While traffic numbers are easy to measure, picking out my most labor-intensive posts from last year is a subjective call.

A former leader of the Iowa State Bar Association is waging an unprecedented campaign for a seat on the panel that chooses finalists for Iowa’s two highest courts.

Many attorneys received a mailing on December 28 promoting the candidacy of Robert Waterman, Jr., a partner in the Davenport firm Lane & Waterman. The mailing appears to have targeted every member of the bar in 24 counties that make up the second Congressional district. The paid postage mark indicates that the Republican political consulting firm Victory Enterprises handled the mailing.

Sometimes I feel nostalgic for my “past life” covering Russian politics. Social media didn’t exist, and my colleagues and I had no information about which articles most interested our readers. Potential for clicks or shares didn’t factor into our story selection. We wrote up what seemed important to us.

On any given day, a half-dozen or more newsworthy Iowa politics stories present themselves, but I only have the capacity to cover one or two. I look for ways to add value: can I highlight events not covered elsewhere? Can I offer a different perspective or more context on the story everyone’s talking about?

Although chasing traffic will never be my primary goal, doing this for more than a decade has given me a decent sense of which topics will strike a chord with readers. But you never really know. Just like last year and the year before that, surprises lurked in the traffic numbers on Bleeding Heartland posts published during 2018 (353 written by me, 202 by other authors).

Democratic candidate Kayla Koether filed notice late last week that she is contesting the Iowa House district 55 election. According to the certified result following a recount, Republican State Representative Michael Bergan received 6,924 votes to 6,915 for Koether. However, 29 absentee ballots from Winneshiek County were never tallied, even though the U.S. Postal Service confirmed that they were mailed on or before the legal deadline.

Koether had hoped Polk County District Court Judge Scott Beattie would order the disputed ballots to be opened and counted. But on December 20 he dismissed her lawsuit on jurisdictional grounds, saying the state constitution and Iowa Code give the legislative branch–not the courts–power to rule on contests of elections for state House or Senate seats.

A few thoughts on what should happen next, what will happen instead, and what might have happened if Democrats had pursued a different legal strategy.

All sixteen current members of the State Judicial Nominating Commission will be able to participate in selecting finalists for the Iowa Supreme Court and Iowa Court of Appeals in early 2019, the judicial branch announced today.

Republican attorney Bill Gustoff had argued that three of the commission’s eight attorneys need to be replaced, as their six-year terms expire on December 31. That would have given the eight political appointees (all Republicans named by Governors Terry Branstad or Kim Reynolds) the votes to control the short list of candidates for the high court vacancies.

Republican political appointees may dominate the process of picking candidates to fill positions on Iowa’s two highest courts, if a GOP insider succeeds in removing three attorneys from the State Judicial Nominating Commission.

“Every vote should be counted,” Democratic challenger Kayla Koether said in a statement after a recount showed her trailing Republican State Representative Michael Bergan by nine votes in Iowa House district 55. Her comments suggest Koether is preparing litigation to force the counting of 33 absentee ballots, which were mailed on time but not counted because the envelopes lacked a certain kind of postmark.

If Koether does not file suit before election results are certified on December 3, one or more of the disenfranchised Winneshiek County voters should take legal action. Election officials did not properly interpret Iowa statute when they excluded those ballots.

In a landmark ruling five months ago, the Iowa Supreme Court held that a 72-hour waiting period for women seeking abortions violates the rights to due process and equal protection under the Iowa Constitution.

This summer Governor Kim Reynolds replaced Bruce Zager, one of the justices who joined that 5-2 majority opinion. She will soon replace a second justice who concurred. Daryl Hecht announced today that he will resign from the Iowa Supreme Court in December in order “to commit all of his energy” to battling melanoma.

Second in a series interpreting the results of Iowa’s 2018 state and federal elections.

“If only there was some explanation for why Judge [Anuradha] Vaitheswaran, who was the highest rated judge on the court of appeals, did 6% worse than her colleagues in the retention election,” Josh Hughes commented sarcastically on Twitter yesterday.

Indeed, the voting on state judges up for retention in 2018 provided a snapshot of racism in Iowa.

Des Moines attorney Gary Dickey has filed an unusual civil action charging that Jason Besler “is unlawfully holding the public office of district court judge” in Iowa’s Sixth Judicial District. In a November 1 court filing, enclosed in full below, Dickey argued that “all publicly available information” indicates Governor Kim Reynolds failed to appoint Besler within the 30-day window specified by Iowa’s constitution. Bleeding Heartland reported in September that Reynolds took no formal action to appoint Besler until four days after her authority to fill the judicial vacancy had lapsed.

