The Supreme Court held 25 years ago that a state can collect sales tax only from a retailer that has a physical presence in the state. At the time, the justices did not anticipate that the explosive growth of e-commerce would lead to a dramatic rise in cross-state sales, and their decision has had a devastating effect on state finances in recent years. Fortunately, a new case will give the Supreme Court a chance to correct its quarter century–old error. It should seize the opportunity.

The 1992 case, Quill Corp. v. North Dakota, involved a mail-order vendor that sold office supplies to thousands of North Dakota customers but had no warehouses or employees in the state. Quill argued that North Dakota’s attempt to collect sales taxes from the vendor violated the Supreme Court’s dormant commerce clause doctrine, which prohibits states from taking certain actions that interfere with interstate activity. North Dakota responded that, in light of the rapid growth of the mail-order and telemarketing industries, a rule barring states from collecting sales taxes on remote transactions was ill-suited to the modern age.

The Supreme Court sided with the vendor and against the state. Writing for the majority, Justice John Paul Stevens said that taxing out-of-state businesses would “unduly burden interstate commerce.” He added that a “bright line” rule—under which states can collect sales taxes only from retailers with a “physical presence” in the states—“encourages settled expectations and, in doing so, fosters investment by businesses and individuals.”

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