OCTOBER TERM, 1991
Syllabus
QUILL CORP.
v. NORTH DAKOTA, BY AND THROUGH ITS TAX
COMMISSIONER, HEITKAMP
CERTIORARI TO THE SUPREME COURT OF NORTH DAKOTA No. 91-194.
Argued January 22, 1992-Decided May 26,1992
Respondent North Dakota, through its Tax Commissioner, filed an
action in state court to require petitioner Quill Corporation-an
out-of-state mail-order house with neither outlets nor sales
representatives in the State-to collect and pay a use tax on goods
purchased for use in the State. The trial court ruled in Quill's
favor. It found the case indistinguishable from
National Bellas
Hess, Inc. v.
Department of Revenue of Ill., 386 U. S. 753, which, in
holding that a similar Illinois statute violated the Fourteenth
Amendment's Due Process Clause and created an unconstitutional
burden on interstate commerce, concluded that a "seller whose only
connection with customers in the State is by common carrier or the
... mail" lacked the requisite minimum contacts with the State.
Id., at 758. The State Supreme Court reversed, concluding,
inter alia, that, pursuant to
Complete Auto Transit,
Inc. v.
Brady, 430 U. S. 274, and its
progeny, the Commerce Clause no longer mandated the sort of
physical-presence nexus suggested in
Bellas Hess; and that,
with respect to the Due Process Clause, cases following
Bellas
Hess had not construed minimum contacts to require physical
presence within a State as a prerequisite to the legitimate
exercise of state power.
Held:
1. The Due Process Clause does not bar enforcement of the
State's use tax against Quill. This Court's due process
jurisprudence has evolved substantially since
Bellas Hess,
abandoning formalistic tests focused on a defendant's presence
within a State in favor of a more flexible inquiry into whether a
defendant's contacts with the forum made it reasonable, in the
context of the federal system of Government, to require it to
defend the suit in that State. See
Shaffer v.
Heitner, 433
U. S. 186, 212. Thus, to the extent that this Court's decisions
have indicated that the Clause requires a physical presence in a
State, they are overruled. In this case, Quill has purposefully
directed its activities at North Dakota residents, the magnitude of
those contacts are more than sufficient for due process purposes,
and the tax is related to the benefits Quill receives from access
to the State. Pp. 305-308.
2. The State's enforcement of the use tax against Quill places
an unconstitutional burden on interstate commerce. Pp. 309-319.
299
(a)
Bellas Hess was not rendered obsolete by this Court's
subsequent decision in
Complete Auto, supra, which set forth
the four-part test that continues to govern the validity of state
taxes under the Commerce Clause. Although
Complete Auto
renounced an analytical approach that looked to a statute's formal
language rather than its practical effect in determining a state
tax statute's validity, the
Bellas Hess decision did not
rely on such formalism. Nor is
Bellas Hess inconsistent with
Complete Auto. It concerns the first part of the
Complete
Auto test and stands for the proposition that a vendor whose
only contacts with the taxing State are by mail or common carrier
lacks the "substantial nexus" required by the Commerce Clause. Pp.
309-312.
(b) Contrary to the State's argument, a mail-order house 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. These requirements are not
identical and are animated by different constitutional concerns and
policies. Due process concerns the fundamental fairness of
governmental activity, and the touchstone of due process nexus
analysis is often identified as "notice" or "fair warning." In
contrast, the Commerce Clause and its nexus requirement are
informed by structural concerns about the effects of state
regulation on the national economy. pp. 312-313.
(c) The evolution of this Court's Commerce Clause jurisprudence
does not indicate repudiation of the
Bellas Hess rule. While
cases subsequent to
Bellas Hess and concerning other types
of taxes have not adopted a bright-line, physical-presence
requirement similar to that in
Bellas Hess, see,
e. g.,
Standard Pressed Steel Co. v.
Department of Revenue of
Wash., 419 U. S.
560, their reasoning does not compel rejection of the
Bellas
Hess rule regarding sales and use taxes. To the contrary, the
continuing value of a bright-line rule in this area and the
doctrine and principles of
stare decisis indicate that the
rule remains good law. pp. 314-318.
(d) The underlying issue here is one that Congress may be better
qualified to resolve and one that it has the ultimate power to
resolve. pp. 318-319.