Governor Kim Reynolds may have missed the deadline for appointing a second district court judge in June, Associated Press reporter Ryan Foley has discovered.

Des Moines attorney Gary Dickey has filed a lawsuit seeking to force Iowa’s campaign regulator to consider whether Governor Kim Reynolds’ campaign undervalued private jet flights reported as in-kind donations. Dickey maintains that the fair market value of travel between Des Moines and Memphis far exceeds the $2,880 listed on Reynolds campaign filings after the governor’s family flew on a state vendor’s plane to watch Iowa State University’s football team play in the Liberty Bowl. The Iowa Ethics and Campaign Disclosure Board unanimously dismissed his formal complaint as “legally insufficient” last month.

Dickey’s lawsuit declares that action “not only incorrect” but also “indefensible.”

Iowa Supreme Court Chief Justice Mark Cady will not intervene to resolve questions over Jason Besler’s status as a district court judge, the Iowa Judicial Branch announced this week. Cady’s decision means litigation will settle whether Besler properly exercises his powers or was appointed in violation of the Iowa Constitution.

I have rarely seen a more pathetic attempt at damage control than U.S. Senator Chuck Grassley’s latest interview with the Des Moines Register.

Des Moines attorney Gary Dickey has asked Johnson County Attorney Janet Lyness to take legal action challenging Jason Besler’s position as a District Court judge. As Bleeding Heartland reported last month, Governor Kim Reynolds named Besler to fill a vacancy four days after her constitutional authority to make the appointment had lapsed. Johnson County is part of Iowa’s Sixth Judicial District, where Besler has been presiding over cases.

Iowa’s Rules of Civil Procedure allow any citizen to file a quo warranto civil action charging that a defendant unlawfully holds a public office, if a county attorney fails to act. Dickey says he will proceed if Lyness declines to do so.

It would be hard to overstate how dispirited, angry, exhausted, and hopeless many Democrats felt after watching the Brett Kavanaugh nomination play out. Not only have right-wing, partisan ideologues solidified their control of the U.S. Supreme Court, millions of sexual assault survivors feel like the Republican-controlled Senate punched them in the gut.

No one would have blamed Senator Cory Booker for missing the Iowa Democratic Party’s Fall Gala on October 6. He was stuck in Washington as Republicans scheduled a Saturday afternoon vote on Kavanaugh, without a full investigation of sexual assault allegations or any acknowledgement that the nominee lied under oath repeatedly during his Senate Judiciary Committee testimony.

Booker cast his vote against Kavanaugh, rushed to the airport and made it to Des Moines in time to give the keynote speech to more than 1,000 activists. Outside the hall afterwards, I heard one sentiment over and over again: Booker’s uplifting message was just what people needed to hear on a discouraging day.

Potential legal challenges loom over every case District Court Judge Jason Besler handles unless Iowa Supreme Court Chief Justice Mark Cady intervenes to ensure that Besler lawfully holds his current position.

Cady has not signed any document filling the Judicial District 6 vacancy, judicial branch communications director Steve Davis confirmed to Bleeding Heartland on October 2. Davis has declined further comment on questions surrounding the legality of Governor Kim Reynolds’ appointment of Besler.

Carl Olsen is a longtime advocate for expanding access to medical cannabis in Iowa and maintains the Iowans for Medical Marijuana website. -promoted by desmoinesdem

On Thursday, September 20, the Iowa Board of Pharmacy moved to dismiss my petition for the religious use of medical cannabidiol, in Olsen v. Board of Pharmacy, No. CVCV056841 (Iowa District Court, Polk County).  The Board says the petition should have been filed with the Iowa legislature instead of the board.

The problem with the board’s position is that the legislature has given the board the duty of recommending changes in the schedules of controlled substances and medical cannabidiol is a controlled substance in Iowa.  There is also an existing exemption for the religious use of peyote, a Schedule 1 controlled substance.  Iowa Code § 124.204(8) (2018).

Randy Evans is executive director of the Iowa Freedom of Information Council and previously was editorial page editor and assistant managing editor of the Des Moines Register. -promoted by desmoinesdem

Some of the most stressful memories I have of my school days involve the words, “We’re going to have a pop quiz today.”

Don’t panic, but there’s a pop quiz today. Here goes:

Governor Kim Reynolds swore an oath to “support the constitution of the United States and the constitution of the State of Iowa.” But when she missed a deadline for filling a district court vacancy in June, she did not follow the process outlined in Iowa’s constitution.

