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Quill Corporation v. North Dakota: Spawning the Physical Presence "Nexus" Requirement Under the Commerce Clause

South Dakota Law Review
1993

Note

QUILL CORPORATION v. NORTH DAKOTA: SPAWNING THE PHYSICAL PRESENCE "NEXUS" REQUIREMENT UNDER THE COMMERCE CLAUSE

Shane D. Buntrock

Copyright © 1992 by the South Dakota Law Review; Shane D. Buntrock

In Quill Corp. v. North Dakota, the United States Supreme Court held that a direct marketer must have a physical presence within the state before the state can compel it to collect the use tax. A physical presence is required to satisfy the substantial nexus requirement of the Commerce Clause. However, a direct marketer need not be physically present in the state to satisfy the Due Process Clause and contacts by mail or common carrier are sufficient. This decision followed precedent, though with clarification, and adopted a bright line rule to promote settled expectations and unequivocally established a safe harbor for direct marketers engaged in interstate commerce. This note examines the Court's decision and contends that adherence to a bright line rule extends the protection of the Commerce Clause too far by requiring physical presence.

I. Introduction

Technological advances in communications have fostered a "mail order-bonanza" in terms of the growth in mail order, direct marketing sales over the last twenty-five years. [FN1] Interstate mail order sales have largely been afforded tax immunity due to the 1967 United States Supreme Court decision in National Bellas Hess, Inc. v. Department of Revenue. [FN2] The exception to tax collection immunity occurs when the direct marketer has some physical presence in the state. [FN3] Despite the Bellas Hess decision, a majority of states have imposed use tax collection duties on mail order retailers, even in circumstances where the retailer has no physical presence in the state. [FN4]

The reason is economics. Since as much as fifteen to twenty-five percent of all retail sales in the United States are made by mail, the sales and use tax may represent twenty-five percent of a state's annual revenue. [FN5] The use tax is *131 a levy on the use of tangible property purchased outside the state. [FN6] Despite the apparent need of the states to generate revenue and the assertion that the purpose behind the use tax is to prevent unfair competition between in-state and out-of-state retailers, there has yet to be a remedy. [FN7] Although a congressional solution has been sought by the states, to date no legislation has been passed. [FN8]

The Bellas Hess rule prohibited state enforcement of use tax collection on out-of-state mail order vendors whose only contact with the state was by mail or common carrier. [FN9] However, the Bellas Hess Court did not clearly articulate whether the Due Process Clause, [FN10] Commerce Clause, [FN11] or both, require a physical presence "nexus." [FN12 The Court drew a bright line distinction between mail order sellers with retail outlets, or solicitors in the state, and those sellers whose only contacts with the taxing state were by mail or common carrier. [FN13] The bright line rule established physical presence of the mail order retailer as a prerequisite to state enforcement of use tax collection. [FN14]

In Quill Corporation v. North Dakota, [FN15] the United States Supreme Court again considered the constitutionality of state enforcement of use tax collection. The facts of Quill were indistinguishable from the facts in Bellas Hess. [FN16] *132 The Court held that under the Due Process Clause, physical presence of the mail order vendor was not required, but under the Commerce Clause physical presence was necessary to satisfy a "nexus" requirement. [FN17] This note reviews the roles of the Commerce Clause and the Due Process Clause with regard to state taxation of interstate commerce. It contends that adherence to the bright line rule of physical presence provides too much protection to the mail order industry at the expense of the state's ability to raise revenue. Finally, this note concludes that the Quill Court has returned to a formalistic approach in reviewing state taxation under the Commerce Clause, and that physical presence in the state will not alleviate the administrative burden of use tax collection.

II. Facts and Procedure

Incorporated in the state of Delaware, Quill Corporation (Quill) maintained its principal place of business in Illinois and had offices and warehouses in Illinois, California, and Georgia. [FN18] The corporation sold office equipment and supplies. [FN19] Quill employed no workers residing in North Dakota, soliciting business only through catalogs, flyers, advertisements in national periodicals, and telemarketing. [FN20] Goods sold to North Dakota customers were delivered from out-of-state locations via mail or common carrier. [FN21] Quill's property ownership in North Dakota consisted of a computer software program known as Quill Service Link (QSL). [FN22]

In May 1989, North Dakota, through its tax commissioner, informed Quill that it was required by the State's use tax statute [FN23] to obtain a permit and to remit to the state the use tax on its sales to North Dakota customers. [FN24] Quill did not comply with this request, and in July 1989, North Dakota filed a declaratory action in district court seeking to declare the Quill Corporation a *133 "retailer" [FN25] maintaining a place of business within the state. [FN26] Quill Corporation's answer alleged that the North Dakota use tax statute was unconstitutional as applied, in that it violated the Due Process Clause and the Commerce Clause pursuant to the Bellas Hess decision. [FN27] The State of North Dakota alternatively argued that because Quill Corporation gave a ninety day unconditional guarantee on the goods sold, title to the property did not pass to the customer until expiration of the ninety days and therefore Quill had property ownership in the state. [FN28] The trial court disagreed and held that title passed at delivery. [FN29]

Quill filed a counterclaim for violations of its Due Process and Commerce Clause rights under 42 U.S.C. section 1983 and sought attorney's fees under 42 U.S.C. section 1988. [FN30] Both parties filed motions for summary judgment. [FN31] *134 The trial court granted Quill Corporation's motion, finding that there was no physical presence "nexus" between Quill and the State as required by Bellas Hess. [FN32]

North Dakota appealed the trial court's ruling to the North Dakota Supreme Court. [FN33] In an unanimous decision, the state supreme court reversed the trial court's grant of summary judgment and remanded, holding that "imposition of administrative responsibility to collect and remit state use tax did not violate the Interstate Commerce Clause or retailer's due process rights under the Federal Constitution." [FN34] The state supreme court concluded that "in light of these wholesale changes in the social, economic, commercial, and legal arenas, it was required to apply Bellas Hess in a contemporary context...." [FN35] In addition, the court remanded the case for an entry of judgment that Quill was a "retailer" within North Dakota and was thus required to collect and remit the use tax pursuant to statute. [FN36] Because the court found the North Dakota statutes constitutional, Quill had no basis for relief under 42 U.S.C. sections 1983 and 1988. [FN37]

The United States Supreme Court granted Quill's petition for writ of certiorari on October 7, 1991. [FN38] The Court reversed and remanded to the North Dakota Supreme Court, thereby affirming its decision under Bellas Hess, which held that the Commerce Clause requires a mail order vendor to be physically present within the taxing state to satisfy the "substantial nexus" requirement. [FN39] The Court, however, overruled its prior decisions which had indicated that the Due Process Clause required a similar physical presence by the out-of-state vendor. [FN40]

Justice Stevens, writing for the majority, distinguished the Due Process Clause from the Commerce Clause and stated that:
*135 [A] corporation may have the "minimum contacts" with a taxing state as required by the Due Process Clause, and yet lack the "substantial nexus" with the State required by the Commerce Clause. The two standards are animated by different constitutional concerns and policies. Despite the similarity in phrasing, the nexus requirements of the Due Process and Commerce Clause are not identical. [FN41]

