The Quill Decision: Why States Don't Regulate Interstate Commerce and Taxation
For 20 years, state taxation of online retail sales has been governed by the 1992 U.S. Supreme Court decision in the case of Quill Corps. v. North Dakota.
Quill – a seller of office equipment and supplies – was incorporated in Delaware but did not have a physical presence in North Dakota. The company marketed its goods via catalogues, flyers, print advertising and telephone calls. Deliveries were made by mail and other services operating outside North Dakota.
The Supreme Court rejected North Dakota’s contention that Quill had established a presence in the state because its products were being used there. The Court based that reasoning on the Constitution’s Commerce Clause, which gives the federal government power to regulate interstate commerce and prohibits certain state actions, such as taxation, that interfere with trade among the states.
The Court ruled that forcing remote sellers to collect sales tax in states where they do not have a physical presence would constitute an undue burden on retailers and commerce in general.
Online commerce was barely a dream in 1992, but as a result of the Quill ruling, states are prohibited from requiring remote retailers, those who have no physical presence in a state, to collect remote sales taxes – whether online or through the channels Quill employed at the time. Congress could change federal law to grant states the power to force out-of-state retailers to collect sales taxes, or the Supreme Court determines that the states have simplified their tax regimes enough to lift the burden on remote sellers.
This is what some in Congress are attempting to do today a so-called “simplification” process that is anything but what the name implies.
The fact is, the burden on small, online retailers remains significant and requiring remote retailers located in any single state to collect, remit and face audits regarding sales taxes in every other state would undermine small retailer growth and innovation.