As Justice White
recognized 26 years ago, judges have no authority to con-
struct a discriminatory “tax shelter” like this. Quill,
supra, at 329 (opinion concurring in part and dissenting in
part). The Court is right to correct the mistake and I am
pleased to join its opinion.
My agreement with the Court’s discussion of the history
of our dormant commerce clause jurisprudence, however,
should not be mistaken for agreement with all aspects of
the doctrine. The Commerce Clause is found in Article I
and authorizes Congress to regulate interstate commerce.
Meanwhile our dormant commerce cases suggest Article
III courts may invalidate state laws that offend no con-
gressional statute. Whether and how much of this can be
squared with the text of the Commerce Clause, justified by
2 SOUTH DAKOTA v. WAYFAIR, INC.
GORSUCH, J., concurring
stare decisis, or defended as misbranded products of feder-
alism or antidiscrimination imperatives flowing from
Article IV’s Privileges and Immunities Clause are ques-
tions for another day. See Energy & Environment Legal
Inst. v. Epel, 793 F.3d 1169, 1171 (CA10 2015); Comptrol-
ler of Treasury of Md. v. Wynne, 575 U. S. ___, ___–___
(2015) (Scalia, J., dissenting) (slip op., at 1–3); Camps
Newfound/Owatonna, Inc. v. Town of Harrison, 520 U.S.
564, 610–620 (1997) (THOMAS, J., dissenting). Today we
put Bellas Hess and Quill to rest and rightly end the
paradox of condemning interstate discrimination in the
national economy while promoting it ourselves.
Cite as: 585 U. S. ____ (2018) 1
ROBERTS, C. J., dissenting
SUPREME COURT OF THE UNITED STATES
_________________
No. 17–494
_________________
SOUTH DAKOTA, PETITIONER v. WAYFAIR, INC.,
ET AL.
ON WRIT OF CERTIORARI TO THE SUPREME COURT OF
SOUTH DAKOTA
[June 21, 2018]
CHIEF JUSTICE ROBERTS, with whom JUSTICE BREYER,
JUSTICE SOTOMAYOR, and JUSTICE KAGAN join, dissenting.
In National Bellas Hess, Inc. v. Department of Revenue
of Ill., 386 U.S. 753 (1967), this Court held that, under the
dormant Commerce Clause, a State could not require
retailers without a physical presence in that State to
collect taxes on the sale of goods to its residents. A quar-
ter century later, in Quill Corp. v. North Dakota, 504 U.S.
298 (1992), this Court was invited to overrule Bellas Hess
but declined to do so. Another quarter century has passed,
and another State now asks us to abandon the physical-
presence rule. I would decline that invitation as well.
I agree that Bellas Hess was wrongly decided, for many
of the reasons given by the Court. The Court argues in
favor of overturning that decision because the “Internet’s
prevalence and power have changed the dynamics of the
national economy.” Ante, at 18. But that is the very
reason I oppose discarding the physical-presence rule. E-
commerce has grown into a significant and vibrant part of
our national economy against the backdrop of established
rules, including the physical-presence rule. Any alteration
to those rules with the potential to disrupt the develop-
ment of such a critical segment of the economy should be
undertaken by Congress. The Court should not act on this
important question of current economic policy, solely to
2 SOUTH DAKOTA v. WAYFAIR, INC.
ROBERTS, C. J., dissenting
expiate a mistake it made over 50 years ago.
I
This Court “does not overturn its precedents lightly.”
Michigan v. Bay Mills Indian Community, 572 U. S. ___,
___ (2014) (slip op., at 15). Departing from the doctrine of
stare decisis is an “exceptional action” demanding “special
justification.” Arizona v. Rumsey, 467 U.S. 203, 212
(1984). The bar is even higher in fields in which Congress
“exercises primary authority” and can, if it wishes, over-
ride this Court’s decisions with contrary legislation. Bay
Mills, 572 U. S., at ___ (slip op., at 16) (tribal sovereign
immunity); see, e.g., Kimble v. Marvel Entertainment,
LLC, 576 U. S. ___, ___ (2015) (slip op., at 8) (statutory
interpretation); Halliburton Co. v. Erica P. John Fund,
Inc., 573 U. S. ___, ___ (2014) (slip op., at 12) (judicially
created doctrine implementing a judicially created cause of
action). In such cases, we have said that “the burden
borne by the party advocating the abandonment of an
established precedent” is “greater” than usual. Patterson
v. McLean Credit Union, 491 U.S. 164, 172 (1989). That
is so “even where the error is a matter of serious concern,
provided correction can be had by legislation.” Square D
Co. v. Niagara Frontier Tariff Bureau, Inc., 476 U.S. 409,
424 (1986) (quoting Burnet v. Coronado Oil & Gas Co., 285
U.S. 393, 406 (1932) (Brandeis, J., dissenting)).
We have applied this heightened form of stare decisis in
the dormant Commerce Clause context. Under our
dormant Commerce Clause precedents, when Congress
has not yet legislated on a matter of interstate commerce,
it is the province of “the courts to formulate the rules.”
Southern Pacific Co. v. Arizona ex rel. Sullivan, 325 U.S.