Public records obtained by Bleeding Heartland indicate that Reynolds did not convey her choice for Judicial District 6 to anyone until four days after her authority to make the appointment had lapsed. Nevertheless, staff assured the news media and Iowa Supreme Court Chief Justice Mark Cady that the governor had named Judge Jason Besler on time.

Reynolds and Secretary of State Paul Pate later signed an appointment and commission certificate that was backdated, creating the impression the governor had acted within the constitutionally-mandated window.

“We need to use every tool we have to reclaim our country,” U.S. Senator Jeff Merkley told me during his latest visit to Des Moines. “We are at the verge of a tipping point, and maybe we’re almost past it, in which the power of the mega-wealthy is so profound that we can’t tip the balance back in to we the people.”

The senator from Oregon spent much of Labor Day weekend in central Iowa supporting Democratic candidates for the state legislature. His fifth trip here since the 2016 election won’t be his last: he will be a featured speaker at the Polk County Steak Fry later this month. During our September 2 interview, I asked Merkley about the most important matters pending in the U.S. Senate, prospects for Democrats in November, and his possible presidential candidacy.

A little-noticed Iowa Supreme Court decision may leave Iowans more vulnerable to infringements of their constitutional rights.

Five justices held in Baldwin v. City of Estherville that government officials who can prove they “exercised all due care to conform with the requirements of the law” can’t be sued for wrongful arrests or searches and seizures. Justice Edward Mansfield’s majority opinion establishes qualified immunity for state constitutional law claims in Iowa. That legal concept means plaintiffs can’t easily sue individual officials (such as police officers) for violating their rights. The U.S. Supreme Court’s broad application of qualified immunity has become a hot topic of debate among legal scholars.

To my knowledge, no Iowa media have reported on Baldwin, which was overshadowed by higher-profile split decisions the state Supreme Court filed on the same day in June: namely, a landmark 5-2 abortion rights ruling and a 4-3 ruling that allowed a county attorney to return to his job despite a well-documented history of sexual harassment.

But dissenting Justice Brent Appel warned the Baldwin majority opinion may encourage abuses of power: “Rather than follow the state’s motto, ‘Our Liberties We Prize and Our Rights We Will Maintain,’ the majority follows an approach that suggests ‘Our Liberties Are Transient and Our Rights Are Expendable.’” Professor Mark Kende, director of Drake University’s Constitutional Law Center, told Bleeding Heartland last month that Baldwin could be an “‘under the radar’ big deal case.”

A Polk County District Court has ordered that four voting restrictions Iowa Republicans enacted in 2017 will be on hold pending resolution of a lawsuit the League of United Latin American Citizens and Iowa State University student Taylor Blair filed in May. Plaintiffs had requested the temporary injunction, noting that the new law (House File 516) could disenfranchise eligible voters in various ways and would disproportionately harm Democrats, who are more likely to cast early ballots.

Iowa cities may regulate fireworks sales through zoning or permitting rules, as long as those ordinances do not ban such sales or impose burdens on fireworks sellers not affecting other merchants, a federal court held this week.

After eight years as an all-male club, the Iowa Supreme Court will soon gain its third ever woman justice.

Members of the State Judicial Nominating Commission submitted three names to Governor Kim Reynolds on July 10: District Court Judge Susan Christensen of Harlan, private attorney Terri Combs of West Des Moines, and District Court Chief Judge Kellyann Lekar of Waterloo. Within the next 30 days, Reynolds must choose one of those women to replace retiring Justice Bruce Zager.

Follow me after the jump for highlights from each finalist’s application and remarks before the commission.

Iowans of all political persuasions are grieving former Governor Bob Ray, who passed away on July 8 at age 89. I can’t think of any Republican more admired by Iowa Democrats. My parents canceled out each other’s votes in most elections for decades, but my mother supported Ray whenever he was on the ballot. Bill Crews, who managed the governor’s 1978 re-election campaign, remembered Ray as his “best boss and a great mentor.” Crews took the above photo on the night Iowans elected Ray to his fifth and final term.

First-person accounts of political events are always fun to read. Thanks to Susie Olesen, a semi-retired former teacher and school administrator in southwest Iowa, for this write-up. -promoted by desmoinesdem

Senator Joni Ernst’s July 6 town hall at the high school auditorium in Shenandoah (Page County) was a well-attended, civil meeting. People who wanted to participate filled out a slip of paper, which were drawn out of a glass jar to determine who would be able to ask questions. Ernst sat at a table in front of the room.

