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Wednesday, September 5, 2012

A bit of nexus history - 1967 versus 1991 versus 2012 technology

In preparing for a presentation on the Quill case (which is today (!) at 3 pm Eastern), I had the opportunity and need to reread the lower court decisions. For a quick review, here are the citations and progression that led to the 1992 US Supreme Court decision which we hear so much about (and which has its 20th anniversary this year).

N.D. v. Quill Corp., Dkt. 41677, 5/15/90
  • Per Bellas Hess, Quill not required to collect
  • Title passes in Illinois (despite 90 day guarantee)
  • “should have been presenting facts …
    showing that North Dakota spends funds
    for the protection and benefit of” Quill
N.D v. Quill Corp., 470 NW2d 203 (ND SCt 1991)
  • Quill must collect
  • World has changed since Bellas Hess
Quill Corp. v. North Dakota, 504 US 298 (1992)
  • Quill not required to collect
  • Bellas Hess modified
  • Due Process – met due to purposeful direction
  • Commerce Clause – need physical presence
    (although Congress can provide otherwise)
  • Differences exist between DP and CC
The North Dakota Supreme Court said that technology and communications had advanced so much from the 1967 Bellas Hess ruling to 1991, that Bellas Hess should be changed (other reasons were also provided for why ND thought Bellas Hess should be overruled). The court stated: 

“The burgeoning technological advances of the 1970's and 1980's have created revolutionary communications abilities and marketing methods which were undreamed of in 1967.”  Also, "technological advances have made physical presence within the jurisdiction meaningless in modern commerce." And, the "almost universal usage of automated accounting systems, and corresponding advancements in computer technology, have greatly alleviated the administrative burdens created by such a collection duty." Also, North Dakota offered vendor compensation. 

The court noted the lesser burdens placed on sellers by a use tax thus justifying a lesser nexus standard. Interestingly enough, this argument has been reversed today to justify economic nexus for income tax purposes rather than using the physical presence sales tax standard. For example, in A&F Trademark, Inc. v. Tolson, 605 SE2d 187 (NC Ct. App, 12/07/04), it was noted that under a sales tax, a taxpayer becomes state’s tax collector.  “[A] state income tax is usually paid only once a year, to one taxing jurisdiction and at one rate, [but] a sales and use tax can be due periodically to more than one taxing jurisdiction within a state and at varying rates.” Id., at 13." (additional reasons for a different nexus standard for sales and income taxes were also provided in the A&F case).

I was surprised to read that 1991 language again. Even 21 years later, while the technology exists to allow for any vendor to collect sales tax in all state and local jurisdictions, it is expensive and still needs human assistance. And the variations among jurisdictions and constant change pose challenges.

What do you think?  Has technology advanced enough since 1967 or even 1991 to remove the physical presence nexus standard for sales tax? Is technology even the appropriate vantage point for answering this question (let's not forget about the Due Process and Commerce Clauses)?

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