761, 770 (1945). But because Congress “has plenary power
to regulate commerce among the States,” Quill, 504
U.S., at 305, it may at any time replace such judicial rules
with legislation of its own, see Prudential Ins. Co. v. Ben-
Cite as: 585 U. S. ____ (2018) 3
ROBERTS, C. J., dissenting
jamin, 328 U.S. 408, 424–425 (1946).
In Quill, this Court emphasized that the decision to hew
to the physical-presence rule on stare decisis grounds was
“made easier by the fact that the underlying issue is not
only one that Congress may be better qualified to resolve,
but also one that Congress has the ultimate power to
resolve.” 504 U.S., at 318 (footnote omitted). Even as-
suming we had gone astray in Bellas Hess, the “very fact”
of Congress’s superior authority in this realm “g[a]ve us
pause and counsel[ed] withholding our hand.” Quill, 504
U.S., at 318 (alterations omitted). We postulated that
“the better part of both wisdom and valor [may be] to
respect the judgment of the other branches of the Gov-
ernment.” Id., at 319; see id., at 320 (Scalia, J., concurring
in part and concurring in judgment) (recognizing that
stare decisis has “special force” in the dormant Commerce
Clause context due to Congress’s “final say over regulation
of interstate commerce”). The Court thus left it to Con-
gress “to decide whether, when, and to what extent the
States may burden interstate mail-order concerns with a
duty to collect use taxes.” Id., at 318 (majority opinion).
II
This is neither the first, nor the second, but the third
time this Court has been asked whether a State may
obligate sellers with no physical presence within its bor-
ders to collect tax on sales to residents. Whatever salience
the adage “third time’s a charm” has in daily life, it is a
poor guide to Supreme Court decisionmaking. If stare
decisis applied with special force in Quill, it should be an
even greater impediment to overruling precedent now,
particularly since this Court in Quill “tossed [the ball] into
Congress’s court, for acceptance or not as that branch
elects.” Kimble, 576 U. S., at ___ (slip op., at 8); see Quill,
504 U.S., at 318 (“Congress is now free to decide” the
circumstances in which “the States may burden interstate
4 SOUTH DAKOTA v. WAYFAIR, INC.
ROBERTS, C. J., dissenting
. . . concerns with a duty to collect use taxes”).
Congress has in fact been considering whether to alter
the rule established in Bellas Hess for some time. See
Addendum to Brief for Four United States Senators as
Amici Curiae 1–4 (compiling efforts by Congress between
2001 and 2017 to pass legislation respecting interstate
sales tax collection); Brief for Rep. Bob Goodlatte et al. as
Amici Curiae 20–23 (Goodlatte Brief) (same). Three bills
addressing the issue are currently pending. See Market-
place Fairness Act of 2017, S. 976, 115th Cong., 1st Sess.
(2017); Remote Transactions Parity Act of 2017, H. R.
2193, 115th Cong., 1st Sess. (2017); No Regulation With-
out Representation Act, H. R. 2887, 115th Cong., 1st Sess.
(2017). Nothing in today’s decision precludes Congress
from continuing to seek a legislative solution. But by
suddenly changing the ground rules, the Court may have
waylaid Congress’s consideration of the issue. Armed with
today’s decision, state officials can be expected to redirect
their attention from working with Congress on a national
solution, to securing new tax revenue from remote retail-
ers. See, e.g., Brief for Sen. Ted Cruz et al. as Amici Curiae
10–11 (“Overturning Quill would undo much of Con-
gress’ work to find a workable national compromise under
the Commerce Clause.”).
The Court proceeds with an inexplicable sense of urgency.
It asserts that the passage of time is only increasing
the need to take the extraordinary step of overruling
Bellas Hess and Quill: “Each year, the physical presence
rule becomes further removed from economic reality and
results in significant revenue losses to the States.” Ante,
at 10. The factual predicates for that assertion include a
Government Accountability Office (GAO) estimate that,
under the physical-presence rule, States lose billions of
dollars annually in sales tax revenue. See ante, at 2, 19
(citing GAO, Report to Congressional Requesters: Sales
Taxes, States Could Gain Revenue from Expanded Au-
Cite as: 585 U. S. ____ (2018) 5
ROBERTS, C. J., dissenting
thority, but Businesses Are Likely to Experience Compli-
ance Costs 5 (GAO–18–114, Nov. 2017) (Sales Taxes Re-
port)). But evidence in the same GAO report indicates
that the pendulum is swinging in the opposite direction,
and has been for some time. States and local governments
are already able to collect approximately 80 percent of the
tax revenue that would be available if there were no phys-
ical-presence rule. See Sales Taxes Report 8. Among the
top 100 Internet retailers that rate is between 87 and 96
percent. See id., at 41. Some companies, including the
online behemoth Amazon,* now voluntarily collect and
remit sales tax in every State that assesses one—even
those in which they have no physical presence. See id., at
10. To the extent the physical-presence rule is harming
States, the harm is apparently receding with time.
