December 17, 2007

Don’t Assume the U.S. Supreme Court Accepts Economic Nexus

(The following article originally appeared in the December 17, 2007 edition of State Tax Notes).

To the Editor:

Andrew W. Swain and John D. Snethen suggest that the U.S. Supreme Court’s refusal to hear four economic nexus appeals indicates that the Court “remains content to allow the states to develop…economic nexus.”[i]

This conclusion is unwarranted. The Supreme Court receives over 7,000 appeals per year, and hears less than 100. This does not mean that the Court approves of the lower court ruling in 98.5% of cases appealed, but simply that they don’t have the time to consider all of them. The Court itself has put it best: “The denial of a writ of certiorari imports no expression of opinion upon the merits of the case, as the bar has been told many times.”[ii] The Court later explained further:

We have repeatedly indicated that a denial of certiorari means only that, for one reason or another which is seldom disclosed, and not infrequently for conflicting reasons which may have nothing to do with the merits and certainly may have nothing to do with any view of the merits taken by a majority of the Court, there were not four members of the Court who thought the case should be heard.[iii]

Further, the real problem may be that the Supreme Court often does not get fired up about tax cases. Paul Caron, now editor of TaxProf Blog, has summarized this:

The view that tax law is less interesting or important than other areas of law pervades even the Supreme Court. For example, one proffered explanation for Justice Marshall’s productivity in the tax field is that the conservative Chief Justices under whom he served refused to assign him more important cases: “Justice Marshall was forced to write on federal income tax because he was given nothing better to do.” Other members of the Court apparently share this view of tax law. For example, when asked why he sings along with the Chief Justice at the Court’s annual Christmas party, Justice Souter replied, “I have to. Otherwise I get all the tax cases.”[iv]

Quill held that the states cannot impose sales tax collection and compliance burdens on an out-of-state business merely for having customers in the state. Swain and Snethen applaud recent state moves to tax “income” (measured entirely by sales in-state, so really a tax on sales) on businesses with no property or employees in the state, and who pay taxes to other states where they are located. It’s exactly the same as Quill-states attempting to damage interstate commerce as they pursue their own parochial interest. Such a formalistic tweak does not remedy the serious constitutional problem.[v]

Because there is real uncertainty out there as states embrace economic nexus and other schemes to boost tax revenues at the expense of our national economy, I hope the Supreme Court does reconsider its recent denials of certiorari in future nexus cases. But Swain, Snethen, state revenue departments, and other advocates of economic nexus are celebrating a bit prematurely if they treat silence as an endorsement.

Joseph Henchman

Joseph Henchman is Tax Counsel at the Tax Foundation, Washington.

[i] Andrew W. Swain and John D. Snethen, Paying Their Fair Share: The Hidden Lesson of Complete Auto and Quill, 46 State Tax Notes 749 (Dec. 10, 2007), at

[ii] United States v. Carver, 260 U.S. 482, 490 (1923).

[iii] Brown v. Allen, 344 U.S. 443, 491-92 (1953).

[iv] Paul L. Caron, Tax Myopia, or Mamas Don’t Let Your Babies Grow Up to Be Tax Lawyers, 13 Va. Tax. Rev. 517, 525 (1994).

[v] See generally Joseph D. Henchman, Why the Quill Physical Presence Rule Shouldn’t Go the Way of Personal Jurisdiction, 46 State Tax Notes 387 (Nov. 5, 2007), at