Therefore, the Court found that the state's assertion that the nexus requirements under these two constitutional doctrines were similar, was inaccurate. [FN42]

Writing the lone dissent, Justice White concluded that the Court should have abandoned Bellas Hess in its entirety rather than upholding it under the Commerce Clause. [FN43] Justice White found the majority's conclusion, that Commerce Clause jurisprudence required a physical presence "nexus", was not founded on any precedent or supported by any expressed rationale. [FN44] He reasoned that the "nexus" requirement was founded in the fairness of the Due Process Clause and not within the Commerce Clause. [FN45] Justice White also explained that the physical presence requirement was not related to any economic rationale under the Commerce Clause and only served to provide a tax shelter for interstate commerce. [FN46]

III. Background

Quill presented the Supreme Court with its first direct challenge to state enforcement of use tax collection against an out-of-state retailer since its 1967 Bellas Hess decision. [FN47] The Quill Court upheld Bellas Hess, albeit with clarification. [FN48] Before considering an analysis of the Quill decision, a review of traditional principles under the Commerce Clause and the distinction with regard to state taxation of interstate commerce provides a proper understanding of commerce clause "nexus." Next, a review of the modern interpretations of the Due Process Clause and its role in state taxation of interstate commerce *136 will serve to clarify these constitutional doctrines and their distinct "nexus" requirements.

A. State Regulation and the Commerce Clause

The Commerce Clause expressly grants Congress the power "[t]o regulate Commerce with foreign Nations and among the several States, and with the Indian Tribes." [FN49] Within this express textual grant of power, the dormant component of the Commerce Clause has evolved as a judicially created shield for the benefit of interstate commerce. [FN50] It impliedly empowers federal courts to prohibit state regulation that unduly interferes with interstate commerce in the absence of congressional action. [FN51] Although the dormant Commerce Clause has no express authorization from the text of the Constitution, the judiciary does have the power to review controversies arising under the Constitution. [FN52] Moreover, the federal courts, and not Congress, have acted as the arbiter of state and national interests to prevent states from unduly interfering with interstate commerce. [FN53]

The dormant Commerce Clause doctrine is invoked by the judiciary to serve two purposes. [FN54] First, the clause is used to prevent discrimination against out-of-state interests who do not have the benefit of representation in the state's political process. [FN55] Second, invocation of the clause is used to advance the national interest of uniform free trade among the states. [FN56] Another *137 facet of the dormant Commerce Clause can be found in Dermis v. Higgins. [FN57] The Court in Dennis held that the Commerce Clause confers rights, privileges, or immunities under the broad protection of 42 U.S.C. section 1983. [FN58]

When a state regulation which affects interstate commerce is challenged under the Commerce Clause, the Supreme Court employs two tiers of judicial review. [FN59] The circumstances triggering the use of these two tiers include:
(1) When a state engages in discriminatory regulatory conduct with respect to interstate commerce, such state laws are subjected to stringent scrutiny approaching per se invalidity; (2) even where the state has a legitimate non- protectionist governmental interest and proceeds in a facially neutral fashion, the Court will employ a "balancing" test and will weigh the putative local benefits of the regulation against the burden it places on interstate commerce. [FN60]

There are three lines of cases which exemplify the degree of judicial review to be applied. [FN61] The first line of cases involves state regulation which intentionally discriminates against articles of interstate commerce by exempting similar articles of intrastate commerce, thereby requiring strict scrutiny. [FN62] The second type of case involves challenging state regulation which appears neutral, but through its application, unintentionally discriminates against articles of commerce originating outside the state. [FN63] The third line includes state regulations which are facially neutral and evenly apply to both in-state and out-of-state interests, therefore requiring a balancing of interests. [FN64]

*138 B. State Taxation and the Dormant Commerce Clause

The power of the Supreme Court to review state taxation is similar to its power to review state regulations, since each arise from the dormant Commerce Clause. [FN65] However, judicial review of state taxation is distinct, in that an additional finding of the "nexus" [FN66] between the state and the party sought to be taxed is required. [FN67] Generally, the nexus requirement is satisfied by a physical presence of the party sought to be taxed. [FN68] However, the Supreme Court majority in Quill found that minimal property ownership was insignificant, in that it was neither related to the due process analysis nor satisfied the "substantial nexus" requirement under the Commerce Clause. [FN69] Although the exact level of physical presence that will satisfy the nexus requirement is not clear, the connection must be more than slight. [FN70] Conversely, absence of a physical presence has not consistently precluded courts from upholding a state's exercise of regulatory power when the regulation's purpose was to protect its citizens. [FN71]

As the Court noted in Quill, philosophical changes have shifted the Court's interpretation of the dormant Commerce Clause relating to state taxation of interstate commerce. [FN72] A noticeable shift in the Court's commerce *139 clause review was reflected in the test set forth in Complete Auto Transit, Inc. v. Brady. [FN73] The Court used a four-prong test in Complete Auto, stating that a tax must: "1 be applied to an activity with a substantial nexus with the taxing state, 2 be fairly apportioned, 3 not discriminate against interstate commerce, and 4 be fairly related to the services provided by the state." [FN74] Prongs one, two, and four are concerned with the "nexus", or minimum contacts and fairness, which traditionally have been due process thresholds. [FN75] Prong three is concerned with discrimination, more relevant to the dormant Commerce Clause. [FN76]

The origins of the Complete Auto test evolved from prior decisions of the Supreme Court and indicated that the concept of "nexus" was a due process concern. [FN77] In upholding taxes against Commerce Clause challenges prior to Complete Auto, the Court refused to overrule the prohibition against state taxation of interstate commerce. [FN78] Because the Court had applied a more realistic approach, the Complete Auto test was seen as a victory over formalism. [FN79] *140 The Complete Auto test is now the benchmark against which states may be permitted to tax interstate commerce. [FN80]

Although Complete Auto is now the test for all Commerce Clause challenges to state taxation, prior to Quill, it was thought that the "nexus" was a due process concern. [FN81] In addition, the Quill Court noted that in its prior interstate commerce tax decisions, there was an actual physical presence between the party and the state. [FN82] This may have prevented a sufficient inquiry into the origins of the "nexus" requirement. Nevertheless, the clarification in Quill, which established that the Commerce Clause required a physical presence nexus and was determinative on the issue of state taxation. [FN83] However, an analysis under the Due Process Clause is necessary to compare the similarities of "nexus" under the Commerce and Due Process Clauses to demonstrate that there are two "nexus" standards.

C. Procedural Due Process

The origin of the "nexus" requirement under the Due Process Clause is found in the seminal case of International Shoe Co. v. Washington, [FN84] in which the Court required that minimum contacts between the defendant and the state be shown in order to assert in personam jurisdiction. [FN85] Under subsequent *141 due process analysis, a "person" need not be physically present in the forum for an assertion of adjudicatory jurisdiction.

