Congress, the Dormant Commerce Clause, and the Wayfair Case
by Michael C. Dorf
Today's decision in South Dakota v. Wayfair, Inc. is defensible on the merits, but Justice Kennedy's majority opinion inadequately responds to the key objection by Chief Justice Roberts (for himself and Justices Breyer, Sotomayor, and Kagan). To see why will require a bit of backstory on that most delightful topic in the constitutional law corpus: the Dormant Commerce Clause (DCC).
In 1967, in the National Bellas Hess case, the Supreme Court invalidated an Illinois law that obligated out-of-state retailers (a mail-order firm in the particular case) to collect the use tax due on goods purchased by people and firms in Illinois. The ruling was based on two alternative grounds: the obligation violated the due process rights of the out-of-state retailers; and it also violated the DCC. The rule of National Bellas Hess exempted out-of-state retailers from collecting use tax unless they had a physical presence in the taxing state. In principle, that rule should not have cost states revenue, because purchasers are required to pay the use tax themselves, but in practice use taxes frequently go unpaid, and state tax agencies do not invest in enforcing the obligation to pay them. Consequently, National Bellas Hess caused states to forgo substantial tax revenue.
The Supreme Court was asked to overrule National Bellas Hess in Quill Corp. v. North Dakota, a 1992 case. The Court split the difference. The justices overruled the due process ruling of National Bellas Hess. That ruling had relied on a conception of the "minimum contacts" needed for a state to be able to regulate an out-of-state firm consistent with due process that had, in the interim, been repudiated. Readers who recall their civil procedure courses will know that the "minimum contacts" framework was developed first in cases involving personal jurisdiction. They will also recall that under that framework, physical presence is not the sine qua non of contacts sufficient to render haling an absent defendant into court. Likewise for taxes. Accordingly, the Court in Quill allowed that due process stands as no obstacle to requiring a retailer that purposely avails itself of the benefits of selling its products in the state to collect the use tax due.
But the Quill Court declined to overturn the DCC portion of National Bellas Hess in Quill, even though it too was based on outdated doctrine. Modern DCC doctrine forbids states from discriminating against interstate commerce or unduly burdening interstate commerce. An argument can be made that, given the complexity of state and local sales and use tax regimes, it is unduly burdensome for an out-of-state firm to have to collect use tax. But the undue burden prong of the DCC is rarely violated and in any event, that was not the reason why the National Bellas Hess Court had found a DCC violation in the first place. Instead, the Court had relied on older cases that in turn relied on a principle barring states from taxing out-of-state firms for the privilege of engaging in interstate commerce. The theory of those cases was that the DCC recognized a zone of exclusive federal regulatory power. Inherently interstate transactions (such as mail order across state lines) were regulable only by Congress, not the states. Yet that theory had been overturned in the 1977 SCOTUS Complete Auto case.
If the DCC portion of National Bellas Hess was also based on outdated doctrine, why did the Court in Quill overrule the due process but not the DCC ruling? The answer rests on two propositions. First, stare decisis has less force in constitutional cases than in statutory cases, because a mistaken statutory decision can be corrected by Congress with a new statute, whereas a mistaken constitutional ruling can only be reversed by passing the much higher bar for enacting a constitutional amendment. And second, for stare decisis purposes, a DCC ruling is just like a statutory ruling, because it can be superseded by Congress.
Readers may be wondering how Congress, through an ordinary statute, can displace a DCC ruling. Isn't the DCC a constitutional doctrine? The answer is not exactly.
The Constitution contains no express "dormant" Commerce Clause. Rather, the DCC is an inference from the assignment to Congress of power to regulate interstate commerce. The Court infers that the Constitution by default favors a national free trade zone. Congress would, if it had the time, displace state and local laws that discriminate against or unduly burden interstate commerce, but because such laws are numerous and varied, the courts enforce a default principle even in the absence of legislation. However, Congress can choose to permit states to enact laws that would otherwise violate the DCC. Congress can deviate from the default.
In Quill, the Court left the DCC rationale for National Bellas Hess standing precisely because Congress could change it but hadn't. And in the 26 years since Quill, despite repeated lobbying from states and bricks-and-mortar retailers that are at a competitive disadvantage due to the rule of National Bellas Hess/Quill, Congress has not changed that rule. Thus, in his dissent in Wayfair, CJ Roberts says that the Court should continue to leave the matter to Congress.
How does the majority respond? Here's what Justice Kennedy says:
Suppose that in Case 1 the SCOTUS construes Statute A to mean X. A quarter century passes during which Congress does not amend Statute A. Then Case 2 arises. Petitioner argues that the Court was wrong in Case 1, that Statute A really means Y, not X. Suppose the justices are persuaded that Petitioner is right as an original matter. Should they overrule Case 1? Or more precisely, should Petitioner not only have to show that Case 1 was wrongly decided, but to satisfy the very high burden for overcoming stare decisis in statutory cases?