Tax and budget policy expert Randy Bauer explores the likely impact of a court ruling that will allow states to collect more sales tax from online purchases. Iowa Republicans were counting on that authority, having approved expanded sales tax collections as part of the tax bill enacted in May. -promoted by desmoinesdem

Years ago, I did a tongue-in-cheek summary of major tax issues and used variations on movie titles as lead-ins to discussions of various taxes. At that time, I lamented the various factors eroding state and local government sales tax collections (and recently reprised these concerns on Bleeding Heartland), labeling the discussion “Dearth of a Sales Tax.” With that background in mind, it’s time to cue up Star Wars theme music for this year’s summer tax blockbuster, The (Sales Tax) Force Awakens.

On June 21, 2018, the U.S. Supreme Court (SCOTUS) threw sales tax dependent state and local governments something of a lifeline, as it overturned two long-standing sales tax precedents that had limited the ability of governments to compel the collection of sales taxes from sellers without a physical presence in their state.

Pro-choice advocates were jubilant about the Iowa Supreme Court’s landmark decision striking down a major section of a 2017 anti-abortion law.

However, the other major piece of that law remains in effect: a near-total ban on abortions beyond 20 weeks “post-fertilization.” Speaking to reporters on June 29, American Civil Liberties Union of Iowa legal director Rita Bettis asserted the 20-week ban is “clearly unconstitutional and a violation of women’s fundamental rights.” She declined to say whether the ACLU will challenge that provision: “We don’t forecast our litigation strategy.”

Although I am not an attorney, I am a third-generation supporter of reproductive rights in Iowa. So I’ve been thinking about how a case could get the 20-week ban before the Iowa Supreme Court.

Five Iowa Supreme Court justices ruled today that a mandatory 72-hour waiting period for all women seeking abortion violates due process rights and equal protection guaranteed under the state constitution. Planned Parenthood of the Heartland and the American Civil Liberties Union of Iowa had challenged that provision, part of a law Republican legislators and Governor Terry Branstad enacted in 2017.

Today’s decision guarantees that the 2018 law banning almost all abortions after a fetal heartbeat can be detected will be struck down. A lawsuit filed by Planned Parenthood, the ACLU of Iowa, and the Emma Goldman Clinic is pending in Polk County District Court.

In addition, the ruling indicates that even if the U.S. Supreme Court overturns the 1973 Roe v. Wade decision in the coming years, Republicans will be unable to ban or severely restrict abortion rights in our state.

Writing for the majority, Chief Justice Mark Cady rejected the “undue burden” standard for evaluating abortion restrictions, set out by the U.S. Supreme Court in its 1992 Casey decision. I enclose below the full text of the majority opinion and the dissent by Justice Edward Mansfield, whom President Donald Trump has named as a possible U.S. Supreme Court pick. I’ve excerpted some of the most important passages.

A separate section of the 2017 law, banning almost all abortions after 20 weeks gestation, was not challenged in this case and remains in effect.

Some Iowa judicial trivia: today marks the second time the Iowa Supreme Court has overturned an abortion-related ruling by Polk County District Court Judge Jeffrey Farrell. He had also upheld the administrative rule banning the use of telemedicine for abortion. The Supreme Court unanimously struck down that rule in 2015.

Federal courts will be lost for a generation as an avenue for protecting civil liberties, now that President Donald Trump will be able to replace U.S. Supreme Court Justice Anthony Kennedy in addition to stacking district and circuit courts with dozens of right-wing ideologues. (Iowa Supreme Court Justice Edward Mansfield and Eighth Circuit Appeals Court Judge Steven Colloton were on the list of 21 possible Supreme Court picks Trump released during the 2016 campaign.) The growing conservative grip on the federal courts means more and more important legal battles will be fought at the state level.

Governor Kim Reynolds will fill an Iowa Supreme Court vacancy later this year, after Justice Bruce Zager retires. Today the judicial branch published the applications for fifteen women and seven men who are seeking to replace Zager.

A two-decade-old state administrative rule “clearly discriminates against transgender Medicaid recipients on the basis of gender identity by excluding coverage for medically necessary gender affirming surgery” while covering the same surgeries for non-transgender Iowans, a Polk County District Court ruled on June 7. Chief Judge Arthur Gamble found the rule violates both Article I, section 6 of the Iowa Constitution, which guarantees equal protection, and the Iowa Civil Rights Act, which has prohibited discrimination on the basis of gender identity since 2007.