470 N. W. 2d 203, reversed and remanded.
STEVENS, J., delivered the opinion for a unanimous Court with
respect to Parts I, II, and III, and the opinion of the Court with
respect to Part IV, in which REHNQUIST, C. J., and BLACKMUN,
O'CONNOR, and SOUTER, JJ., joined. SCALIA, J., filed an opinion
concurring in part and concurring in the judgment, in which KENNEDY
and THOMAS, JJ., joined,
post, p. 319. WHITE, J., filed an
opinion concurring in part and dissenting in part,
post, p.
321.
300
Counsel
John E. Gaggini argued the cause for petitioner. With him on the
briefs were Don S. Harnack, Richard A. Hanson, James H. Peters,
Nancy T. Owens, and William P. Pearce.
Nicholas J. Spaeth, Attorney General of
North Dakota, argued the cause for respondent. With him on the
brief were
Laurie J. Loveland, Solicitor
General,
Robert W Wirtz, Assistant Attorney General, and
Alan H. Friedman, Special Assistant Attorney General. *
*Briefs of
amici curiae urging reversal were filed for
the State of New Hampshire et al. by
John P. Arnold,
Attorney General of New Hampshire, and
Harold T. Judd,
Senior Assistant Attorney General,
Charles M. Oberly III,
Attorney General of Delaware, and
John R. McKernan, Jr.,
Governor of Maine; for the American Bankers Association et al. by
John J. Gill III, Michael F.
Crotty,
and
Frank M. Salinger; for the American Council for the
Blind et al. by
David C.
Todd and
Timothy
J. May; for Arizona Mail Order Co., Inc., et al. by
Maryann B. Gall, Timothy B. Dyk, Michael J.
Meehan, Frank G.
Julian, David J. Bradford,
George S.
Isaacson, Martin I. Eisenstein, and
Stuart
A. Smith; for Carrot Top Industries, Inc., et al. by
Charles
A. Trost and
James F.
Blumstein; for the
Clarendon Foundation by
Ronald D. Maines; for the Coalition
for Small Direct Marketers by
Richard J.
Leighton and
Dan M. Peterson; for the Direct
Marketing Association by
George S.
Isaacson, Martin I.
Eisenstein, and
Robert J. Levering; for
the National Association of Manufacturers et al. by
Bruce
J. Ennis, Jr., David W Ogden, Jan S.
Amundson,
and
John Kamp; for Magazine Publishers of America, Inc., et
al. by
Eli D. Minton, James R. Cregan, Ian D. Volner, and
Stephen F.
Owen, Jr.; and for the Tax Executives
Institute, Inc., by
Timothy J. McCormally.
Briefs of
amici curiae urging affirmance were filed for
the State of Connecticut et al. by
Richard Blumenthal,
Attorney General of Connecticut, and
Paul J.
Hartman, Charles W Burson, Attorney General of Tennessee,
Daniel E. Lungren, Attorney General of California,
Winston Bryant, Attorney General of Arkansas,
Robert A.
Butterworth, Attorney General of Florida,
Michael
J. Bowers, Attorney General of Georgia,
Larry
EchoHawk, Attorney General of Idaho,
Roland W Burris,
Attorney General of Illinois,
Bonnie J.
Campbell, Attorney General of Iowa,
Frederic
J. Cowan, Attorney General of Kentucky,
William J. Guste, Jr., Attorney General of
Louisiana,
J. Joseph Curran, Jr., Attorney General of
Maryland,
Scott Harshbarger, Attorney General of
Massachusetts,
Frank J. Kelley, Attorney
General of Michigan,
Mike Moore, Attorney General of
Mississippi,
Frankie Sue Del Papa, Attorney General of
Nevada,
Robert
301
JUSTICE STEVENS delivered the opinion of the Court. This case,
like
National Bellas Hess, Inc. v.
Department of Revenue
of Ill., 386 U.
S. 753 (1967), involves a State's attempt to require an
out-of-state mail-order house that has neither outlets nor sales
representatives in the State to collect and pay a use tax on goods
purchased for use within the State. In
Bellas Hess we held
that a similar Illinois statute violated the Due Process Clause of
the Fourteenth Amendment and created an unconstitutional burden on
interstate commerce. In particular, we ruled that a "seller whose
only connection with customers in the State is by common carrier or
the United States mail" lacked the requisite minimum contacts with
the State.
Id., at 758.
In this case, the Supreme Court of North Dakota declined to
follow
Bellas Hess because "the tremendous social, economic,
commercial, and legal innovations" of the past quarter-century have
rendered its holding "obsole[te]." 470 N. W. 2d 203, 208 (1991).
