By Darien Shanske
[Cross-posted from Medium]
Some first impressions, including pondering how this decision intersects with NCAA v. Murphy
In the end, not a single justice would stand up for the rule of Quill, which rule was that a state can only impose a use tax collection obligation on a vendor if it has a physical presence in the state. All the justices agreed that it was the wrong rule, even apparently, when first imposed in 1967. So then why was this a 5–4 decision?
The four dissenters argued that stare decisis should protect the Quill rule nevertheless because it is an old rule that Congress can change. I take the key part of the majority response to be the following:
While it can be conceded that Congress has the authority to change the physical presence rule, Congress cannot change the constitutional default rule. It is inconsistent with the Court’s proper role to ask Congress to address a false constitutional 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 response. It is currently the Court, and not Congress, that is limiting the lawful prerogatives of the States.
This seems exactly right to me and I have argued as much (see here and here). And it is of course not surprising that Justice Kennedy is arguing that federalism values establish a pro-state power default and that it is untenable for a federal court to erect a barrier to state power based on a mistake.
But note that the dissent in Wayfair was written by Chief Justice Roberts, who, in another context wrote: “The dormant Commerce Clause is not a roving license for federal courts to decide what activities are appropriate for state and local government to undertake …” The issue in that case, United Haulers, was whether a public utility could force local users to use its services, and Chief Justice Roberts held for the majority that it could. Justice Alito wrote a powerful dissent in that case and was joined by Justice Kennedy. Justice Alito again joined Justice Kennedy in Wayfair. Thus, according to these two justices, a pro-state constitutional default does not protect local flow control ordinances, but does protect the ability of states to impose a use tax collection obligation. For Chief Justice Roberts, the reverse is apparently true, though in his case he would note that stare decisis was what weighed against the states in the use tax context. (The counter to this is that United Haulers also essentially overturned a precedent, a point well made by Justice Alito in his dissent.)
So Wayfair did hinge on federalism values, I believe, but in a quite complicated way that will require additional unpacking, especially in light of NCAA v. Murphy. This decision, authored by Justice Alito, and joined by Justices Roberts, Kennedy, Thomas, Kagan and Gorsuch, struck down a federal law that made it unlawful for states or their subdivisions to authorize betting on sporting events. The majority thought that this decision followed from the anti-commandeering principle, namely that Congress cannot “issue orders directly to the States.”
As was immediately noted, a broad interpretation of NCAA v. Murphy puts into question numerous federal laws that also restrict the kinds of laws that state legislatures can pass. Such laws are particularly numerous in the field of taxation, where Congress has imposed special rules relating to mobile phones, railroads, pensions etc. And yet both sides in Wayfair seem to agree that Congress could step in and regulate how states can impose a use tax collection obligation. But would not the relevant federal law be, in effect, a prohibition on state legislative power?
This question has been very ably debated by Daniel Hemel, Brian Galle, Rick Hills, Jeff Schmitt and Ilya Somin among others. It seems to me Wayfair is a pretty strong indication that the Court did not mean to undermine the ability of Congress to restrict state taxing power — within limits. Still, Murphy says what it says and so I will add one more way that the Court — and first courts — can reasonably limit Murphy.
In Murphy, Congress was weighing in on a contentious policy matter involving regulating individual conduct on which there is a limited federal interest. The majority in Murphy signals as much in its first line: “Americans have never been of one mind about gambling…” I think that Justices like Kennedy and Alito, relative hawks in other dormant Commerce Clause cases, would argue that preventing balkanization of the national marketplace is a very different matter from imposing a one-size fits all rule about sports betting. Protecting the national marketplace is a core concern of the Commerce Clause and indeed of our whole constitutional order, a point made particularly well by Brain Galle. I know that this kind of analysis is mushy and that the Court in Murphy instead focused on the issue of whether or not the federal government is regulating a private actor, but that rubric does not work to explain how and why Congress can act to limit state taxing power post Wayfair.
Focusing on the importance and centrality of the federal interest means, in effect, that the Court is applying a kind of proportionality analysis, a very common method of deciding constitutional cases, though not in our tradition (at least not explicitly). I think applying some form of the proportionality principle is the right answer not only to the question posed by Murphy, but also to the question posed by Quill/Wayfair. The Court in Wayfair does not explicitly shift to a kind of balancing test (in particular, Pike balancing), but its retention of a “substantial nexus” standard without much further guidance seems to invite the states to engage in balancing. Clearly, a remote vendor can now be asked to collect the use tax even without a physical presence, but, just as clearly, remote vendors can only be asked to do so if there is sufficient nexus. Thoughtful balancing of the legitimately opposing interests is therefore the way forward.