Governor Kim Reynolds used her item veto power today to preserve a pilot program designed to facilitate fair, cost-effective decisions on pretrial release for criminal defendants.

Polk County District Court Judge Michael Huppert has granted a temporary injunction to prevent Iowa’s near-total ban on abortion from going into effect on July 1. Attorneys from the Thomas More Society, a conservative Chicago law firm representing the state pro bono, did not object to the injunction at today’s hearing, Stephen Gruber-Miller reported for the Des Moines Register.

Senate File 359 outlaws almost all abortions after a fetal heartbeat can be detected, with very few exceptions. Planned Parenthood of the Heartland, the American Civil Liberties Union of Iowa, and the Emma Goldman Clinic filed suit last month, citing three ways in which the law violates rights guaranteed under the Iowa Constitution.

Advocates for the law have expressed hope that the case could eventually prompt the U.S. Supreme Court to overturn the 1973 Roe v Wade decision. Plaintiffs structured the case to keep the litigation in state court, because if the Iowa Supreme Court finds the state constitution protects a woman’s right to terminate a pregnancy, there will be no path to appeal in federal courts. UPDATE: To clarify, some cases filed in state court can be appealed to federal courts. However, all claims in this lawsuit are grounded in alleged violations of the Iowa Constitution: specifically, due process rights, “inalienable rights of persons to liberty, safety, and happiness,” and equal protection. Plaintiffs are not claiming the abortion ban violates any rights guaranteed under the U.S. Constitution.

This law will never be enforced, because it is obviously unconstitutional. Some readers have asked whether the case might be resolved before the November election. That’s extraordinarily unlikely. A timeline of events in Iowa’s last legal battle over abortion rights suggests it could be years before the Iowa Supreme Court decides this case.

UPDATE: Have added the plaintiffs’ court filings at the end of this post.

The American Civil Liberties Union of Iowa, Planned Parenthood of the Heartland, and the Iowa City-based Emma Goldman Clinic filed suit today to block the new state ban on almost all abortions after a fetal heartbeat can be detected. I enclose below the full statement from the groups and will post the court filing once that document becomes available. The Polk County District Court is certain to put a stay on Senate File 359 (which would have taken effect July 1) while litigation is pending.

Attorney General Tom Miller “has disqualified himself from representing the state” in this case, Solicitor General Jeffrey Thompson informed Iowa’s Executive Council today. Miller took that step after determining “he could not zealously assert the state’s position because of his core belief that the statute, if upheld, would undermine rights and protections for women.” The attorney general recommends that the Executive Council authorize the Thomas More Society to defend the law. That conservative group has offered its legal services at no cost to the state.

Miller’s decision is telling, because a few years ago, the Iowa Attorney General’s office defended the state administrative rule seeking to ban the use of telemedicine to provide medical abortions at Planned Parenthood clinics around the state. The Iowa Supreme Court unanimously found that policy created an “undue burden” for women seeking an abortion. You can read that decision in full here.

Iowa lawmakers went home for the year on May 5. In the coming weeks, Bleeding Heartland will catch up on some of the legislature’s significant work that attracted relatively little attention.

Two proposed state constitutional amendments passed both chambers and could appear on the 2020 general election ballot, if the House and Senate approve them in the same form during either 2019 or 2020.

Three other constitutional amendments cleared one chamber in 2017–in one case unanimously–then stalled in the other chamber as lawmakers completed this two-year session. Those ideas may resurface next year. But since changes to the state constitution must be passed by two consecutively elected legislatures before landing on the general election ballot (the last step in the process), Iowa voters would not be able to ratify those proposals until November 2022 at the earliest.

Iowa Supreme Court Justice Bruce Zager will retire effective September 3, he announced late last week. By leaving the bench at the start of the high court’s 2018/2019 term, Zager guarantees that Governor Kim Reynolds will select his successor, regardless of who wins the November election.

The top Republican appropriator for the justice system wanted to get some things off his chest last night. So State Representative Gary Worthan turned a speech about a budget bill into an extended rant about Democratic Attorney General Tom Miller.

Ron Corbett ended his Republican campaign for governor this morning after a Polk County District Court rejected his effort to be added to the GOP primary ballot.

As the Iowa legislature considers extending sales tax to internet purchases and some other goods and services that are now exempt, Randy Bauer explains what’s at stake and other factors that have eroded sales tax revenues. -promoted by desmoinesdem

For many American taxpayers, April 17 is understood as the 2018 due date for federal (and many state) income taxes. It also features prominently in state and local tax discussions, as it is the date when the U.S. Supreme Court will hear oral arguments in a case that may impact on remote sales and use tax collection practices for state and local governments.

