SCOTUS authorizes taxation without representation

· June 21, 2018  
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U.S. Supreme Court
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If it’s late June, it’s time for us to get carpet-bombed by Anthony Kennedy with Supreme Court decisions. He did not disappoint today.

We are told by Anthony Kennedy that a state cannot regulate abortion within its borders. We are told that a state cannot define marriage as it has been defined since creation within its borders. We are told that a state cannot enforce federal immigration law as written within its own borders.  States have been reduced to rubble, to the point that they can’t even enforce election law, which was specifically given over to them. Moreover, we are told that these decisions are “stare decisis” – precedent set in stone. Yet we are now told by the high court that states are so powerful that they can collect sales taxes across state lines on vendors who cannot vote for or against those levying the taxes, and the court is willing to slay the sacred stare decisis to do so, encompassing two court opinions and a principle in use since 1824.

To begin with, it’s important to note that this opinion in South Dakota v. Wayfair Inc. was clearly not politically motivated, based on the unusual breakdown of the decision. The three most conservative justices – Thomas, Alito, and Gorsuch — joined Kennedy’s opinion allowing states to collect sales tax across state lines, while Roberts dissented and was joined by Breyer, Sotomayor and Kagan, with the remaining liberal – Ginsburg – actually joining the majority and the conservatives. Nonetheless, I still believe this opinion, as written by Kennedy, is plain wrong and violates the entire purpose behind swapping out the Articles of Confederation for the Constitution. The political outcome will be a disaster.

From the vantage point of Thomas, Gorsuch, and Alito, at least they are consistent. They don’t believe in a robust interpretation of the Commerce Clause as a positive grant of power to Congress to regulate all aspects of our lives and the powers of the states. Thus, they also don’t believe in the negative “dormant” Commerce Clause jurisprudence – that Congress must blatantly authorize states to engage in cross-state activity and can inhibit them from doing so without explicitly barring it. Thomas, in particular, has been consistent in his desire to get rid of that doctrine from Gibbons V. Ogden (1824), as he alluded to in his brief concurrence today.

The problem is the inconsistency of Justice Kennedy. If he believes (see Arizona v. United States) that states can be prevented from performing such basic functions as enforcing federal immigration laws that are passed by Congress, most certainly they are pre-empted from taxing citizens of other states without an express authorization from Congress. Does Kennedy believe states can place tariffs on one another too?

It is simply astounding that Kennedy wrote in Arizona that the fact that the Constitution gave immigration over to the federal government pre-empted the state from even enforcing federal law in its own boundaries, yet somehow when the Constitution gave interstate commerce over to the federal government – as the foremost impetus driving the ratification of the Constitution – it did not prevent states from taxing other states. As the Supreme Court once said (H.P. Hood & Sons, Inc. v. Du Mond, 1949), “No other federal power was so universally assumed to be necessary, [and] no other state power was so readily relinquished.”

The original intent of the Commerce Clause was to serve as a check on state power grabs across state lines in order to protect the people from cross-state economic warfare, not as a new power for the feds to wield over the people.

As James Madison noted in a letter to Joseph C. Cabell in 1829, the “power to regulate commerce among the several States” was “intended as a negative and preventive provision against injustice among the States themselves, rather than as a power to be used for the positive purposes of the General Government.”

Justice Thomas would likely say that Congress still needs to express that negative through an act of legislation, and until it does so, states are free to act. But Kennedy and Ginsburg (who joined the opinion) are inconsistent. You can’t believe in a robust positive power of the Commerce Clause on issues explicitly left to the states and then ignore the more modest negative power of Congress over issues that were clearly meant to be beyond state powers and exclusively left to the feds.

Kennedy justified overturning the 1991 Quill and 1967 Bellas Hess decisions disallowing South Dakota and other states to collect taxes from out-of-state residents by noting the following:

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 dynamics 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.

The problem is that while technology has changed, the principle behind the Quill decision – taxation without representation – has not changed. The internet has made it so that a buyer in South Dakota can purchase a product from a merchant in South Carolina just as instantaneously as if the transaction had occurred in South Dakota. But at the end of the day, the merchant, on whom the tax is levied (on behalf of the buyer), still does not vote in South Dakota. Now that individual will have to account for 10,000 unique tax jurisdictions to distinguish, for example, between a Kit Kat bar, which is not taxed in some places like New York, and a Milky Way, which is taxed.

This is the very chaos and burden of cross-state tyranny that our Founders sought to rectify in their transition out of the Articles of Confederation. This is an egregious outcome from Kennedy and Ginsburg, given their broader philosophy on the Commerce Clause.

Congress can still stop this tyranny of taxation and regulation without representation. As I noted before, this will be a race to the bottom, with all of the big-government governors seeking to grow government with endless revenue. The reason they wanted Quill overturned is precisely why the Founders never wanted cross-state taxation. It’s unaccountable. So they are experiencing a revenue shortfall? Boo-hoo. People stopped smoking, so they received less revenue from the cigarette tax, and cars achieved better fuel mileage, so they collect less in gas taxes. The sales tax is no different.

States eager to grow government have the option of raising their income or property taxes or fees on their own residents to compensate for any shortfalls. Or they could restructure the sales tax as a direct tax on the sellers in their states. Rep. James Sensenbrenner has introduced the No Taxation Without Representation Act, which would restructure the sales tax as origin-based. Or, God forbid, they could actually cut spending. But no, they don’t want those options when they now have the luxury of creating an unaccountable cross-border tax collection cartel.

Justice Gorsuch said that for years the court has “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.” But this is simply not true. This is not a special break. There is no fair way of taxing across state lines because of the complexity and the principle of no taxation without representation. That is applied equally throughout the country and was not some sort of premeditated carve-out. In fact, the big online retailers like Amazon have already co-opted the online sales tax to put out of business those who lack the economies of scale to deal with the cross-state morass of jurisdictional complexities.

The court asserted that the status quo created “market distortions” and “tax shelters” for certain businesses. No, today’s ruling will achieve those goals, which is why all of the big players, including Amazon, supported the internet sales tax. This will now completely obviate the benefit of low-tax states and discourage any state like New Hampshire from having no sales tax while encouraging other states to increase it.

If we really want to empower the states, we should devolve all taxation to the states and let them take the lead and relegate the feds to a back-end flat tax on revenue. But with such empowerment would actually come accountability. And evidently, most state governors are too cowardly to tax us openly. As Jean-Baptiste Colbert said, “The art of taxation consists in so plucking the goose as to obtain the largest quantity of feathers with the least possible amount of hissing.”


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Author: Daniel Horowitz

Daniel Horowitz is a senior editor of Conservative Review. Follow him on Twitter @RMConservative.