How the Supreme Court Made Jeff Bezos’s Fortune
The arcane legal principle of stare decisis — literally, to stand by things decided — is in the spotlight as the Senate considers the nomination of Amy Coney Barrett to the U.S. Supreme Court. Opponents of her nomination, concerned to protect the court’s past decisions establishing a constitutional right to abortion, demand that she pledge to stand by those precedents. Some of her supporters reject stare decisis, at least in cases where, in their belief, the court misconstrued the Constitution. Barrett herself has written a good bit about stare decisis, and her work suggests that, at the very least, her commitment to upholding precedent is a good bit less than ironclad.
This should be no surprise. Over the years, the justices have embraced stare decisis when it suited them, ignored it when it did not. The world’s wealthiest man, Amazon.com founder Jeff Bezos, owes his fortune to the court’s inconsistency on this point.
Back in 1992, before Amazon was a twinkle in Bezos’ eye, the court heard a case filed by a catalog retailer, Quill Corporation. Quill sold office supplies, taking orders by phone and mail and shipping the purchases from warehouses in three states. About 3,000 of its customers were in North Dakota, and the state tax commissioner insisted that Quill pay sales tax on its sales in the state. Quill objected that its sales should not be taxed there because it had no place of business in North Dakota. The justices ruled unanimously in Quill’s favor, citing previous decisions and “the doctrine and principles of stare decisis.”
Internet retailing did not exist when the court ruled in Quill Corp. v. North Dakota. But when Amazon.com started selling books in 1995 from a warehouse near Seattle, Quill allowed it to sell to customers in other states tax-free, while local bookstores had to add state and local sales taxes — around 7.25% in California, up to 8.25% in Texas, nearly 10% in Tennessee — onto every transaction. As I note in my book The Great A&P, internet merchants, of which Amazon was easily the largest, may have avoided charging their customers as much as $33 billion a year in sales taxes thanks to Quill. The playing field was tilted sharply in Amazon’s favor, helping it cut deeply into the sales of bricks-and-mortar competitors.
Fast forward to 2018. By then, Amazon’s strategy had changed. Next-day delivery had become its big selling point, requiring it to build distribution centers by the score. It had also acquired hundreds of Whole Foods supermarkets. With a physical presence in almost every state, Amazon had to collect sales taxes everywhere, while many other internet retailers did not. Quill, which once gave Amazon an edge, now left it at a cost disadvantage.
The Supreme Court came to Amazon’s rescue. In 2018, in a case called South Dakota v. Wayfair, it threw stare decisis overboard, ruling that states could tax sales by out-of-state sellers. “Quill’s physical presence rule intrudes on States’ reasonable choices in enacting their tax systems,” the court found. “And that it allows remote sellers to escape an obligation to remit a lawful state tax is unfair and unjust.” Henceforth, all out-of-state sellers would have to comply with the state sales tax laws that already applied to Amazon. The threat that other online merchants could undercut Amazon by not charging sales taxes magically disappeared.
Not a word of the Constitution changed between Quill and Wayfair, but the Supreme Court’s reliance on stare decisis changed enormously. Had it been as eager to override precedent in 1992 as it was in 2018, Amazon might never have become one of the world’s most valuable companies, and your neighborhood store might still be in business.
Tags: competition, taxes