[FN86] Therefore, market solicitation by mail has been held to be sufficient to assert jurisdiction. [FN87] Furthermore, a defendant must purposefully and voluntarily avail himself of the privilege of conducting activities in the forum state, thus invoking its benefits and protections. [FN88] In addition, the type of jurisdiction being asserted by the state does not control for the purpose of satisfying due process requirements. [FN89] The standard has traditionally been the same for both taxation and adjudicatory jurisdiction. [FN90]

Historically, the Due Process Clause has been associated with limits on state power to tax. [FN91] The Bellas Hess Court stated the test under the Due Process Clause as "whether the state has given anything for which it can ask return." [FN92] The Court continued: " the Constitution requires some definite link, some minimum connection between a state and the person, property or transaction it seeks to tax." [FN93] Bellas Hess looked to Miller Bros. v. Maryland [FN94] and Wisconsin v. J.C. Penney [FN95] to support the finding of a "nexus" *142 requirement. [FN96] However, the Bellas Hess Court took the requirement one step further by requiring a physical presence to satisfy the "nexus". [FN97]

While the dormant Commerce Clause is a legitimate restraint on the state's ability to tax interstate commerce, it does not entirely preclude state taxation. [FN98] The four-prong test of Complete Auto is a factual test fashioned under the Commerce Clause. [FN99] Although applied as a Commerce Clause test, it does contain due process concerns as well. [FN100] Therefore, a judicial review of state taxation would require satisfaction of both the Due Process Clause and the Commerce Clause.

IV. Analysis

In Quill, the Supreme Court adopted a "bright line" rule which required physical presence of the mail order retailer to satisfy a substantial "nexus" requirement under the Commerce Clause. [FN101] The majority derived its support for the rule from its decisions in Bellas Hess and Complete Auto. [FN102] However, Bellas Hess did not clearly establish a physical presence "nexus" under the Commerce Clause. [FN103] Moreover, Bellas Hess relied on authority which invoked the Due Process Clause, not the Commerce Clause. [FN104] Similarly, the Court in Complete Auto did not establish physical presence to satisfy the substantial "nexus" requirement under the Commerce Clause, since it focused on the taxpayer's activity within the state. [FN105] In addition, subsequent decisions relying on Complete Auto viewed the "nexus" requirement as a due process concern. [FN106] Moreover, Justice White believed that the "nexus" requirement in the first prong of the Complete Auto test was grounded in the Due Process Clause. [FN107]

*143 Quill, however, distinguished and clarified the requirements under the Due Process Clause and the Commerce Clause with respect to constitutional limitations on a state's exercise of its taxing authority. [FN108] In distinguishing the Due Process and Commerce Clause, the majority established that each required a separate "nexus." [FN109] Due process concerns itself only with notice or fair warning, and thus requires only minimal contacts between the state and party sought to be taxed to satisfy the "nexus." [FN110] In contrast, the Commerce Clause is concerned with the effects of state taxation on interstate commerce. [FN111] This concern requires a higher standard of "nexus," therefore, according to Quill, a requirement of physical presence under the Commerce Clause will serve as a means to limit burdens upon interstate commerce. [FN112] Thus, the Quill majority opted for a bright line rule to serve the ends of the Commerce Clause, promote settled expectations, and draw a line where state authority to enforce use tax collection begins. [FN113]

There is a definite requirement of nexus between the state and the party sought to be taxed. [FN114] However, adopting a bright line rule under the Commerce Clause precludes the factual and practical inquiry which Complete Auto established. [FN115] The Quill majority acknowledged that there are two methods available to prevent undue burdens on interstate commerce, but chose the test more easily applied. [FN116] By its adoption of a bright line rule, the Quill Court abandoned its more realistic approach to state taxation of interstate commerce and returned to formalism. [FN117] Complete Auto abandoned the concept of free interstate trade and state that administrative inconvenience was an insufficient justification to prevent interstate commerce from paying its way. [FN118] A bright line rule, however, ignores the practical effects of the state use tax collection and creates a safe harbor for direct marketers engaged interstate commerce.

Despite well-intentioned reasons for adoption of a bright line rule, the Quill majority acknowledged the impractical effects of such a rule, but sacrificed practicality for consistency. [FN119] An obvious implication of line-drawing is that it ignores the effects of a tax. A mail order retailer, conducting a substantial *144 business within the taxing state, but having no physical presence in the state, will not be required to collect the use tax under Quill. [FN120] However, a mail order retailer who has minimal sales in the taxing state and happens to own property in the state, will be required to collect the use tax. [FN121] The administrative burden of use tax collection surely can be no less if a retailer is physically present in the state. [FN122]

Another impracticality of the bright line rule is that it creates an uneven playing field between the in-state and out-of-state retailer. [FN123] An in- state retailer must collect and pay the sales tax on all goods sold. However, an out-of-state retailer is exempted from collecting the use tax if not physically present. This creates a competitive advantage for direct marketers and grants them too much protection at the expense of the state's power to tax. In addition, an out-of-state retailer, not physically present but with minimum contacts, may be haled into state court to defend itself but will not have to collect the use tax. [FN124]

With the Quill decision, it is now apparent that the type of state authority exercised, either taxation or adjudication, is determinative with regard to the "nexus." [FN125] This is contrary to what others have believed. [FN126] Therefore, if the state is seeking to regulate interstate commerce, a physical presence "nexus" under the Commerce Clause will not apply. [FN127] In this situation, only due process minimum contacts will have to be met, and as Quill held, this is satisfied with contacts by mail or common carrier. [FN128] However, when the state attempts to tax interstate commerce, the retailer's physical presence is a prerequisite to taxation. [FN129] In Quill, the use tax was levied on the North Dakota citizens' use of tangible property, but was not levied on the out-of-state retailer. [FN130] Therefore, when North Dakota statutorily required Quill to collect and remit use tax, it was exercising its regulatory power, not its taxing power. The ultimate taxpayer was the consumer, not Quill Corporation. [FN131]

*145 If a state is exercising its regulatory jurisdiction under a facially neutral statute, then a balancing test between the benefits derived by the direct marketer and the burdens placed by the state on interstate commerce should be employed. [FN132] North Dakota's statute is facially neutral in that all retailers not exempted are required to collect the use tax. [FN133] The Quill majority referred to the administrative duty of use tax collection as a burden, yet did not clearly demonstrate or engage in a balancing test analysis under the Commerce Clause. [FN134]

Arguments that mail order retailers cannot mechanically keep track of the over 6,500 different taxing jurisdictions fail in light of the availability of computer software technology. [FN135] Numerous propositions have been advanced that out-of-state vendors derive benefits from the taxing states without being physically present, thus satisfying the "nexus" requirement of the Commerce Clause. [FN136] Benefits for retailers include:
(1) state courts being open to the out-of-state vendors to collect unpaid bills; (2) states providing an orderly marketplace allowing the vendors to take advantage of the state's credit and banking facilities; and (3) state consumer and usury laws lending credibility to the mail order industry. [FN137] In addition, states must dispose of the solid waste generated by the flyers and catalogs of mail order retailers. [FN138] Arguably, these particular benefits, which serve as the justification for states to require interstate commerce to pay its fair share, are as directly related to the retailer's sales activity within the state as are the fire and police protection provided to state residents. [FN139] Surely, there are benefits to the mail order retailer as well as opportunities to solicit customers as a direct result of the economic environment maintained by the state. [FN140]

However, the Quill majority found that the doctrine of stare decisis compelled it to uphold Bellas Hess under the Commerce Clause, even though it admitted that had this issue been one of first impression, its decision may have been different. [FN141] The majority was also more comfortable with its bright line rule knowing that Congress has the power to overturn its decision. [FN142] In that regard, the clarity of the bright line rule serves as notice to Congress that it is free to decide the extent of a state's enforcement of the use tax on out-of-state *146 retailers. [FN143]

V. Conclusion

While the Quill Court may have reached the appropriate result in clearing the way for Congress to legislate the issue of state taxation of mail order sales, it did so at the expense of the state's power to raise revenue through the use tax. The adherence to a bright line rule grants the mail order industry too much protection under the dormant Commerce Clause. The Court should apply a case-by-case economic analysis until Congress legislates on this issue, rather than spawning a physical presence "nexus" requirement under the Commerce Clause.


