With states like Alabama and South Dakota attempting to place Quill’s physical presence rule before the U.S. Supreme Court, Judge Gorsuch’s concurring opinion in Direct Marketing v. Brohl—and his previous clerkship with Justice Anthony Kennedy—may indicate that if he is confirmed to the Court, he would vote in favor of hearing such a challenge.
On Monday evening, Judge Neil Gorsuch was nominated to the United States Supreme Court. Judge Gorsuch currently serves on the Tenth Circuit Court of Appeals for the United States (the “Tenth Circuit”). Nominees to the Supreme Court inevitably capture the attention of the legal community, but this nomination should garner specific attention from the state tax community. If Judge Gorsuch is confirmed, his votes on the Tenth Circuit may illuminate his view on one of the most pervasive and controversial issues in the state tax community: whether a taxpayer must be “physically present” in a state for that state to impose sales and use tax collection obligations on it.
The “physical presence” rule was first announced in National Bellas Hess v. Department of Revenue of Illinois,1 and later reaffirmed by the Court in Quill Corp. v. North Dakota.2 In recent years, several states have increased their efforts to free themselves from the restrictions of Quill, which they view as outmoded and an obstacle to effective and fair sales and use tax enforcement. Most recently, South Dakota3 and Alabama4 have enacted sales and use tax collection regimes that are in direct violation of Quill, with the hope that the resulting legal challenges will ultimately lead to Supreme Court review—and a decision striking down—the physical presence rule.
Judge Gorsuch is no stranger to Quill. In Direct Marketing Association v. Brohl, he was a member of the three-judge panel tasked with reviewing Colorado’s use tax reporting requirements5 on out-of-state retailers.6 Direct Marketing Association—a trade organization of retailers that market products via catalogs, advertisements, broadcast media, and the Internet—successfully challenged the law in Federal District Court, because it imposed use tax reporting obligations on out-of-state retailers, regardless of whether they had a physical presence in Colorado. After Judge Gorsuch and his colleagues determined the suit was not permitted to proceed in federal court,7 the Supreme Court reversed that decision and remanded the case back to the Tenth Circuit for a decision on the merits.8
On remand, Judge Gorsuch was again on the three-judge panel tasked with determining whether Colorado’s law violated Quill. The panel held that the law did not violate Quill.9 Judge Gorsuch penned a concurring opinion, in which he “agree[d] with everything the court … said,” but wrote separately to note that the physical presence rule may have “a sort of expiration date.”10
If Judge Gorsuch is ultimately confirmed to the Court, he will almost certainly be presented with an opportunity to grant certiorari in cases in which states are seeking to overturn Quill. His prior determination in DMA that Quill did not apply to reporting regimes, coupled with his suggestion of an “expiration date” for the physical presence rule, may suggest he would vote to hear such a case.
One more fact may indicate his willingness to hear a case challenging Quill: Judge Gorsuch was a clerk to Supreme Court Justice Anthony Kennedy. In the Supreme Court’s first review of DMA, Justice Kennedy wrote a concurrence in which he appeared to sympathize with the states’ frustration with the physical presence rule, and encouraged the “legal system” to “find an appropriate case for this Court to reexamine Quill and Bellas Hess.”11 Supreme Court Justices are known to have close relationships—both personally and ideologically—with the Justice for whom they clerked. If this is true for Judge Gorsuch and Justice Kennedy, the state tax community should watch the confirmation hearings closely, as Judge Gorsuch’s confirmation to the Court could impact whether it reevaluates Quill’s physical presence rule.
- 386 U.S. 753 (1967).
- 504 U.S. 298 (1992).
- S.B. 106, § 9, 2016 Leg., 91st Sess. (S.D. 2016).
- Ala. Reg. 810-6-2-.90.03, effective January 1, 2016.
- Colo. Rev. Stat. §§ 39-21-112(3.5)(c), (d); 1 Colo. Code Regs. § 201-1:39-21-112.3.5.
- Direct Marketing Ass’n v. Brohl, 735 F.3d 904 (2013).
- Direct Marketing Ass’n v. Brohl, 575 U.S. __ (2015).
- 814 F.3d 1129 (2016).
- Direct Marketing Association, 814 F.3d at 1151 (Gorsuch, concurring).
- Direct Marketing Association v. Brohl, 575 U.S. at __ (Kennedy, J., concurring).