National Bellas Hess, Inc.: Obsolescent Precedent or Good Law after Quill Corp. V. North Dakota?

By Lane, Catherine, V | Washington and Lee Law Review, Summer 1992 | Go to article overview

National Bellas Hess, Inc.: Obsolescent Precedent or Good Law after Quill Corp. V. North Dakota?


Lane, Catherine, V, Washington and Lee Law Review


I. INTRODUCTION

Shoppers have long taken advantage of a well-known perquisite they do not pay sales or use taxes on goods they purchase from mail order companies that do not maintain a retail outlet or salesperson in the state. Mail order companies and states have been engaged in a heated debate over whether to end this perquisite. The issue at the core of this debate is whether statutes that force out-of-state mail order merchants to collect use taxes on goods sold to state residents are constitutional.(1) The debate is over who will collect the use tax on mail order goods purchased out-of-state and brought into the state rather than whether the taxpayer is liable for use taxes on mail order items.(2) Because it is not cost-efficient for states to keep track of all items purchased out-of-state by state residents, states are looking to mail order companies to collect use taxes at the time of sale and to remit these taxes to the state.(3)

However, a 1967 Supreme Court decision has blocked state efforts to force out-of-state mail order companies to collect use taxes on sales to state residents. In National Bellas Hess, Inc. v. Department of. Revenue,(4) the United States Supreme Court held unconstitutional the imposition of a use tax collection duty on mail order companies that did not have a physical presence(5) in the state. But despite the holding in Bellas Hess,(6) states have continued to pass statutes that impose a collection duty on corporations without the requisite in state physical presence under the assumption that the Bellas Hess rationale is outmoded.(7)

Facing budget shortfalls, states view the collection of use taxes on mail order sales to state residents as a palatable revenue raising alternative.(8) States have tried, with some success at the state court level, to enforce these statutes that impose use tax collection on mail order purchases.(9) State court decisions regarding the constitutionality of use tax collection statutes have been inconsistent with one another(10) and have presented a difficult choice to mail order companies:(11) Either run the risk of accruing retroactive tax liability by relying on Bellas Hess and refusing to comply with the statute,(12) or assume sizable compliance costs at the risk that the Supreme Court will uphold Bellas Hess and consequently invalidate the state statutes.(13)

II. SUPREME COURT CONSIDERATION OF QUILL CORP. V. NORTH DAKOTA

The United States Supreme Court ended this dilemma for mail order retailers by redefining the level of Nexus between a mail order retailer and a state which is necessary to satisfy the due process prerequisite to asserting use tax jurisdiction. Recently, the Supreme Court considered Quill Corp. v. North Dakota,(14) a case on certiorari from the North Dakota Supreme Court that renounced the physical presence requirement and stood in direct contravention to the holding in Bellas Hess.(15) In its Quill decision, the Supreme Court addressed the constitutional boundaries of tax jurisdiction.(16) Although the Court did not expressly overrule Bellas Hess,(17) the Court did render obsolete the due process reasoning espoused in Bellas Hess.(18) The Court held that the Due Process Clause no longer bars enforcement of state use tax collection statutes against mail order sellers without a physical presence in the state.(19) The Court stated that:

i!n 'modern commercial life' it matters little that such solicitation is accomplished by a deluge of catalogs rather than a phalanx of drummers: the requirements of due process are met irrespective of a corporation's lack of physical presence in the taxing State. Thus, to the extent that our decisions have indicated that the Due Process Clause requires physical presence in a State for the imposition of duty to collect a use tax, we overrule those holdings as superseded by developments in the law of due process.(20)

In analyzing the developments in due process jurisprudence and applying them to tax jurisdiction, the Court looked to cases that reflected the development in adjudicatory jurisdiction. …

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