[FN1] Brief for Respondent at 9, Quill Corp. v. North Dakota, 112 S.Ct. 1904 (1992) (No. 91-194) (citing Advisory Commission on Intergovernmental Relations ("ACIR"), State Taxation of Interstate Mail-Order Sales: Revised Revenue Estimates, 1990-1992 3 (1991) [hereinafter Brief for Respondent] (showing growth of sales from $2.4 billion in 1967 to $130.4 billion today).

[FN2] 386 U.S. 753 (1967). In this case, the State of Illinois sought to require National Bellas Hess, a mail-order company incorporated in Delaware, with its principal place of business in Missouri, to collect and remit use tax pursuant to Illinois law. Id. at 754. Bellas Hess' only contacts with Illinois were by mail or common carrier. Id. The Court held that mail order sellers who have no physical presence in the state and whose only connection with the state is by mail or common carrier do not have sufficient contacts with the state to impose the collection of the use tax. Id. at 758.

[FN3] Charles Rothfeld, Comment, Mail-Order Sales and State Jurisdiction to Tax, 53 Tax Notes 1405 (1991) (stating that an office or sales personnel in the state will satisfy physical presence).

[FN4] Id. at 1405-06 (showing that presently 34 states have enacted laws imposing use tax collection on direct marketers who lack a physical presence and at least 17 of these states are becoming more aggressive in their use tax collection).

[FN5] Id. at 1406. See Timothy H. Gillis, Comment, Collecting the Use Tax on Mail-Order Sales, 79 Geo.L.J. 535, 538 (1991) (noting that states have had little success collecting the use tax resulting in lost revenues ranging from $694 million to $3 billion annually).

[FN6] Laurence H. Tribe, American Constitutional Law § 6-16, at 446-47 (2d ed. 1988).
A state use tax is usually measured by a percentage of the gross receipts from sales made outside of the taxing state, but is imposed on the consumption or use of the purchased goods within the taxing state [U]se taxes are often levied in tandem with sales taxes in order to prevent buyers from abandoning the purchase of locally available goods which have been made more expensive than similar out-of-state goods by the institution of a local sales tax.
Id. See Karen R. Twitchell, Comment, Imposition of the Duty to Collect State Use Taxes: Constitutional Prohibitions are No Longer Valid in Mail Order Sales, 32 S.D.L.Rev. 93 (1987). "A use tax is imposed upon the privilege of using, storing, and consuming property within the boundaries of the taxing state." Id. at 94.

[FN7] Gillis, supra note 5, at 537 n.16 (citing testimony by the Hon. George Sinner, Governor of North Dakota, on behalf of the National Governor's Association, stating that the foremost reason for the states' support of federal legislation is that the current law causes "severe price discrimination" against in state retailers).

[FN8] Id. at 558-59 n.131 (citing H.R. 2230, 101st Cong., 1st Sess. (1989) (a bill which would require out-of-state companies to collect the use tax if the company engaged in regular or systematic solicitation of business in the state and had annual sales exceeding either of $12.5 million in the United States or $500,000 in the taxing state).

[FN9] Id. at 544; Rothfeld, supra note 3, at 1405.

[FN10] U.S. Const. amend. XIV, § 1. The Fourteenth Amendment provides:
All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.
Id.

[FN11] U.S. Const. art. I, § 8, cl. 3. The Commerce Clause provides: "The Congress shall have Power... [t]o regulate Commerce with foreign Nations, and among the several States, and with Indian Tribes." Id.

[FN12] Gillis, supra note 5, at 542 n.44 (showing lack of clarity in the decision has led to different opinions). [FN13 Bellas Hess, 386 U.S. at 758.

[FN14] Rothfeld, supra note 3, at 1409.

[FN15] 112 S.Ct. 1904 (1992).

[FN16] Id. at 1908. Just as Illinois had attempted in Bellas Hess, North Dakota sought to impose use tax collection on an out-of-state retailer whose only connection with the state was through the mail or by common carrier. Id.

[FN17] Id. at 1913-14. For a discussion of nexus see infra notes 66-69 and accompanying text. [FN18 Quill, 112 S.Ct. at 1907.

[FN19] Id.

[FN20] Id.

[FN21] Id. at 1907-08. Quill's annual sales of $2 million consisted of approximately $1 million in sales to approximately 3,500 active North Dakota customers and ranked it as the sixth largest seller of office supplies in the state. Id.

[FN22] State By Heitkamp v. Quill Corp., 470 N.W.2d 203, 216 (N.D. 1991). Quill Corporation licensed a computer software program known as "QSL" to some of its North Dakota customers which allowed them a direct access to Quill's computer and enabled them to order merchandise. Id. at 216. North Dakota maintained that the licensure of the software entitled Quill to all the rights and title to the software, thus establishing property ownership within the state. Id. at 216-17.

[FN23] N.D.Cent. Code § 57-40.2-07(1) (Supp.1991). The statute provides in pertinent part:
Except as otherwise provided... every retailer maintaining a place of business in this state and making sales of tangible personal property for use in this state, not exempted... before making any sales shall obtain a permit from the commissioner to collect the tax imposed by this chapter, which permits shall be subject to all of the requirements, conditions, and fees for its issuance that apply with respect to a retail sale tax permit, and at the time of making such sales, whether within or without the state shall... collect the tax imposed by this chapter from the purchaser, and give to the purchaser a receipt therefore...
Id.

[FN24] Quill, 112 S.Ct. at 1908. In 1987 North Dakota amended its statutory definition of retailer to include those retailers not physically present. Id. For the text of N.D.Cent. Code § 57-40.2-01(7) see infra note 25.