Having granted certiorari, 502 U. S. 808, we must either reverse
the State Supreme Court
Abrams, Attorney General of New York,
Lee Fisher,
Attorney General of Ohio,
Susan B. Loving, Attorney General
of Oklahoma,
Ernest D. Preate, Jr., Attorney General of
Pennsylvania,
T. Travis Medlock, Attorney General of South
Carolina,
Dan Morales, Attorney General of Texas,
Paul
Van Dam, Attorney General of Utah,
Jeffrey L. Amestoy,
Attorney General of Vermont,
Mary Sue Terry, Attorney
General of Virginia,
Ken Eikenberry, Attorney General of
Washington,
Mario J. Palumbo, Attorney General
of West Virginia, and
John Payton; for the State of New
Jersey by
Robert J. Del Tufo, Attorney
General,
Sarah T. Darrow, Deputy Attorney General,
Joseph
L. Wannotti, Assistant Attorney General,
Richard G.
Taranto, and
Joel I. Klein; for the State of New
Mexico by
Tom Udall, Attorney General, and
Frank D.
Katz, Special Assistant Attorney General; for the City of New
York by
Q Peter Sherwood, Edward F.
X. Hart, and
Stanley Buchsbaum; for the International Council of Shopping
Centers, Inc., et al. by
Charles Rothfeld; for the
Multistate Tax Commission by
James F.
Flug and
Martin Lobel; for the National Governors' Association et al.
by
Richard Ruda; and for the Tax Policy Research Project by
Rita Marie Cain.
302
or overrule
Bellas Hess. While we agree with much of the
state court's reasoning, we take the former course.
I
Quill is a Delaware corporation with offices and warehouses in
Illinois, California, and Georgia. None of its employees work or
reside in North Dakota, and its ownership of tangible property in
that State is either insignificant or nonexistent.1 Quill sells
office equipment and supplies; it solicits business through
catalogs and flyers, advertisements in national periodicals, and
telephone calls. Its annual national sales exceed $200 million, of
which almost $1 million are made to about 3,000 customers in North
Dakota. It is the sixth largest vendor of office supplies in the
State. It delivers all of its merchandise to its North Dakota
customers by mail or common carrier from out-of-state
locations.
As a corollary to its sales tax, North Dakota imposes a use tax
upon property purchased for storage, use, or consumption within the
State. North Dakota requires every "retailer maintaining a place of
business in" the State to collect the tax from the consumer and
remit it to the State. N. D. Cent. Code § 57-40.2-07 (Supp. 1991).
In 1987, North Dakota amended the statutory definition of the term
"retailer" to include "every person who engages in regular or
system-
1 In the trial court, the State argued that because Quill gave
its customers an unconditional 90-day guarantee, it retained title
to the merchandise during the 90-day period after delivery. The
trial court held, however, that title passed to the purchaser when
the merchandise was received. See App. to Pet. for Cert. A40-A41.
The State Supreme Court assumed for the purposes of its decision
that that ruling was correct. 470 N. W. 2d 203, 217, n. 13 (1991).
The State Supreme Court also noted that Quill licensed a computer
software program to some of its North Dakota customers that enabled
them to check Quill's current inventories and prices and to place
orders directly.
Id., at 216-217. As we shall explain,
Quill's interests in the licensed software does not affect our
analysis of the due process issue and does not comprise the
"substantial nexus" required by the Commerce Clause. See n. 8,
infra.
303
atic solicitation of a consumer market in thee] state." §
5740.2-01(6). State regulations in turn define "regular or
systematic solicitation" to mean three or more advertisements
within a 12-month period. N. D. Admin. Code § 81-04.1-0103.1
(1988). Thus, since 1987, mail-order companies that engage in such
solicitation have been subject to the tax even if they maintain no
property or personnel in North Dakota.
Quill has taken the position that North Dakota does not have the
power to compel it to collect a use tax from its North Dakota
customers. Consequently, the State, through its Tax Commissioner,
filed this action to require Quill to pay taxes (as well as
interest and penalties) on all such sales made after July 1, 1987.
The trial court ruled in Quill's favor, finding the case
indistinguishable from
Bellas Hess; specifically, it found
that because the State had not shown that it had spent tax revenues
for the benefit of the mailorder business, there was no "nexus to
allow the state to define retailer in the manner it chose." App. to
Pet. for Cert. A41.
