Proportionality as Hidden (But Emerging?) Touchstone of American Federalism: Reflections on the Wayfair Decision

Abstract

Until June 2018, a state could not require an out-of-state vendor to collect its use tax if the vendor did not have a physical presence in the state. This was the rule in place during the entire rise of the internet. The result was a significant tax advantage for remote vendors as compared to brick and mortar stores, as well as increasing revenue losses for states and localities.

In South Dakota v. Wayfair, the Court overturned the physical presence requirement. In so doing the Court did more than just take away an unwise tax advantage that remote vendors had not been able to secure through the political process. The Court also restored the ordinary constitutional order in two related ways. First, the Court restored the states’ power to tax unless Congress has specifically preempted that power. Second, the Court corrected an anomalously formal pocket of dormant Commerce Clause jurisprudence where it had crafted a bright-line rule that also had the effect of reversing the constitutional default in favor of state power.

Understanding the impact of the Wayfair decision on the practice and reality of state and local public finance will take many years. In this short essay, I consider Wayfair in the context of the Court’s federalism jurisprudence. I argue that restoring the constitutional balance helps explain why the case came out as it did. Further, I will place the Court’s approach to federalism in this case in broader perspective, explaining that it illustrates an apt application of the proportionality principle. The proportionality principle is at the center of constitutional adjudication around the world. I will demonstrate that this principle is also at work in adjudicating conflicts arising in our federal system, though typically under some other nominal analytic structure.

Keywords: Dormant Commerce Clause, Federalism, Sales and Use Taxes, Proportionality Principle