While that would be a major development and boon to many state and local governments, it is really only part of the story.

Supreme Court Limits on Collection of Sales Tax by Remote Sellers

The case to be heard next month, South Dakota vs. Wayfair, concerns sales tax collection related to sales conducted over the Internet. Two 20th century Supreme Court cases, Bellas Hess v. Illinois (1967) and Quill v. North Dakota (1992) have established limits on government’s ability to compel collection of sales taxes on remote transactions. In the Bellas Hess case, the high court determined that physical presence in a state was necessary to require the seller to collect sales tax for catalogue sales transactions conducted via phone or mail. As the catalogue sales era declined and the Internet became a more important part of commerce, the court extended this “nexus via physical presence” standard to include e-commerce transactions via Quill.

Background on Major State and Local Tax Revenue Sources

In general, the three largest revenue sources for state and local governments are property taxes (the largest local government source) and individual income and sales and use taxes. In the last few decades, sales taxes have become the largest state tax revenue source, and several states have sought to increase the use of this consumption-based tax source while reducing the use of income-based taxes.

There are credible arguments for relying on a consumption-based tax. For one, the tax is collected in generally small increments, which allows taxpayers to base purchasing decisions around their ability to pay. These small incremental payments also reduce the “sticker shock” that often comes from large lump sum payments of property and individual income taxes. Consumption taxes will also be borne by nearly all consumers – unlike, say, income taxes that can often be avoided by a large number of citizens.

That said, there is no “perfect tax,” and sales taxes are no different. All taxes will have a negative impact on economic activity (the “deadweight loss” associated with the increased cost for goods and services subject to tax). Sales taxes are also considered to be something of a regressive tax, in that lower income individuals and households tend to pay a higher percentage of their income as tax. Some of this concern is reflected in exemptions for broad categories of goods and services – all states exempt prescription drugs from sales tax, and a majority do the same for food. It is also possible to use refundable credits via the individual income tax to reimburse lower income taxpayers, as is done in several states.

Sales Tax and e-Commerce

As Amazon boxes on our doorsteps have become a ubiquitous part of everyday commerce, the revenue loss associated with the Quill case has become a significant concern to state and local governments. As Supreme Court Justice Anthony Kennedy noted in a 2015 concurring opinion (where he signaled his willingness to reconsider the decision in Quill), “When the Court decided Quill, mail-order sales in the United States totaled $180 billion. But in 1992, the Internet was in its infancy. By 2008, e-commerce sales alone totaled $3.16 trillion per year in the United States.”

That number continues to grow – according to Internet Retailer, U.S. web sales in 2016 reached $394.86 billion, or 11.7 percent of the nation’s total retail sales ($4.846 trillion).

State Strategies to Heighten Sales Tax Collection

In the face of this significant revenue loss, states have pursued a number of strategies to deal with the revenue loss. The first strategy was to seek to address the Court’s concerns in Quill, by working to simplify and develop greater consistency in sales tax statutes, primarily around definitions and other requirements directed at those who collect the tax.

The Streamlined Sales Tax Initiative was initiated by the National Governors Association (NGA) and the National Conference of State Legislatures (NCSL) in 1999. The goal was to increase uniformity that would either lead to greater vendor voluntary collection or the reconsideration of the two Supreme Court decisions. As of 2017, 24 states participate in the program as full members. While this is a significant number of states, several major states (such as California, Texas and New York) do not, which limits the agreement’s impact. While it is true that there are vendors who are voluntarily complying with this initiative and collecting tax on behalf of the participating states, it will likely never reach the necessary “critical mass” from a compliance perspective.

The next foray came via the U.S. Congress. Via its authority to regulate interstate commerce, Congress could establish a national requirement for collection of state and local sales taxes on purchases via the Internet (or, for that matter, on catalogue and phone sales as well). Bills have been introduced for many years in Congress to do just that, and they have, in recent years, also received support from major “bricks and mortar” retailers who argue the existing taxing structure creates a double standard that harms this segment of the retail market.

From a tax policy perspective, the point is well taken: a commonly accepted principle of taxation is “horizontal equity” – that taxpayers in similar circumstances should be treated fairly. When local retail establishments are required to collect this tax but remote sellers are not, the resulting price disparity is a perfect example of horizontal inequity.

