Quill Corp. v. North Dakota Ex Rel. Heitkamp

1992-05-26

Headline: Mail-order and catalog sellers without a physical presence are exempted from state use-tax collection under the Commerce Clause, limiting states’ power to force remote vendors to collect sales taxes while Congress may change the rule.

Holding: The Court held that due process no longer bars taxing out-of-state sellers who solicit business, but under the Commerce Clause sellers with only mail or common-carrier contacts lack the substantial nexus to require collection of use taxes.

Real World Impact:

Protects mail-only sellers from being forced to collect state use taxes.
Limits states’ ability to require remote vendors to collect sales taxes.
Leaves Congress free to create a uniform national rule on tax collection.

Topics: mail-order and catalog sales, sales tax collection, interstate commerce, state use taxes

Summary

Background

Quill is a Delaware mail-order seller of office supplies that solicits business by catalogs, national ads, and phone and ships all goods into North Dakota by mail or common carrier. Quill had about $1 million in annual sales to roughly 3,000 North Dakota customers. North Dakota revised its tax law in 1987 to treat sellers who advertise three or more times in a year as retailers required to collect use tax. The State sued to compel Quill to collect and remit use tax on sales into the State after July 1, 1987.

Reasoning

The Court separated two constitutional tests. It held that due process no longer requires a physical presence: a company that purposefully directs business at a State can have sufficient contacts for due process purposes. But under the Commerce Clause the Court kept a separate rule: a seller whose only ties are by mail or common carrier does not have the “substantial nexus” that permits a State to force tax collection. Applying those principles, the Court agreed with the North Dakota trial court on due process but reversed the state supreme court on Commerce Clause grounds, reaffirming the Bellas Hess safe harbor for mail-only sellers.

Real world impact

The decision prevents States from forcing pure mail- or common-carrier sellers with no physical presence to collect use taxes. It leaves unresolved many borderline factual questions (for example, when limited in-state activities become a physical presence). The Court noted Congress is free to change the rule nationally, and that Congress may be the appropriate body to address retroactive liability and uniformity.

Dissents or concurrances

Justice Scalia agreed with overruling Bellas Hess on due process but joined the Court in retaining Bellas Hess’s Commerce Clause rule based on stare decisis; Justice White would have overruled the Commerce Clause aspect too.