Supreme Court Opens Door for Taxation of Interstate Commerce

by Dennis Crouch

Important non-patent Supreme Court case for businesses operating online:

South Dakota v. Wayfair, Inc (Supreme Court June 21, 2018)

Holding: The “physical presence” rule of Quill Corp. v. North Dakota, 504 U. S. 298 is overruled. While states may not impose undue burdens on interstate commerce, the constitution does not prohibit taxation of activities having “substantial nexus with the taxing State” that are non-discriminatory, fairly apportioned, and related to services provided by the state.


44 thoughts on “Supreme Court Opens Door for Taxation of Interstate Commerce

  1. 6

    Western Geco finally arrived today. Have not read it, but I just want to put a pin in the observation that Justice Gorsuch’s dissent in that case is joined only by Justice Breyer. Perhaps those who were celebrating him as a pro-IP justice following his Oil States dissent were being a bit premature.

  2. 3

    Will Luca v. FTC decided today 7-2 by the Sup. Ct. affect PTO APJ appointment Constiutionality? The Court held that SEC ALJs are “Officers of the United States”and thus subject to the Appointments Clause. “Under that Clause, only the President, “Courts of Law,” or “Heads of Departments” can appoint “Officers.” See Art. II, §2, cl. 2. And none of those actors had made Judge Elliot an ALJ. To be sure, the Commission itself counts as a “Head[] of Department[].” [citation] But the Commission had left the task of appointing ALJs, including Judge Elliot, to SEC staff members.”
    Are all PTO APJs are appointed by the PTO Director or the Secretary of Commerce?

    1. 3.1

      All APJs are appointed by the Secretary of Commerce, in consultation with the Director. 35 usc 6. That’s because APJs are presumed to be “inferior” officers of the United States. (Thank you, Professor Duffy.)

      In Luca, the Court studiously avoided deciding the difference between “principal” officers, requiring Presidential appointment, and “inferior” officers. The Court accepted the proposition that the SEC positions were “inferior” officers and required at least appointment by a head of department, such as the Commission. The Court’s opinion thus changes nothing with respect to APJ appointments, as they already are appointed as “inferior” officers.

      1. 3.1.1

        Yeah I think that’s probably right.

        But if you’re a patent owner in a PTAB proceeding, you’d be best to preserve the objection that the PTAB judges were not properly appointed, just in case a later court finds that PTAB judges are not “inferior” Officers and require Senate confirmation.

        The decision today seems to indicate that the issue of whether an ALJ was legally appointed can be waived by failing to timely object, which seems odd, since a ruling by a judge who wasn’t legally appointed seems to be ultra vires, issued in the absence of jurisdiction and authority.

        Nevertheless, patent owners will be best advised to preserve this objection by briefly raising it somewhere in their Patent Owner responses in the unlikely event of a future decision on this issue.

  3. 2

    There is perhaps a tangent to patent law here…

    If the Supreme Court is using reasoning to allow a State to impose taxes “without a physical presence,” does not such ALSO change the view as to what it means for a seller (now exposed to State tax liability) to ALSO be exposed to other liability within the State?

    For example, patent infringement liability?

    It would seem to be an overly crabbed view to hold that a State may TAX you, but that you somehow still lack enough nexus with that taxing entity in order to be held accountable for trafficking items (that are the subject of the tax) that also may be directly related to patent infringement.

    I am not saying this is a necessary conclusion, but it is a logical conclusion (the caveat of course is that tax law is not always logical).

    1. 2.2

      Regarding patent infringement liability, isn’t the issue proper venue–not personal jurisdiction?

      In any case, who exactly is being taxed? Is it the foreign retailer or the domestic consumer? The consumer is a resident of a state, so there would be no legal concerns with taxing the consumer directly. As for the foreign retailer, they are arguably conducting business in that state, which would subject it to the jurisdiction of the state at least with respect to the specific transactions. As a practical matter, this is really just an administrative issue that compels the foreign retailer to collect taxes on behalf of the state from its residents.


          Under current Fed. Cir. law, I cannot imagine a scenario where there would not be personal jurisdiction in any proper venue.


            …and the point here is that “proper venue” just became GREATLY expanded.

            What are the odds that a different outcome would have prevailed had the focus before the Court included a (direct) patent impact?


              “GREATLY expanded.”? Huh? Please elaborate.

              For patent infringement, venue used to be proper wherever there was personal jurisdiction. Now, venue requires residency and/or a regular and established place of business plus infringement.

              How is this expanded?


                Are you not paying attention to how HERE that “regular place of business” is loosened from any particular PHYSICAL presence?

                If tax can reach out and grab you (without physical) then so too can other liabilities (such as patent infringement).

                The tax angle is the expansion.

                1. For starters, this case was decided under the dormant commerce clause. Neither venue nor personal jurisdiction were in dispute.

                  In any case, why would you think that a physical presence rule would relate to the statutory meaning of “regular and established place of business”?

                2. For starters, this case was decided under the dormant commerce clause. Neither venue nor personal jurisdiction were in dispute.

                  Wow are you dense. Do you always ONLY follow dots that have been connected for you? Have you no power of thinking or synthesizing concepts?

                  Did I SAY that venue or personal jurisdiction were in dispute here?

                  So yet again, the tax angle is what expands the situation. THAT situation may also infect the notion of what it means for have a regular and established place of business BECUASE physicality is being divorced from being a necessary predicate in order to for the tax reach to be obtained. (and once tax reach is obtained, other liabilities are sure to follow)

                3. Regarding your lower post at maximum nesting level, you may be unaware of the problems with reading between the lines. Sometimes, what you see that others cannot see simply isn’t there. Similarly, unrelated things are often unrelated. I find myself unable to dispute the very real risk that a judicially created “physical presence” test will infect the statutory definition of “place of business.” Thank you for your wisdom.

