A Pinch of Salt, August 2010- Is Quill Dead? At Least One State Has Written the Obituary


State departments of revenue and legislators are becoming increasingly bold in their efforts to raise revenue by forcing remote retailers to collect use tax, despite a clear constitutional barrier against doing so. Some commentators1 have suggested a ‘‘multipronged approach’’ in which states should pursue legislation aimed at ‘‘asserting their taxing powers’’ through ‘‘new legislation to extend their reach to the outer limits of current commerce clause nexus jurisprudence and . . . a constitutional challenge to Quill.’’2 The four strategies suggested are:

• reporting and notice requirements to improve use tax collection;

• affiliate nexus statutes that create nexus presumptions;

• New York-style Internet affiliate statutes aimed at a specific segment of e-commerce — also known as click-through nexus; and

• state simplification and later declaration by the state that the physical presence nexus standard no longer applies because of lowered burdens on interstate commerce.

The reference to Quill, of course, points to the physical presence standard rearticulated by the U.S. Supreme Court in 1992, in which the Court held that a North Dakota use tax statute was unconstitutional because it placed an undue burden on interstate commerce.3 Quill affirmed a bright-line rule that a retailer must have a physical presence in a state for that state to require the out-of-state retailer to collect sales and use taxes from in-state purchasers.4 The Quill Court held that the brightline test requiring a physical presence to establish substantial nexus remained the appropriate standard for establishing the substantial nexus prong of the four-part test for dormant commerce clause scrutiny of state taxes.5 The commentators argue that because of technology changes and the simplification efforts some states have taken, this physical presence standard is no longer necessary and states should directly challenge it.

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