Quill Corp. v. North Dakota Ex Rel. Heitkamp
504 U.S. 298, 1992 U.S. LEXIS 3123, 119 L. Ed. 2d 91 (1992)
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Rule of Law:
An out-of-state seller's continuous and widespread solicitation of business in a state establishes the 'minimum contacts' required by the Due Process Clause. However, the Commerce Clause requires a 'substantial nexus,' defined as a physical presence within the state, before the state can compel that seller to collect and remit use taxes on goods sold to its residents.
Facts:
- Quill Corp., a Delaware corporation, sold office equipment and supplies but had no offices, warehouses, or employees in North Dakota.
- Quill solicited business in North Dakota through catalogs, flyers, advertisements in national periodicals, and telephone calls.
- Annually, Quill made nearly $1 million in sales to approximately 3,000 customers in North Dakota.
- All merchandise sold to North Dakota customers was delivered by mail or common carrier from Quill's out-of-state locations.
- North Dakota amended its tax law to require any 'retailer' who engaged in 'regular or systematic solicitation' within the state to collect and remit a use tax.
- The state defined 'regular or systematic solicitation' to include mailing three or more advertisements into the state within a 12-month period.
Procedural Posture:
- North Dakota's Tax Commissioner sued Quill Corp. in a state trial court to require it to pay use taxes.
- The trial court ruled in favor of Quill Corp., holding that North Dakota lacked the power to compel tax collection under the precedent of National Bellas Hess.
- The North Dakota Supreme Court, as the state's highest court, reversed the trial court's decision, concluding that legal and economic changes had rendered Bellas Hess obsolete.
- Quill Corp. (as petitioner) appealed to the U.S. Supreme Court, which granted a writ of certiorari to review the decision of the North Dakota Supreme Court (the respondent).
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Issue:
Does the Commerce Clause's substantial nexus requirement prohibit a state from compelling an out-of-state mail-order company, which lacks any physical presence in the state, to collect and remit a use tax on goods sold to residents of that state?
Opinions:
Majority - Justice Stevens
Yes. While the Due Process Clause does not require a physical presence to establish the necessary minimum contacts for tax jurisdiction, the Commerce Clause's substantial nexus requirement does. The Court overrules the Due Process holding of National Bellas Hess, finding that Quill purposefully directed its activities at North Dakota residents, which satisfies the 'minimum contacts' standard. However, the Court affirms the Commerce Clause holding of Bellas Hess, reasoning that its physical presence requirement serves as a bright-line rule that fosters settled expectations and prevents undue burdens on interstate commerce. Unlike the Due Process Clause's focus on fairness to the defendant, the Commerce Clause is concerned with the structural impact of state regulation on the national economy. The Court concluded that stare decisis and the benefits of a clear rule counseled in favor of retaining the physical-presence test for the Commerce Clause, leaving it to Congress to regulate this area if it chooses.
Concurring - Justice Scalia
Yes. The Commerce Clause holding of Bellas Hess should not be revisited on its merits but should be adhered to based on the principle of stare decisis. This doctrine has special force in Commerce Clause cases because Congress has the ultimate authority to alter the Court's ruling. The Bellas Hess physical presence rule has engendered substantial reliance by a sizable industry, and it provides a clear, workable 'bright-line' test that avoids litigation. Therefore, while the Due Process part of Bellas Hess was rightly overruled, the Commerce Clause part should be maintained out of respect for precedent and reliance interests.
Concurring-in-part-and-dissenting-in-part - Justice White
No. The Court should have completely overruled Bellas Hess, including its Commerce Clause holding. The distinction the majority creates between the nexus requirements of the Due Process and Commerce Clauses is novel and unpersuasive, as the Commerce Clause nexus test has historically been grounded in due process fairness concerns. The physical presence rule is an anachronistic formality that is disconnected from the economic realities of modern commerce. Retaining this 'artificial' rule creates an unfair tax shelter for mail-order businesses at the expense of local retailers and does not serve the Commerce Clause's goal of placing businesses on an even playing field.
Analysis:
This decision famously decoupled the nexus requirements of the Due Process and Commerce Clauses for state tax purposes. By aligning the Due Process standard with modern personal jurisdiction jurisprudence ('minimum contacts'), the Court made it easier for states to assert tax jurisdiction. However, by preserving the bright-line physical presence rule for the Commerce Clause under stare decisis, it created a framework where a state could have the constitutional power to tax under one clause but be prohibited from doing so by another. This ruling effectively invited a legislative solution from Congress, which has plenary power over interstate commerce, to resolve the issue of sales tax collection by remote sellers. The decision's framework stood for 26 years until it was overturned by South Dakota v. Wayfair, Inc. in 2018.
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