The Court rests its decision to overrule Bellas Hess on
the “present realities of the interstate marketplace.” Ante,
at 18. As the Court puts it, allowing remote sellers to
escape remitting a lawful tax is “unfair and unjust.” Ante,
at 16. “[U]nfair and unjust to . . . competitors . . . who
must remit the tax; to the consumers who pay the tax; and
to the States that seek fair enforcement of the sales tax.”
Ante, at 16. But “the present realities of the interstate
marketplace” include the possibility that the marketplace
itself could be affected by abandoning the physical-
presence rule. The Court’s focus on unfairness and injus-
tice does not appear to embrace consideration of that
current public policy concern.
The Court, for example, breezily disregards the costs
that its decision will impose on retailers. Correctly calcu-
lating and remitting sales taxes on all e-commerce sales
——————
* C. Isidore, Amazon To Start Collecting State Sales Taxes Every-
where (Mar. 29, 2017), CNN Tech, http://money.cnn.com/2017/03/29/
technology/amazon-sales-tax/index.html (all Internet materials as last
visited June 19, 2018).
6 SOUTH DAKOTA v. WAYFAIR, INC.
ROBERTS, C. J., dissenting
will likely prove baffling for many retailers. Over 10,000
jurisdictions levy sales taxes, each with “different tax
rates, different rules governing tax-exempt goods and
services, different product category definitions, and differ-
ent standards for determining whether an out-of-state
seller has a substantial presence” in the jurisdiction.
Sales Taxes Report 3. A few examples: New Jersey knit-
ters pay sales tax on yarn purchased for art projects, but
not on yarn earmarked for sweaters. See Brief for eBay,
Inc., et al. as Amici Curiae 8, n. 3 (eBay Brief ). Texas
taxes sales of plain deodorant at 6.25 percent but imposes
no tax on deodorant with antiperspirant. See id., at 7.
Illinois categorizes Twix and Snickers bars—chocolate-
and-caramel confections usually displayed side-by-side in
the candy aisle—as food and candy, respectively (Twix
have flour; Snickers don’t), and taxes them differently.
See id., at 8; Brief for Etsy, Inc., as Amicus Curiae 14–17
(Etsy Brief ) (providing additional illustrations).
The burden will fall disproportionately on small busi-
nesses. One vitalizing effect of the Internet has been
connecting small, even “micro” businesses to potential
buyers across the Nation. People starting a business
selling their embroidered pillowcases or carved decoys can
offer their wares throughout the country—but probably
not if they have to figure out the tax due on every sale.
See Sales Taxes Report 22 (indicating that “costs will
likely increase the most for businesses that do not have
established legal teams, software systems, or outside
counsel to assist with compliance related questions”). And
the software said to facilitate compliance is still in its
infancy, and its capabilities and expense are subject to
debate. See Etsy Brief 17–19 (describing the inadequacies
of such software); eBay Brief 8–12 (same); Sales Taxes
Report 16–20 (concluding that businesses will incur “high”
compliance costs). The Court’s decision today will surely
have the effect of dampening opportunities for commerce
Cite as: 585 U. S. ____ (2018) 7
ROBERTS, C. J., dissenting
in a broad range of new markets.
A good reason to leave these matters to Congress is
that legislators may more directly consider the competing
interests at stake. Unlike this Court, Congress has the
flexibility to address these questions in a wide variety of
ways. As we have said in other dormant Commerce
Clause cases, Congress “has the capacity to investigate
and analyze facts beyond anything the Judiciary could
match.” General Motors Corp. v. Tracy, 519 U.S. 278, 309
(1997); see Department of Revenue of Ky. v. Davis, 553
U.S. 328, 356 (2008).
Here, after investigation, Congress could reasonably
decide that current trends might sufficiently expand tax
revenues, obviating the need for an abrupt policy shift
with potentially adverse consequences for e-commerce. Or
Congress might decide that the benefits of allowing States
to secure additional tax revenue outweigh any foreseeable
harm to e-commerce. Or Congress might elect to accom-
modate these competing interests, by, for example, allow-
ing States to tax Internet sales by remote retailers only if
revenue from such sales exceeds some set amount per
year. See Goodlatte Brief 12–14 (providing varied exam-
ples of how Congress could address sales tax collection).
In any event, Congress can focus directly on current policy
concerns rather than past legal mistakes. Congress can
also provide a nuanced answer to the troubling question
whether any change will have retroactive effect.
An erroneous decision from this Court may well
have been an unintended factor contributing to the
growth of e-commerce. See, e.g., W. Taylor, Who’s Writing
the Book on Web Business? Fast Company (Oct. 31, 1996),
https: // www.fastcompany.com / 27309 / whos-writing-book-
web-business. The Court is of course correct that the
Nation’s economy has changed dramatically since the time
that Bellas Hess and Quill roamed the earth. I fear the
Court today is compounding its past error by trying to fix
8 SOUTH DAKOTA v. WAYFAIR, INC.
ROBERTS, C. J., dissenting
it in a totally different era. The Constitution gives Con-
gress the power “[t]o regulate Commerce . . . among the
several States.” Art. I, §8. I would let Congress decide
whether to depart from the physical-presence rule that
has governed this area for half a century.
I respectfully dissent.