The obvious answer is that Petitioner needs to meet that very high burden. That's true even though, to adapt the majority's reasoning in Wayfair, Congress in this instance has failed to act to correct "a false . . . premise of the Court's own creation" and that the underlying principles in Case 1 were not "accurate and logical." The whole point of having a higher burden for overcoming stare decisis in statutory cases--and thus in DCC cases--is that the Court attributes some significance to Congress's failure to act in the face of the Court's action. That is true regardless of whether Congress fails to act in the face of a generally appropriate default or in the face of a default that, on reflection, was erroneous. Either way, Congress's failure to shift from the default indicates acquiescence or at least the absence of strong disagreement. So the Wayfair majority's claim that here the default was wrong points to a distinction that shouldn't make a difference.
I said above that I think the result in Wayfair is nonetheless defensible. I think it could be defended on either of two grounds.
First, some of Justice Kennedy's opinion reads as though the majority thinks that the very high bar for overruling a statutory or DCC ruling has been met with respect to National Bellas Hess and Quill. In light of the growth of Internet commerce, the cases can now be seen to be not just wrong but profoundly wrong; and despite what CJ Roberts says in dissent, the majority thinks that there aren't very strong reliance interests here; the firms that have built up around the National Bellas Hess/Quill rule will soon be able to take advantage of software that will readily assess and collect tax due. Indeed, CJ Roberts notes that Amazon already does this. His point is to show that there's no urgent problem that the Court must solve, but he ends up providing support for the majority: if Amazon can comply, other firms can too, even if they are small firms, because software will be available to make the complexity tractable.
Second, the majority might say (if they believe) that actually the bar for overcoming stare decisis should not be higher in statutory cases than in constitutional cases. There is scant evidence that the Court in fact is very much more reluctant to overrule statutory (and DCC) precedents than constitutional ones. Nor is the difference all that justifiable. After all, while it is true that it is easier for Congress to reverse a statutory holding than for Congress and the states to reverse a constitutional holding by constitutional amendment, it's not exactly easy for Congress to enact a statute. Overcoming legislative inertia is always a challenge, especially so in an age of gridlock.
Moreover, ease of change is not the only factor in considering the weight of stare decisis. Constitutional law is fundamental law. For that reason, it should not lightly be changed. That factor should make it more difficult, not less difficult, for the Court to overrule a constitutional precedent than a statutory one.
Accordingly, I'm left to conclude that Wayfair may well be rightly decided, despite the inadequacy of the majority's response to the Chief Justice's dissent.
Today's decision in South Dakota v. Wayfair, Inc. is defensible on the merits, but Justice Kennedy's majority opinion inadequately responds to the key objection by Chief Justice Roberts (for himself and Justices Breyer, Sotomayor, and Kagan). To see why will require a bit of backstory on that most delightful topic in the constitutional law corpus: the Dormant Commerce Clause (DCC).
In 1967, in the National Bellas Hess case, the Supreme Court invalidated an Illinois law that obligated out-of-state retailers (a mail-order firm in the particular case) to collect the use tax due on goods purchased by people and firms in Illinois. The ruling was based on two alternative grounds: the obligation violated the due process rights of the out-of-state retailers; and it also violated the DCC. The rule of National Bellas Hess exempted out-of-state retailers from collecting use tax unless they had a physical presence in the taxing state. In principle, that rule should not have cost states revenue, because purchasers are required to pay the use tax themselves, but in practice use taxes frequently go unpaid, and state tax agencies do not invest in enforcing the obligation to pay them. Consequently, National Bellas Hess caused states to forgo substantial tax revenue.
The Supreme Court was asked to overrule National Bellas Hess in Quill Corp. v. North Dakota, a 1992 case. The Court split the difference. The justices overruled the due process ruling of National Bellas Hess. That ruling had relied on a conception of the "minimum contacts" needed for a state to be able to regulate an out-of-state firm consistent with due process that had, in the interim, been repudiated. Readers who recall their civil procedure courses will know that the "minimum contacts" framework was developed first in cases involving personal jurisdiction. They will also recall that under that framework, physical presence is not the sine qua non of contacts sufficient to render haling an absent defendant into court. Likewise for taxes. Accordingly, the Court in Quill allowed that due process stands as no obstacle to requiring a retailer that purposely avails itself of the benefits of selling its products in the state to collect the use tax due.
But the Quill Court declined to overturn the DCC portion of National Bellas Hess in Quill, even though it too was based on outdated doctrine. Modern DCC doctrine forbids states from discriminating against interstate commerce or unduly burdening interstate commerce. An argument can be made that, given the complexity of state and local sales and use tax regimes, it is unduly burdensome for an out-of-state firm to have to collect use tax. But the undue burden prong of the DCC is rarely violated and in any event, that was not the reason why the National Bellas Hess Court had found a DCC violation in the first place. Instead, the Court had relied on older cases that in turn relied on a principle barring states from taxing out-of-state firms for the privilege of engaging in interstate commerce. The theory of those cases was that the DCC recognized a zone of exclusive federal regulatory power. Inherently interstate transactions (such as mail order across state lines) were regulable only by Congress, not the states. Yet that theory had been overturned in the 1977 SCOTUS Complete Auto case.