To date, no version of the “Marketplace Fairness Act” has made its way through the legislative process. It came (somewhat) close in 2013, when the bill was passed by the Senate on a bipartisan 69-27 vote. However, it did not clear the House, and current efforts to revive the bill do not look promising.

It is important to remember that sales (or use) taxes are nearly always owed on these remote purchases – the issue isn’t one of creating a new tax but getting compliance with payment of the existing tax. As previously noted, an advantage of the sales tax is it is paid in hundreds/thousands/millions of separate transactions. The downside is that it is administratively difficult to collect the tax from the hundreds/thousands/millions of consumers who, if the tax isn’t collected at the time of purchase, are to remit it to comply with state and local sales tax statutes.

As a result, state legislatures have resorted to a variety of statutory strategies to induce sales tax collection. Some of the first attempts related to creating nexus beyond mere physical presence. This was initiated by the State of New York in 2008, often referred to as the “Amazon tax.” Under the New York State statute, a rebuttable presumption is created that a nonresident Internet seller has nexus with the State for sales/use tax purposes if (i) the nonresident has agreements with in-state companies whereby potential customers are referred to the nonresident, and (ii) the nonresident’s gross receipts from customers under such an agreement exceed $10,000 during the previous four quarters. According to a report by the New York State Comptroller, since the law’s inception, online retailers remitted $360 million in sales taxes (on over $4 billion in taxable online sales) as of February 2012.

Since that first state foray – and the litigation that followed – other states have also considered and/or adopted similar legislation. It could be argued that the multiple state efforts to create “Amazon nexus” has proven successful, as Amazon is (as of April 1, 2017) collecting sales tax on sales in all 50 states. Additional attempts to create “economic nexus” (where the amount of sales into a state alone creates sufficient grounds to require collection of the tax) have become popular, with many states enacting this type of statute.

State Efforts to Create an Economic Nexus Standard to Compel Collection of Sales Tax

The economic nexus standard was first adopted by the States of Alabama and South Dakota – and South Dakota legislative and policymakers have been up-front about the fact that the economic nexus statute was crafted as a method to bring the issues of Quill back before the Supreme Court. Several other states passed economic nexus standards last year, including Indiana, Maine, North Dakota, Ohio, Rhode Island, Tennessee (done by rule) and Wyoming. The South Dakota statute is now the one before the high court.

A somewhat different state strategy has been undertaken by the State of Colorado, which enacted a law focused on enticing retailers to collect the tax or face significant paperwork requirements. The law, which survived court challenges (including the U.S. Supreme Court declining to review it, and then U.S. Court of Appeals Judge Neil Gorsuch writing a concurring opinion strongly implying that, given the opportunity, the Supreme Court should overrule Quill), requires retailers that do not collect sales taxes to file a report with the State Department of Revenue on how much their Colorado customers have purchased and to inform customers that they may owe state taxes on the purchases. The law requires large online retailers to send customers a notice every time they buy something to explain that they may owe use tax; if the customer makes more than $500 a year in purchases, the retailer must also send them an annual summary of their purchases. The seller must also file an annual report with the State detailing customer name, billing and shipping addresses and the total amount spent each year.

Other states have replicated this approach. Advocates for the policy believe that it will better inform consumers of their obligation to pay use tax on their out-of-state purchases or lead to sellers voluntarily collecting the tax to escape the reporting requirements (for both them and their customers). States who adopted Colorado-type reporting standards (all effective July 1, 2017) include Alabama, Louisiana and Rhode Island.

What’s At Stake?

The revenue at stake in this area is significant. While the estimates of lost revenue vary considerably (and some of the “lost revenue” estimates include Amazon sales that are now applying sales tax in all 50 states), there is little doubt that it is “real money” to state and local governments. The federal General Accountability Office (GAO) estimated that state and local governments could have collected up to $13 billion more in 2017 if they’d been allowed to require sales tax payments from online merchants and other remote sellers. That said, that estimate comprises a significant amount of business-to-business sales – and pretty good data suggests there already is reasonable compliance by businesses through payment of use tax on at least the majority of these transactions.

Besides the obvious issues related to revenue loss and impact on the economy, what are the issues on both sides of this controversy? Those who support the Quill standard (or at least something other than unfettered state ability to compel collection of the tax by sellers) argue that the thousands of different taxing jurisdictions and definitions make collecting the tax overly burdensome.

