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U.S. Supreme Court Nominee Gorsuch on State Taxes and Interstate Commerce

5 min readBy: Joseph Bishop-Henchman, Kavya Rajasekar

This piece, originally posted before President Trump named his U.S. Supreme Court nominee, was updated Wednesday, Feb. 1, 2017.

President Donald Trump’s nominee for the U.S. Supreme Court seat vacated by the death of Justice Antonin Scalia almost a year ago is a jurist with a similar mind-set to Scalia on the role of that court: Denver-based Judge Neil M. Gorsuch of the Tenth Circuit Court of Appeals.

Journalists, legal scholars, and political pundits will peruse the legal opinions, judicial writings, and speeches to examine how Gorsuch might alter the high court’s political tilt. While a nominee’s prior voting record or political affiliation is not always a guarantee as to how cases will be decided as a Supreme Court justice, it can provide insight. Consequently, we have reviewed Gorsuch’s decisions on an area of law often overlooked: the scope of state taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. overreaching.

The Commerce Clause of the U.S. Constitution grants power to the federal government to regulate interstate commerce, and early on Chief Justice Marshall ruled that this implies that states cannot interfere with interstate commerce unless Congress explicitly permits them to do so. This “dormant” or “negative” Commerce Clause allows the U.S. Supreme Court to overturn state tax laws that discriminate against interstate commerce or otherwise impede it. Justice Scalia, for his part, rejected the whole theory of it; he believed discriminatory state tax law should be overturned by Congress and not the courts. Hence Scalia’s vote alongside Justices Ginsburg, Kagan, and Thomas in 2014 to let Maryland impose double taxes on residents with out-of-state investments. (After that case, I suggested a law Congress could pass to address Scalia’s concerns while continuing to limit state tax overreaching.)

Judge Gorsuch appears to share Justice Scalia’s criticism of the Dormant Commerce Clause. He acknowledges Supreme Court precedent on the Dormant Commerce Clause but refuses to expand its breadth. Judge Gorsuch concurred in a case in 2016 involving a Colorado law requiring online retailers to engage in convoluted notice procedures with respect to state sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. , Direct Marketing Association v. Brohl. Judge Gorsuch opined that the entire field of Dormant Commerce Clause doctrine is an “artifact of judicial precedent.” While acknowledging that the Quill decision of 1992, which limited state tax power over online retailers, was precedent and courts are bound to follow it, he stressed that Quill is an “analytical oddity” and will “wash away with the tides of time.” He explained that the Court in Quill acknowledged that states can constitutionally impose tax and regulatory burdens comparable to sales and use tax collection duties, and Quill just encourages states to achieve similar results through regulation rather than tax.

Of course, state tax is more than the Quill decision. Gorsuch has written solidly on how to distinguish taxes and fees. Of particular interest is his consistent skepticism of judicial deference to administrative interpretation. His view is that judges shouldn’t blindly accept executive branch interpretations of laws, which will get some liberal groups in a tizzy but would seem to be welcome with our current fear of executive overreach. The IRS might worry about that one, as they’d actually have to defend their pronouncements rather than just tell judges they have to accept them.

Writing in Gutierrez-Brizuela v. Loretta Lynch in 2016, Judge Gorsuch explained his discomfort with Chevron doctrine, whereby courts should defer to executive branch agency guidance when interpreting broad or ambiguous statutes. Gorsuch wrote that it is the role of courts to interpret laws, but the Chevron doctrine “permit[s] executive bureaucracies to swallow huge amounts of core judicial and legislative power and concentrate federal power in a way that seems more than a little difficult to square with the Constitution of the framers’ design.” He stressed the importance of separation of powers, including the separation of the executive from the judiciary, as a “vital guard against governmental encroachment on the people’s liberties.” He expanded on the importance he places on separation of powers in a lecture at Case Western Reserve University Law School in 2016.

Moving on to the 2015 Energy and Environment Legal Institute v. Epel case, Judge Gorsuch, writing for the Court, upheld a Colorado mandate requiring electricity generators to ensure that 20 percent of the electricity sold to Colorado consumers comes from renewable sources. Gorsuch ruled that the law did not discriminate against interstate commerce because it does not directly regulate price in-state or anywhere else. Although a non-price regulation can affect prices, he explained that under the test being applied, “only price control or price affirmation statutes that link in-state prices with those charged elsewhere and discriminate against out-of-staters are considered by the Court so obviously inimical to interstate commerce.”

Judge Gorsuch has been vocal in ensuring a proper definition of the word “tax,” relevant as taxes are subject to stronger procedural and substantive limitations than “fees.” In Hill v. Kemp in 2007, Judge Gorsuch correctly focused on the primary purpose of the charge, concluding that if the primary purpose of the law is to raise revenue, the cost is a tax, but if the primary purpose is to regulate, the cost is a fee. He elaborated on some common characteristics of a tax: it sustains the flow of revenue to the government, it is imposed by a state or municipal legislature, and it provides a benefit to the entire community. He also detailed some common characteristics of a fee: it is linked to some regulatory scheme, it is imposed by an agency upon those it regulates, and it is designed to help defray an agency’s regulatory expenses. In his concurrence in Wyodak Resources Development Corp. v. U.S. in 2011, Judge Gorsuch examined the plain meaning of an “internal-revenue law” and an “internal-revenue tax.” He maintained that “internal-revenue tax” is limited to internally applied revenue-raising taxes; in choosing the term “internal-revenue tax,” he held that Congress understood the distinction between internal and external taxes as well as the distinction between revenue-raising taxes and regulatory fees. Judge Gorsuch defined “internal-revenue law” as any law that enacts an “internal-revenue tax.”