If the DCC portion of National Bellas Hess was also based on outdated doctrine, why did the Court in Quill overrule the due process but not the DCC ruling? The answer rests on two propositions. First, stare decisis has less force in constitutional cases than in statutory cases, because a mistaken statutory decision can be corrected by Congress with a new statute, whereas a mistaken constitutional ruling can only be reversed by passing the much higher bar for enacting a constitutional amendment. And second, for stare decisis purposes, a DCC ruling is just like a statutory ruling, because it can be superseded by Congress.
Readers may be wondering how Congress, through an ordinary statute, can displace a DCC ruling. Isn't the DCC a constitutional doctrine? The answer is not exactly.
The Constitution contains no express "dormant" Commerce Clause. Rather, the DCC is an inference from the assignment to Congress of power to regulate interstate commerce. The Court infers that the Constitution by default favors a national free trade zone. Congress would, if it had the time, displace state and local laws that discriminate against or unduly burden interstate commerce, but because such laws are numerous and varied, the courts enforce a default principle even in the absence of legislation. However, Congress can choose to permit states to enact laws that would otherwise violate the DCC. Congress can deviate from the default.
In Quill, the Court left the DCC rationale for National Bellas Hess standing precisely because Congress could change it but hadn't. And in the 26 years since Quill, despite repeated lobbying from states and bricks-and-mortar retailers that are at a competitive disadvantage due to the rule of National Bellas Hess/Quill, Congress has not changed that rule. Thus, in his dissent in Wayfair, CJ Roberts says that the Court should continue to leave the matter to Congress.
How does the majority respond? Here's what Justice Kennedy says:
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.Put differently, the Court's DCC doctrine allows Congress to shift from the correct default, but the burden shouldn't be on Congress to shift from an incorrect default. That may sound logical, but with due respect, it isn't. An analogy explains why.
Suppose that in Case 1 the SCOTUS construes Statute A to mean X. A quarter century passes during which Congress does not amend Statute A. Then Case 2 arises. Petitioner argues that the Court was wrong in Case 1, that Statute A really means Y, not X. Suppose the justices are persuaded that Petitioner is right as an original matter. Should they overrule Case 1? Or more precisely, should Petitioner not only have to show that Case 1 was wrongly decided, but to satisfy the very high burden for overcoming stare decisis in statutory cases?
The obvious answer is that Petitioner needs to meet that very high burden. That's true even though, to adapt the majority's reasoning in Wayfair, Congress in this instance has failed to act to correct "a false . . . premise of the Court's own creation" and that the underlying principles in Case 1 were not "accurate and logical." The whole point of having a higher burden for overcoming stare decisis in statutory cases--and thus in DCC cases--is that the Court attributes some significance to Congress's failure to act in the face of the Court's action. That is true regardless of whether Congress fails to act in the face of a generally appropriate default or in the face of a default that, on reflection, was erroneous. Either way, Congress's failure to shift from the default indicates acquiescence or at least the absence of strong disagreement. So the Wayfair majority's claim that here the default was wrong points to a distinction that shouldn't make a difference.
I said above that I think the result in Wayfair is nonetheless defensible. I think it could be defended on either of two grounds.
First, some of Justice Kennedy's opinion reads as though the majority thinks that the very high bar for overruling a statutory or DCC ruling has been met with respect to National Bellas Hess and Quill. In light of the growth of Internet commerce, the cases can now be seen to be not just wrong but profoundly wrong; and despite what CJ Roberts says in dissent, the majority thinks that there aren't very strong reliance interests here; the firms that have built up around the National Bellas Hess/Quill rule will soon be able to take advantage of software that will readily assess and collect tax due. Indeed, CJ Roberts notes that Amazon already does this. His point is to show that there's no urgent problem that the Court must solve, but he ends up providing support for the majority: if Amazon can comply, other firms can too, even if they are small firms, because software will be available to make the complexity tractable.
Second, the majority might say (if they believe) that actually the bar for overcoming stare decisis should not be higher in statutory cases than in constitutional cases. There is scant evidence that the Court in fact is very much more reluctant to overrule statutory (and DCC) precedents than constitutional ones. Nor is the difference all that justifiable. After all, while it is true that it is easier for Congress to reverse a statutory holding than for Congress and the states to reverse a constitutional holding by constitutional amendment, it's not exactly easy for Congress to enact a statute. Overcoming legislative inertia is always a challenge, especially so in an age of gridlock.
Moreover, ease of change is not the only factor in considering the weight of stare decisis. Constitutional law is fundamental law. For that reason, it should not lightly be changed. That factor should make it more difficult, not less difficult, for the Court to overrule a constitutional precedent than a statutory one.
Accordingly, I'm left to conclude that Wayfair may well be rightly decided, despite the inadequacy of the majority's response to the Chief Justice's dissent.