[FN25] N.D.Cent. Code § 57-40.2-01(6) (Supp.1991). The statute provides:
"Retailer" includes every person engaged in the business of selling tangible personal property for use.... A retailer also includes every person who engages in regular or systematic solicitation of a consumer market in this state by the distribution of catalogs, periodicals, advertising flyers, or other advertising, or by means of print, radio or television media, by mail, telegraphy, telephone, computer data base, cable, optic, microwave, or other communication system.
Id. The North Dakota Code defines "regular or systematic solicitation" as "three or more transmittances of any advertisement or advertisements during a testing period." N.D Admin. Code § 81-04.1-01-03.1(1988). This code additionally provides:
(7) "Retailer maintaining a place of business in this state", or any like term, shall mean any retailer having or maintaining within this state, directly or by a subsidiary, an office, distribution house, sales house, warehouse, or other place of business, or any agent operating within this state under the authority of the retailer or its subsidiary, whether such place of business or agent is located in the state permanently or temporarily, or whether or not such retailer or subsidiary is authorized to do business within this state. It also includes every person who engages in regular or systematic solicitation of sales of tangible personal property in this state by the distribution of catalogs, periodicals, advertising flyers, or other advertising, by means of print, radio or television media, or by mail, telegraphy, telephone, computer data base, cable, optic, microwave or other communication system for the purpose of effecting retail sales of tangible personal property.
N.D.Cent. Code § 57-40.2-01(7) (Supp. 1991). The South Dakota Code provides:
(8) "Retailer maintaining a place of business in the state," any retailer having or maintaining within this state, directly or by a subsidiary, an office, distribution house, sales house, warehouse or other place of business, or any agents operating within the state under the authority of the retailer or its subsidiary, irrespective of whether such place of business or agent is located here permanently or temporarily or whether such retailer or subsidiary is admitted to do business within this state pursuant to the laws of the state of South Dakota granting the rights of foreign corporations to do business in this state.
S.D.C.L. § 10-46-1(8) (1987). Additionally the South Dakota Code provides:
Any retailer maintaining a place of business in this state, and making sales of tangible personal property or services for storage, use or other consumption in this state, not exempted under the provisions of §§ 10-46-6 to 10-46-17.5, inclusive, shall, at the time of making such sale, whether within or without the state, collect the tax imposed by this chapter from the purchaser, and give to the purchaser a receipt therefor in the manner and form prescribed by the secretary of revenue....
S.D.C.L. § 10-46-20 (1987).

[FN26] Quill, 112 S.Ct. at 1908. The State also sought to compel Quill to remit all taxes, interest and penalties on sales made subsequent to July 1, 1987. Id.

[FN27] State By Heitkamp, 470 N.W.2d at 205.

[FN28] Quill, 112 S.Ct. at 1907 n.1.

[FN29] Id. The Supreme Court of North Dakota did not overturn the trial court's determination of property ownership as it found sufficient "nexus" to support imposition of the duty to collect the use tax without it. State By Heitkamp, 470 N.W.2d at 217.

[FN30] State By Heitkamp, 470 N.W.2d at 205. The trial court dismissed Quill's counterclaim. Id. at 206.

[FN31] Id. at 205.

[FN32] State By Heitkamp v. Quill Corporation, No. 90, Civ. 41677 (S.Cent.Dist.N.D. May 15, 1990). Specifically, the court stated:
They should have been presenting facts to the Court showing that the State of North Dakota spends funds for the protection and benefit of the mail order business. By doing so they could show that taxation was not only for the benefit of local residents, but for the benefit of the mail order houses. Until these facts can be obtained, there is no nexus to allow the state to define retailer in the manner it chose. Based on the foregoing, the language heretofore quoted in Section 57-40.2-01(6) and that found in subsection (7) is declared to be in violation of the United States Constitution and accordingly declared invalid as applied to Quill.
Id.

[FN33] State By Heitkamp, 470 N.W.2d at 206.

[FN34] Id. at 219.

[FN35] Id. at 213. The North Dakota Supreme Court found significant the fact that the mail order industry has grown into a multi-billion dollar marketing "goliath" since the time Bellas Hess was decided and that the changes in the economic and commercial environment supported it not following precedent. Id. at 208-09.

[FN36] Id. at 219. For North Dakota's statutory definition of "retailer", see supra note 25. [FN37 Id.

[FN38] Quill, 112 S. Ct. at 1904. The Court considered whether the North Dakota Supreme Court is obligated to follow the longstanding precedent of Bellas Hess, in a case that is factually indistinguishable from Bellas Hess. Id.

[FN39] Id. at 1914. "[T]he Commerce Clause and its nexus requirement, are informed... by structural concerns about the effects of state regulation on the national economy." Id. at 1913. The substantial nexus requirement is the means to limit burdens on interstate commerce. Id.

[FN40] Id. at 1911.

[FN41] Id. at 1913-14. Stevens, J. delivered the opinion for a unanimous court with respect to Parts I, II, III, and the opinion of the Court with respect to part IV, in which Rehnquist, C.J., Blackmun, O'Connor, and Souter, J.J., joined. Id. Scalia, J., filed an opinion concurring in part and concurring in judgment, in which Kennedy and Thomas, J.J., joined. Id. White, J., filed an opinion concurring in part and dissenting in part. Id. at 1907.

[FN42] Id. at 1913.

[FN43] Quill, 112 S.Ct. at 1917. White, J., filed an opinion concurring in part and dissenting in part IV. Id. Although he agreed with the Court that the Due Process Clause does not require a retailer to have a physical presence in the state in order to enforce the use tax, he found that Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977) had disavowed the Bellas Hess decision. Id. Therefore an additional "nexus" requirement under the Commerce Clause was not consistent. Id.

[FN44] Quill, 112 S.Ct. at 1920. "For the Court now to assert that our Commerce Clause jurisprudence supports a separate notion of nexus is without precedent or explanation." Id.

[FN45] Id. at 1919. "The cases from which the Complete Auto Court derived the nexus requirement in its four-part test convince me that the issue of "nexus" is really a due process fairness inquiry." Id. "What we disavowed in Complete Auto was not just the formal distinction between direct and indirect taxes on interstate commerce, but also the whole notion underlying the Bellas Hess physical presence rule that interstate commerce is immune from state taxation." Id. at 1917.

[FN46] Id. at 1920.

[FN47] State by Heitkamp, 470 N.W.2d at 207.

[FN48] Quill, 112 S. Ct. at 1906. "[T]o the extent that this Court's decisions have indicated that the [Due Process] Clause requires a physical presence in a State, they are overruled." Id.

[FN49] U.S. Const. art. I, § 8, ci. 3.

[FN50] David S. Day, The Rehnquist Court and the Dormant Commerce Clause Doctrine: The Potential Unsettling of the "Well-Settled Principles", 22 Tol.L.Rev. 675, 676-77 (1990). [T]he dormant commerce clause doctrine is not textually based... [and] is exclusively the product of judicial thinking...." Id. at 677. See John E. Nowak et al., Constitutional Law, § 8-1 at 261 (3d. ed. 1988). Although the Commerce Clause is an express grant of power to Congress it does not expressly prohibit the states from regulating interstate commerce and, as such, the Court has interpreted the Commerce Clause to have a dormant component that operates to limit the scope of permissible state regulation. Id. See also, Martin H. Redish & Shane V. Nugent, The Dormant Commerce Clause and the Constitutional Balance of Federalism, 1987 Duke L.J., 569, 582 (1987). Three theories have been advanced as legitimizing the dormant Commerce Clause: (1) the textual grant of commerce power to Congress implies a negation of concurrent state power; (2) historical evidence of the framers' intent to give the commerce power to the national government; and (3) Congress' failure to regulate a particular aspect of interstate commerce implies a congressional decision to leave the subject unregulated and thus any state regulation is inconsistent with congressional intent and invalid under the Supremacy Clause. Id.

