South Dakota v. Wayfair, Inc.

The first ruling of interest is the long-awaited decision on the collection of state sales tax on online transactions. In South Dakota v. Wayfair, Inc., the court ruled that states can collect sales tax from out-of-state online sellers under certain circumstances.

Based on prior court decisions dating back to the mail-order catalog days, states could not force an out-of-state seller to collect and remit sales taxes from customers within the state unless it had a “physical presence” in the state. In theory, the customer was supposed to pay the tax directly to the state, but this rarely happened.

The rise of online commerce changed the outlook completely. Online commerce sales were estimated at more than $320 billion in 2017 and more than $123 billion in the first quarter of 2018 alone. With an average sales tax of 8%, potential revenue from online sales could approach $40 billion in 2018.

Attempting to be able to collect some of this revenue, South Dakota enacted a statewide sales tax that applies to all sellers who have either $100,000 in sales or 200 transactions with state residents. South Dakota also agreed to participate in the Streamlined Sales and Use Tax Agreement (SSUTA), a multi-state plan to simplify tax compliance through uniform rules and state-supplied software.

These statistics and South Dakota’s actions were part of the Supreme Court’s consideration in the Wayfair case. Critically, the court found that the frequency of online transactions and the amount of the transactions alone can create the “definite link, some minimum connection” similar to “physical presence” between the seller and the state, which allows the state to require the collection of the tax. It found that South Dakota’s proposed minimums of 200 transactions or $100,000 in sales, as well as its participation in the SSUTA, created that connection.

The Wayfair decision opens the door for all states to collect sales tax on online purchases, but it may have some limits. The Supreme Court said that South Dakota’s sales tax plan, particularly the minimum requirements and SSUTA, did not interfere with interstate commerce. It is expected that other states will see this as a “safe harbor” and enact similar laws.

Responses have predictably been swift. A Google News search shows that many states are developing legislation or rules for collecting online sales taxes and are looking at ways they could use the anticipated revenue. Small-business advocates have expressed concern about the impact on their communities, while some reports suggest increases in sales at brick-and-mortar outlets.

Carpenter v. United States

The second major ruling of interest is the Supreme Court’s decision in Carpenter v. United States, in which the court found an expectation of privacy in cellphone location data. The case involved a series of robberies throughout Michigan and Ohio. The arrests of some of the alleged perpetrators led to the cellphone numbers of others, including Timothy Carpenter, the alleged ringleader. Using his cellphone number, investigators obtained what is known as cell-site location information (CSLI), which identifies the cellphone tower locations that a particular phone taps into. Investigators obtained nearly 13,000 CSLI points over a period of 127 days on Carpenter’s phone, many of which showed his location as near the point of several of the robberies.

Carpenter was convicted, and he later appealed, asserting that obtaining the CSLI information required a search warrant. Ultimately, the Supreme Court agreed. Past cases had created two slightly competing principles: There was an expectation of privacy in location data, but there was also a reduced expectation of privacy for information shared with a third party, such as CSLI and other records related to cellphone use, which were “shared” with the provider.

The court found that Carpenter’s expectation of privacy in location data was paramount, particularly the “all-encompassing record” created by the CSLI data. Cellphones are so pervasive a part of not only society, but also individual lives—to the point of being described by the court as “almost a ‘feature of human anatomy’”—that citizens have a reasonable expectation of privacy in information related to them even though it is communicated with a third party.

Again, commentators reacted strongly. Many hailed the decision as recognizing that digital and location privacy in the modern age are different and require heightened protections, at least against government access. Others raised concerns about the decision’s impact on law enforcement and terrorism investigations.

More Decisions

Other opinions of interest include WesternGeco, LLC v. ION Geophysical Corp., in which the court held that a company could collect lost profits from patent infringement that occurred overseas. Previously, damages were limited to infringement occurring in the U.S.

And the case of Ohio v. American Express involved claims that some of American Express’ practices in preventing merchants from steering credit card-paying customers to use cards with lower transaction fees from other banks violated antitrust laws. The court disagreed, saying that both sides of the transaction—between the card company and the merchant and between the merchant and the customer—must be shown to be anticompetitive. Commentators have suggested that this could make it more difficult to pursue antitrust claims against large tech companies such as Amazon and Google.

A New Justice

Also of interest over the summer was the retirement announcement of Justice Anthony Kennedy. While Kennedy was considered part of the conservative side of the court, he often had been a swing vote between the four stronger conservatives and the four more liberal justices. Brett Kavanaugh, who has been nominated as his replacement (and has not been confirmed as of this writing), is a strong conservative.

Interestingly, many of the privacy, technology, and intellectual property decisions of the court tend to fall outside of strict conservative or liberal standards. The Wayfair decision, for example, had the liberal justice Ruth Bader Ginsburg joining with conservatives Kennedy, Samuel Alito, Clarence Thomas, and Neil Gorsuch. Contrasting is the Carpenter case opinion, for which conservative Chief Justice John Roberts joined with liberals Ginsburg, Stephen Breyer, Sonia Sotomayor, and Elena Kagan. One way or another, the 2018–2019 Supreme Court term will likely be just as lively.

This article originally appears in the September 2018 issue of Information Today under the title “The Supreme Court Approves Online Sales Tax but Protects Privacy.”