                4. The Court here said an established place of business isn’t necessary to require an out of state enterprise to collect sales tax. Congress has spoken by statue and said that a regular and established place of business IS necessary for patent venue. You’re comparing apples and orangutans.

                5. ID,

                  It is not how you attempt to paint it (as an either/or, black and white matter); rather, it is that an underlying concept to both has now been “re-interpreted.”

                  The ramifications will flow.

                  As they must.

                  (“place” of business need not be a physical place)

                6. The Court here said an established place of business isn’t necessary to require an out of state enterprise to collect sales tax.

                  That is not what this case presents.

                  It does not eliminate “place of business,” as it redefines it away from physicality.

                  Place of business very much remains in place.

                  And it is that – that the place is redefined – that is a ramification that necessarily will unfold.

      1. 2.2.2

        Guess you have never been in retail. The store is the one to collect and pay the tax. And the States police the heck out of that.


          You missed my point. I understand how sales tax goes from a consumer to a state treasury. The question is whether the retailer is being taxed on its sales or is the retailer collecting tax on behalf of the state from its customers within that state. The effect may be the same but the implications are different.


            Two sides of the same coin (as it were). The tax is on the sales, the tax is on the transaction. There are two sides to that single “coin.” The state cares about the transaction (and the tax thereof). It has attempted to obtain its take from the one side (with little success). Now, as per the court’s re-interpretation, the other side is deemed to have sufficient presence (sufficient “place”) to be fair game.

            And I agree with you: the implications are indeed very different.


            The tax is paid by the consumer. The seller collects the tax on behalf of the state. And at least in my state, the seller is compensated by the state for doing so; he gets to keep .5% of the tax.



              There are two sides to the one coin.

              What is the point that you think that you are making by pointing out what is already known?

              There remains one coin.

    2. 2.3

      LOL, great point. The internet dashboard – being the gizmo – regardless of where the servie is located. Of course, on a related note, the gaming cases long ago established that the local poker dashboard to a server in antigua – is gambling in NY. Hex the devolving Fed Cir all element in the US blackberry reasoning. Screw patent owners appears to be the overarching theme.

      1. 2.3.1

        There really is an anti-patent animus out there.

        Even if I was not a pro-innovation, pro-patent person, objectively, the animus is evident.

    3. 2.4

      There is a “speshul” venue statue sub-section for patent law. There is not (to my knowledge) anything similar regarding taxation.


          It’s working very well. Lately better than in the past. Why do you ask?


            Sorry ID,

            several posts answering your questions and (attempting) to continue the dialogue have fallen prey to the “don’t have a dialogue” count filter.


              (comments have been released; however, I believe the dialogue train has left the station)

  4. 1

    They also held that administrative law judges at the SEC are “officers” of the US for purposes of Constitution’s appointments clause, which means that the appointments of all five current ALJs at the SEC have been unconstitutional.

    Pity that reasoning doesn’t apply to PTAB APJs.

    1. 1.1

      Of course PTAB APJ’s seem to have many of the same duties/responsibilities of the STJ’s that Justice Kagan referenced in the Lucia v. SEC opinion today. She analogized APJ’s to STJ’s (as discussed in the Freytag decision). So, there is an argument that PTAB APJ’s are “officers” based on their similar duties with respect to STJ’s. As “officers” of the United States and not “employees”/minions of the Director, they should not be subject to influence by the Director or their immediate supervisors.

      1. 1.1.2

        As “officers” of the United States and not “employees”/minions of the Director, they should not be subject to influence by the Director or their immediate supervisors.

        Clearly not so – so where is the disconnect?

      2. 1.1.3

        “As ‘officers’ of the United States and not ’employees’/minions of the Director, they should not be subject to influence by the Director or their immediate supervisors.”

        Are you drawing a distinction between the Director, immediate supervisors, and the department head (i.e., Secretary of Commerce)? In Lucia, the SEC ALJs were held to be officers, but their decisions are only “initial” decisions that can be nullified by the Commission (i.e., the department head). Reversing, modifying, setting aside, etc., the decision of an ALJ would seem to be make the final decision “subject to influence” in a major way.


          Reversing, modifying, setting aside, etc., the decision of an ALJ would seem to be make the final decision “subject to influence” in a major way.

          Not necessarily.

          If there are no negative repercussions, and such actions must be performed at the higher level (with that higher level then being responsible for the changed decision – and all that THAT entails), then the influence impact may very well be non-existent.

          Of course, it very much depends on the separation of the “judicial function” from the “management function,” and as noted previously, there exists a spectrum of such separateness in administrative agencies (a function of admin law). (cue the Supreme Court put-down of the PTAB “judges” here)

          I am sure that Dave Boundy could elaborate in better detail.


          Morse, there is a huge distinction between the protections of the ALJ vs APJ. Just a few, an ALJ does have protections much like a judge – fixed 6 appointment, secure compensation, removal from office, etc etc. that an APJ does not have.

      3. 1.1.4

        Oil States Anomaly #7 (or we up to $8?) a non-APJ can adjudicate a property claim? Truly, Truly our SCOTUS treats patent law as the red headed step child.

    2. 1.2

      Just shows you how much Oil State blew the arguments. APJ don’t have any of the protections of an APJ, and should be remotely considered to have the protections necessary to sit over the cases PTAB has jurisdiction.

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