It is notable, however, that in the years since Quill, a number of Internet-based businesses have cropped up to handle the administrative side of determining the tax that is owed and applying it to electronic transactions. Meanwhile, the thousands of vendors who already comply with varying state and local sales taxes suggest this is not unsolvable. In fact, much of the effort on the seller side has been focused on providing some reimbursement for collection of the tax – which suggests the issue is more one of economics than legal compliance. While opponents also argue that the burden will fall disproportionately on small businesses, it is notable that the state “economic nexus” statutes to date have included an exemption for businesses with low levels of sales into a state.

On the other side of the argument, supporters of collection point to Justice Kennedy, when he noted, “There is a powerful case to be made that a retailer doing extensive business within a State has a sufficiently ‘substantial nexus’ to justify imposing some minor tax-collection duty, even if that business is done through mail or the Internet.” After all, “interstate commerce may be required to pay its fair share of state taxes.” D.H. Holmes Co. v. McNamara, 486 U.S. 24, 31 (1988).

My guess is that the Supreme Court will, in some way, overturn its ruling from Quill – perhaps via the “substantial nexus” approach Justice Kennedy suggests. The question will be how far the court goes and whether their action leads the Congress to consider finally taking action to create something of a national standard for nexus and the amount of obligation to collect the tax that might be imposed on sellers.

While any greater latitude for state and local governments in collecting these taxes will be welcome news, my personal belief is that there are bigger issues at play relating to sales tax and the U.S. economy, and some of the focus on South Dakota v. Wayfair blinds policymakers to more fundamental issues.

Sales Tax Erosion of the Base

The fact is that the sales tax base has been eroding for decades, using common measures such as sales tax collections as a share of personal income. While state and local governments have attempted to ameliorate these declines through rate increases, that creates its own set of problems.

Why is this happening? There are several reasons. For one thing, legislatures continue to provide new or expanded exemptions from the tax (after all, most every legislator loves to cut taxes). In Iowa, a good example is the broadened sales tax exemption for supplies used in the manufacturing process. When passed in 2016, that exemption was estimated to reduce revenue by approximately $29 million a year, but it now looks like a revenue loss in the neighborhood of $100 million a year.

Some of the reduction in sales tax revenue is simply a function of demographics. As a population, we continue to get older – and as we get older, we generally make fewer purchases, per capita, that are subject to the sales tax.

Sales Tax Statutory Construction

An even bigger problem, in my estimation, concerns how state sales tax statutes are structured. The state sales tax statues generally were written in the early part of the 20th century, when most consumption consisted of tangible goods. As a result, nearly all state sales tax statute will broadly tax all tangible goods – the standard generally is that tangible goods are presumed to be subject to tax unless specifically exempted. On the other hand, relatively few services were a part of everyday commerce; as a result, the statutes generally presume that services are not subject to tax unless specifically enumerated.

This “double standard” related to sales tax on consumption has become increasingly more important, as what we consume has gradually – but dramatically – shifted from goods to services. Fifty years ago, about two-thirds of consumption was tangible goods, but now about two-thirds is services. Absent legislative action to change the standard of presumption related to consumption subject to the sales tax, states have had to rely on the often heavy lift of identifying specific services to be subject to tax. This is a difficult process, and few states (generally only those with the greatest reliance on sales tax) have been able to broadly apply the tax to services.

This trend is likely to continue in the coming years. For one thing, health care has become a huge service industry in this country. An example of how health care and the consumption tax code have played out in Iowa is instructive. In 1999, the Iowa legislature passed and Governor Tom Vilsack signed into law a sales tax exemption for goods and services related to non-profit hospitals. At the time of passage, the fiscal note suggested the annual cost of exempting these services (granted, some goods as well, but mostly services) was about $15 million. However, when the Department of Revenue issued its tax expenditure report in 2000, the cost was now estimated at $53.7 million. It ballooned to $108.4 million in 2005, $125.4 million in 2010 and $160.6 million in 2015.

Several governors – Republicans and Democrats alike – have made attempts to significantly broaden the sales tax base to include more services. However, to date, those efforts have been largely unsuccessful.

If states are to rely on consumption taxes as their primary revenue source, they will have to come to grips with a system that has mostly ignored well over half of what is actually consumed. While changes to collection of taxes from Internet sales are nice, it is still only improving collection rates on a minority of consumption – and that is, in the long run, a losing proposition for state and local governments.

Randall Bauer is a director in the Management and Budget Consulting practice for the PFM Group. Since 2005, he has led its state and local government tax policy practice. He has numbered nearly half the state and many large local governments among his clients. Prior to joining PFM, he spent 18 years in state government, including serving for seven years as Governor Tom Vilsack’s State Budget Director.