[FN51] Tribe, supra note 6, at 453. The dormant Commerce Clause doctrine prohibits states from engaging in economic protectionism by discriminatorily burdening interstate commerce. Id. "The commerce clause has been recognized since the time of Chief Justice Marshall, as having a negative [dormant] implication which restricts state laws that burden interstate commerce." Nowak, supra note 50, at 268.

[FN52] U.S. Const. art. III § 2, cl. 1. Article III provides: "The Judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States... to Controversies between two or more states... between a State and citizens of another State....' Id.

[FN53] Daniel A. Farber, State Regulation and the Dormant Commerce Clause, 3 Const.Comm. 395 (1986). [FN54 Id. at 396.

[FN55] Nowak, supra note 50, at 262. The ultimate purpose behind the dormant Commerce Clause is the process oriented protection of representational government. Id.

[FN56] Julian N. Eule, Laying the Dormant Commerce Clause to Rest, 91 Yale L.J. 425, 443 (1982). "~T]he rationale of the commerce clause was to create and foster the development of a common market among the states, eradicating internal trade barriers, and prohibiting the economic Balkanization of the Union." Id.

[FN57] 111 S.Ct. 865 (1991). In this case petitioner challenged a Nebraska vehicle tax imposed on motor carriers who operated vehicles in Nebraska but had registered their vehicles outside the state. Id. at 867.

[FN58] Id. at 870.

[FN59] Day, supra note 50, at 678.

[FN60] Id. at 679. See Farber, supra note 53, at 395-96. "State regulations having a discriminatory effect on interstate commerce are subject to stringent judicial scrutiny... [whereas] regulations that burden interstate commerce without discriminating against it are subject to a less rigorous balancing test." Id.

[FN61] Farber, supra note 53, at 397 (distinguishing between three types of cases--intentional, unintentional discrimination and facially neutral--is helpful to understand the Supreme Court's approach).

[FN62] Philadelphia v. New Jersey, 437 U.S. 617 (1978). New Jersey was faced with a shortage of landfill space and passed a statute prohibiting importation of waste from out of state. Id. The Court invalidated the state statute because it intentionally discriminated against out-of-state commerce, and concluded that "[w]hatever New Jersey's ultimate purpose, it may not be accomplished by discriminating against articles of commerce coming from outside the State, unless there is some reason apart from their origin to treat them differently." Id. at 626-27.

[FN63] Hunt v. Washington State Apple Advertising Comm'n, 432 U.S. 333 (1977). North Carolina prohibited the use of any grade on apples other than the Federal grade, which unintentionally discriminated against the Washington growers because they had developed a superior grading standard. Id. This discriminatory effect subjected the North Carolina statute to strict scrutiny by the Court and the state had to justify its statutory burden in terms of the local benefits to be gained and the unavailability of non-discriminatory means to preserve its local interest. Id. at 353. North Carolina was unable to satisfy this burden and the statute was invalidated. Id.

[FN64] Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970). "Where the statute regulates evenhandedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits." Id. at 142.

[FN65] Tribe, supra note 6, § 6-15 at 441.

[FN66] "Nexus" is defined as a connection or link. Webster's Collegiate Dictionary 797 (9th ed. 1987).

[FN67] Tribe, supra note 6, § 6-15 at 443. "The requirements of nexus and fair apportionment for state taxes on interstate commerce are rooted in the need to check the parochial pressures to which state governments, because of their limited political constituencies, are subject." Id. The focus of the Court is almost exclusively on the adverse consequences of the tax burden on interstate commerce as opposed to the interest balancing test applied to review of state regulation. Id. at 441. But cf., Gillis, supra note 5, at 550 (requiring a nexus as well as a balancing of the burdens of tax collection with the benefits derived from the state).

[FN68] Felt & Tarrant Mfg. Co. v. Gallagher, 306 U.S. 62 (1939) (out-of- state seller with office in the state satisfied physical presence nexus, thus requiring collection of the use tax); Scripto, Inc. v. Carson, 362 U.S. 207 (1960) (out-of-state seller soliciting orders through independent contractors and the Court found sufficient nexus to sustain the state's enforcement of the use tax collection); National Geographic Soc'y v. California Bd. of Equalization, 430 U.S. 551(1977) (upholding California's requirement of use tax collection against an out-of-state mail order retailer which maintained two small offices in the state, though the in-state offices had no connection to the mail order activities). To permit enforcement of use tax collection, the nexus requirement should focus upon a minimum connection between the state and the person to be taxed. Id. at 561.

[FN69] Quill, 112 S.Ct. at 1907 n.1. The Court stated:
Although title to "a few floppy diskettes present in a state might constitute some minimal nexus, in National Geographic Soc'y. v. California Bd. of Equalization, 430 U.S. 55i, 556 (1977), we expressly rejected a "slightest presence' standard of constitutional nexus." We therefore conclude that Quill's licensing of software in this case does not meet the "substantial nexus" requirement of the Commerce Clause.
Id. at 1914 n.8.

[FN70] National Geographic Soc'y, 430 U.S. at 556. "Our affirmance, of the California Supreme Court is not to be understood as implying agreement with that court's 'slightest presence' standard of constitutional nexus." Id.

[FN71] Gillis, supra note 5, at 544 n. 56 (requiring use tax collection by out-of-state mail order companies has no protective objective). But see, In re State Sales or Use Tax Liab. of Webber Furniture, 290 N.W.2d 865 (S.D. 1980) (upholding South Dakota's use tax and required a Nebraska furniture dealer to collect use tax even though its only contacts with South Dakota were through its deliverymen).

[FN72] Quill, 112 S.Ct. at 1911. The changes have been the result of an evolutionary shift in judicial interpretation of Congress' power under the Commerce Clause to regulate state taxation. Id. See, Leloup v. Port of Mobile, 127 U.S. 640, 648 (1888) (holding no state has the right to lay tax on interstate commerce in any form); Spector Motor Service v. O'Connor, 340 U.S. 602, 610 (1951) (holding that a state tax on the privilege of doing business in interstate commerce is per se unconstitutional); Western Livestock v. Bureau of Revenue, 303 U.S. 250 (1938) (inquiring whether the state tax created a multiple burden on interstate commerce).

[FN73] 430 U.S. 274 (1977). In Complete Auto, the petitioner was a Michigan corporation engaged in the business of transporting motor vehicles in the state of Mississippi. Id. Petitioner brought an action seeking a refund of sales tax paid as unconstitutional under the Commerce Clause. Id. Petitioner based his challenge solely on the decision in Spector, 340 U.S. at 610, which stood for the proposition that no tax may be applied to an activity within the state that is a part of interstate commerce, and that interstate commerce should be immune from state taxation. Complete Auto, 430 U.S. at 278. The majority found that the Spector rule ignored the practical effects of the tax and held that the tax would be upheld under the Commerce Clause when "applied to an activity with a substantial nexus with the taxing state, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the State." Id. at 279. See also, Sandra B. McCray, Overturning Bellas Hess: Due Process Considerations, 1985 B.Y.U.L.Rev. 265, 266 (1985) (stating that years of precedent were overruled when Complete Auto concluded that a state tax on interstate commerce does not per se violate the Commerce Clause).

[FN74] Complete Auto, 430 U.S. at 279.

[FN75] Robert A. Sedler, Comment, The Negative Commerce Clause as a Restriction on State Regulation and Taxation: An Analysis in Terms of Constitutional Structure, 31 Wayne L.Rev. 885, 912 (1985). See Rothfeld, supra note 3, at 1410. Due process concepts of minimum contacts (or nexus) and a fair relation between the tax and the values accorded the taxpayer by the state appear in the first and fourth prongs of Complete Auto. Rothfeld, supra note 3, at 1410. See also Gillis, supra note 5, at 551 n.93 (stating that the first prong of Complete Auto requires a nexus analysis similar to the due process clause requirement).

[FN76] Sedler, supra note 75, at 913.

[FN77] Rothfeld, supra note 3, at 1415-16. See Northwestern Cement Co. v. Minnesota, 358 U.S. 450 (1959) (placing the nexus requirement in the Due Process Clause and upholding apportioned net income taxes where the taxpayer maintained an in-state office and employed resident representatives to constitute a sufficient nexus). See also Memphis Natural Gas Co. v. , 335 U.S. 80 (1948). "It is enough for me to sustain the tax imposed in this case that it is one clearly within the state's power to lay insofar as any limitation of due process or jurisdiction to tax in that sense is concerned; it is nondiscriminatory...; [it] is duly apportioned...; and cannot be repeated by any other state." Id. at 96-97 (quoting Rutledge, J.). See also General Motors Corp. v. Washington, 377 U.S. 436 (1964) (upholding a destination state's gross receipts tax with respect to interstate sales of motor vehicles and parts, where the sales were considered local by the involvement of resident representatives and in state offices). It appears that General Motors placed the nexus requirement in the Commerce Clause, Rothfeld, supra note 6, at 1416.

[FN78] Complete Auto, 430 U.S. 279.

[FN79] Tribe, supra note 6, at 441-42 n. 3. In Complete Auto, the Court overruled the Spector holding which prohibited taxation of the privilege to engage in an activity that was related to interstate commerce. Id. Tribe states that the Spector rule did not look at the practical effects of the tax but merely focused on labeling. Id.

[FN80] Day, supra note 50, at 679 n.30. Complete Auto was "the landmark ruling that brought Commerce Clause doctrine into the modern era...." Rothfeld, supra note 3, at 1409. See National Geographic Soc'y 430 U.S. at 551 (upholding a state's use tax collection on a mail order firm with two offices in the regulating state); Mobil Oil Corp. v. Commissioner of Taxes, 445 U.S. 425 (1980) (upholding Vermont's corporate income tax and stating that due process was not violated as there was sufficient nexus between the state and Mobil Oil); Commonwealth Edison Co. v. Montana, 453 U.S. 609, 623-24 (1981) (upholding Montana's severance tax on coal because the tax satisfied Complete Auto); D.H. Holmes v. McNamara, 486 U.S. 24 (1988) (upholding a use tax on an in-state retailer's use of catalogs). "With certain restrictions, interstate commerce may be required to pay its fair share of state taxes.' Id. at 31. See Goldberg v. Sweet, 488 U.S. 252 (1989) (upholding a state telecommunications excise tax on calls originating or terminating in Illinois as the activity had a substantial nexus with the state); Amerada Hess v. N.J. Tax Div., 490 U.S. 66 (1989) (upholding New Jersey's corporate business tax under Complete Auto as appellant's activities had a substantial nexus with the state); Trinova Corp. v. Michigan Dept. of Treasury, 111 S.Ct. 818 (1991) (upholding Michigan's single business tax against entities having a business activity in the state).

[FN81] Gillis, supra note 5, at 545. "[T]he Due Process clause prevents a state from imposing collection duties on out-of-state mail-order companies unless they have a physical presence within the taxing state." Id. See McCray, supra note 74, at 266; Twitchell, supra note 6, at 102-03.

[FN82] Quill, 112 S.Ct. at 1914 (citing Standard Pressed Steel Co. v. Department of Rev. of Wash., 419 U.S. 560 (1975) (upholding Washington's business tax even though the manufacturer had only one employee in the state)). See Tyler Pipe Indus., Inc. v. Washington State Dept. of Rev., 483 U.S. 232 (1987). For examples of other cases in which the taxpayer was physically present, thus satisfying the nexus requirement, see supra note 80, and accompanying text.

[FN83] Quill, 112 S.Ct. at 1909. "[W]hile Congress has the plenary power to regulate commerce among the States and thus may authorize state actions that burden interstate commerce..., it does not similarly have the power to authorize violations of the Due Process Clause." Id. See Rothfeld, supra note 3 at 1409 (noting it is unclear whether Congress has the authority to set aside decisions of the judiciary as it does under dormant Commerce Clause decisions).

[FN84] 326 U.S. 310 (1945).

[FN85] Id. The test is stated as follows: "that the defendant have such minimum contacts with the state such that maintenance of a suit does not offend traditional notions of fair play and substantial justice." Id. Also, the Court found the minimum contacts to satisfy both the states' ability to tax and sue the defendant to recover the tax. Id. at 321.

[FN86] McGee v. International Life Ins. Co., 355 U.S. 220 (1957) (upholding California's exercise of in personam jurisdiction over a foreign insurance company whose only contact with the state consisted of soliciting an insurance contract by mail, thus establishing that physical presence is not necessary to assert adjudicatory jurisdiction). "Physical presence is neither necessary nor sufficient for due process purposes." McCray, supra note 73, at 284.

[FN87] McCray, supra note 73, at 283.

[FN88] Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985). The Burger King Court stated:
It is an inescapable fact of modern commercial life that a substantial amount of business is transacted solely by mail and wire communications across state lines, thus obviating the need for physical presence within a State in which business is conducted. So long as a commercial actor's efforts are "purposefully directed" toward the residents of another State, we have consistently rejected the notion that an absence of physical presence contacts can defeat personal jurisdiction there.
Id. at 476. See Hanson v. Denckla, 357 U.S. 235, 253 (1958) (holding contacts between the defendant and the forum state must arise from purposeful action by the defendant).

[FN89] Rothfeld, supra note 3, at 1410 (requiring distinctions between the types of contacts necessary to assert different types of jurisdiction are irrelevant). See McCray, supra note 73, at 284 (noting due process standards for adjudicatory jurisdiction should also establish use tax collection jurisdiction, therefore physical presence is unnecessary to meet the due process principles).

[FN90] International Shoe, 326 U.S. at 321. "The activities [of International Shoe] which establish its 'presence', subject it alike to taxation by the state and to suit to recover the tax." Id. See Twitchell, supra note 6, at 95-6 (holding that taxation and in personam jurisdiction are similar); McCray, supra note 73, at 279 (stating that taxation jurisdiction requires no more contacts than does in personam jurisdiction).

[FN91] Rothfeld, supra note 3, at 1410. "[B]y early in this century it was firmly established that '[a] statute of a state which undertakes to tax things wholly beyond her jurisdiction or control conflicts with the Fourteenth Amendment." Id. (quoting Safe Deposit & Trust Co. v. Commonwealth of Pa., 280 U.S. 83, 92 (1929)).

[FN92] Bellas Hess, 386 U.S. at 756 (quoting Wisconsin v. J.C. Penney Co., 311 U.S. 435, 444 (1940)). See Rothfeld, supra note 3, at 1410.

[FN93] Bellas Hess, 386 U.S. at 756 (quoting Miller Bros. v. Maryland, 347 U.S. 340, 344-45 (1954)) (overruling the Maryland state tax on due process grounds).

[FN94] 347 U.S. at 340 (1954). Maryland could not constitutionally impose a use tax obligation upon a Delaware seller who had no retail outlets or sales solicitors in the state, because there was an insufficient connection between it and the state to satisfy the due process clause. Id.

[FN95] 311 U.S. at 435 (1940). The Due Process Clause mandates an inquiry whether property was taken without due process of law, and the "simple but controlling question is whether the state has given anything for which it can ask return." Id. at 444.

[FN96] Id. See Rothfeld, supra note 3, at 1411 n.66 (stating Bellas Hess was correct in establishing that the Due Process Clause requires a nexus).

[FN97] Rothfeld, supra note 3, at 1410. [T]he Court moved onto much shakier ground when it went on to hold that physical presence in the state is necessary to make out the required connection." Id.

[FN98] For a discussion of Complete Auto, see supra note 73. For examples of cases applying permissive state taxation, see supra note 80.

[FN99] For a discussion of the four-prong Commerce Clause test under Complete Auto, see supra notes 73-74 and accompanying text.

[FN100] For a discussion of the individual prongs of Complete Auto, see supra notes 75-76, and accompanying text. For discussion of the Supreme Court's later interpretations of Complete Auto, see infra note 106 and accompanying text.

[FN101] Quill, 112 S.Ct. at 1914.

[FN102] Id. at 1913-14. For a discussion of Bellas Hess, see supra note 2 and accompanying text. For a discussion of the facts of Complete Auto, see supra note 73.

[FN103] Quill, 112 S. Ct. at 1909. "[O]ur holding in Bellas Hess relied on both the Due Process Clause and the Commerce Clause." Id.

[FN104] Bellas Hess, 386 U.S. at 756. For a discussion of authorities relied upon in this decision, see supra notes 94-95 and accompanying text.

[FN105] Complete Auto, 430 U.S. at 279. Prong one requires the interstate activity to have a substantial nexus with the taxing state. Id.

[FN106] Mobil Oil Corp., 430 U.S. at 425. "The tax does not violate the Due Process Clause. There is a sufficient 'nexus' between Vermont and appellant to justify the tax...." Id. "The Complete Auto test, while responsive to Commerce Clause dictates, encompasses as well the Due Process requirement that there be a 'minimal connection' between the interstate activities and the taxing state...." Trinova Corp., 111 S.Ct. at 829.

[FN107] For a discussion of the nexus requirement, see supra note 45 and accompanying text. [FN108 Quill, 112 S.Ct. at 1913.

[FN109] Id.

[FN110] Id.

[FN111] Quill, 112 S.Ct. at 1913.

[FN112] Id. at 1914.

[FN113] Id. at 1915.

[FN114] For a discussion of the nexus requirement, see supra notes 66-67 and accompanying text. [FN115 For a discussion of the practicality of Complete Auto, see supra notes 73, 79 and accompanying text.

[FN116] Quill, 112 S. Ct. at 1914. The burdens upon interstate commerce may be avoided on a case-by-case basis or by the creation of a safe harbor, establishing a realm of interstate commerce free from taxation. Id.

[FN117] See Tribe, supra note 6, at 441-42 n. 3 (stating that the Complete Auto test was seen as a victory over formalism). See also Rothfeld, supra note 3, at 1413. "[A] rule hinging tax liability on the [physical] presence is, so far as Due Process is concerned, the most pointless sort of formalism." Id.

[FN118] Complete Auto, 430 U.S. at 288.

[FN119] Quill, 112 S.Ct. at 1914-15 (stating that clarity outweighs the artificially of a bring line rule). [FN120 Id. at 1912-13.

[FN121] Id. at 1920 (White, J., dissenting). See Rothfeld, supra note 3, at 1407. [FN122 Rothfeld, supra note 3, at 1410.

[FN123] Quill, 112 S.Ct. at 1920 (White, J., dissenting) (questioning the logic of establishing a rule that grants a tax shelter for out-of-state mail order retailers, but no similar advantage to the in-state competition); Complete Auto, 430 U.S. at 288 (following the rule that interstate commerce was to bear its fair share of the cost of local government).

[FN124] Rothfeld, supra note 3, at 1412. See James A. Reiman, Down Side to the Quill Decision: Buyers Suing You in Home States, Direct Marketing News, Sept. 14, 1992 at 3. "[T]he Quill decision... made clear that direct marketers may be sued in states in which they have no physical presence." Id.

[FN125] Quill, 112 S.Ct. at 1913-14. A satisfaction of Due Process minimum contacts may not satisfy the substantial nexus requirement of the Commerce Clause. Id.

[FN126] For a discussion of how other commentators view the jurisdiction distinction, see supra notes 89-91 and accompanying text.

[FN127] For a discussion of state regulation of interstate commerce, see supra notes 5 9-64 and accompanying text.

[FN128] Quill, 112 S.Ct. at 1910. For discussion of the minimum contacts test, see supra note 85 and accompanying text.

[FN129] Quill, 112 S.Ct. at 1914.

[FN130] State By Heitkamp, 470 N.W.2d at 205.

[FN131] Id. See Gillis, supra note 5, at 543 n.52 (requiring an out-of- state vendor to collect use tax is a state regulatory action, not a taxing action).

[FN132] For a discussion of the balancing test under the Commerce Clause, supra notes 60-64 and accompanying text.

[FN133] For the text of North Dakota's use tax collection statute, see supra note 23.

[FN134] Quill, 112 S.Ct. at 1904.

[FN135] Rothfeld, supra note 3, at 1418.

[FN136] Twitchell, supra note 6, at 100-01.

[FN137] Id.

[FN138] State By Heitkamp, 470 N.W. 2d at 218. "Recent estimates indicate that such junk mail is now a nearly 4 million-ton colossus that accounts for 39% of all U.S. postal volume." Id. (quoting Time, Nov. 26, 1990, at 63-64). This argument has been found to be without merit because the catalogs become the customer's property. Id. at 218-19 (citing SFA Folio Collections, Inc. v. Bannon, 585 A.2d 666 (Conn. 1991)).

[FN139] State By Heitkamp, 470 N.W.2d at 217-18.

[FN140] Rothfeld, supra note 3, at 1418.

[FN141] Quill, 112 S.Ct. at 1912.

[FN142] Id. at 1916.

[FN143] Id.

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