The North Dakota Supreme Court reversed, concluding that
"wholesale changes" in both the economy and the law made it
inappropriate to follow
Bellas Hess today. 470 N. W. 2d, at
213. The principal economic change noted by the court was the
remarkable growth of the mail-order business "from a relatively
inconsequential market niche" in 1967 to a "goliath" with annual
sales that reached "the staggering figure of $183.3 billion in
1989."
Id., at 208, 209. Moreover, the court observed,
advances in computer technology greatly eased the burden of
compliance with a "'welter of complicated obligations' " imposed by
state and local taxing authorities.
Id., at 215 (quoting
Bellas Hess, 386 U. S., at 759-760).
Equally important, in the court's view, were the changes in the
"legal landscape." With respect to the Commerce Clause, the court
emphasized that
Complete Auto Transit, Inc. v.
Brady,
430 U. S. 274
(1977), rejected the line of cases holding that the direct taxation
of interstate commerce was
304
impermissible and adopted instead a "consistent and rational
method of inquiry [that focused on] the practical effect of [the]
challenged tax."
Mobil Oil Corp. v.
Commissioner of Taxes
of Vt., 445 U. S.
425, 443 (1980). This and subsequent rulings, the court
maintained, indicated that the Commerce Clause no longer mandated
the sort of physical-presence nexus suggested in
Bellas
Hess.
Similarly, with respect to the Due Process Clause, the North
Dakota court observed that cases following
Bellas Hess had
not construed "minimum contacts" to require physical presence
within a State as a prerequisite to the legitimate exercise of
state power. The state court then concluded that "the Due Process
requirement of a 'minimal connection' to establish nexus is
encompassed within the
Complete Auto test" and that the
relevant inquiry under the latter test was whether "the state has
provided some protection, opportunities, or benefit for which it
can expect a return." 470 N. W. 2d, at 216.
Turning to the case at hand, the state court emphasized that
North Dakota had created "an economic climate that fosters demand
for" Quill's products, maintained a legal infrastructure that
protected that market, and disposed of 24 tons of catalogs and
flyers mailed by Quill into the State every year.
Id., at
218-219. Based on these facts, the court concluded that Quill's
"economic presence" in North Dakota depended on services and
benefits provided by the State and therefore generated "a
constitutionally sufficient nexus to justify imposition of the
purely administrative duty of collecting and remitting the use
tax."
Id., at 219.2
2 The court also suggested that, in view of the fact that the
"touchstone of Due Process is fundamental fairness" and that the
"very object" of the Commerce Clause is protection of interstate
business against discriminatory local practices, it would be ironic
to exempt Quill from this burden and thereby allow it to enjoy a
significant competitive advantage over local retailers. 470 N. W.
2d, at 214-215.
305
II
As in a number of other cases involving the application of state
taxing statutes to out-of-state sellers, our holding in
Bellas
Hess relied on both the Due Process Clause and the Commerce
Clause. Although the "two claims are closely related,"
Bellas
Hess, 386 U. S., at 756, the Clauses pose distinct limits on
the taxing powers of the States. Accordingly, while a State may,
consistent with the Due Process Clause, have the authority to tax a
particular taxpayer, imposition of the tax may nonetheless violate
the Commerce Clause. See,
e. g., Tyler Pipe Industries, Inc.
v.
Washington State Dept. of Revenue, 483 U. S. 232 (1987).
The two constitutional requirements differ fundamentally, in
several ways. As discussed at greater length below, see Part IV;
infra, the Due Process Clause and the Commerce Clause
reflect different constitutional concerns. Moreover, while Congress
has plenary power to regulate commerce among the States and thus
may authorize state actions that burden interstate commerce, see
International Shoe Co. v.
Washington, 326 U. S. 310, 315
(1945), it does not similarly have the power to authorize
violations of the Due Process Clause.
Thus, although we have not always been precise in distinguishing
between the two, the Due Process Clause and the Commerce Clause are
analytically distinct.
"'Due process' and 'commerce clause' conceptions are not always
sharply separable in dealing with these problems .... To some
extent they overlap. If there is a want of due process to sustain
the tax, by that fact alone any burden the tax imposes on the
commerce among the states becomes 'undue.' But, though overlapping,
the two conceptions are not identical. There may be more than
sufficient factual connections, with economic and legal effects,
between the transaction and the taxing state to sustain the tax as
against due process
306
objections. Yet it may fall because of its burdening effect upon
the commerce. And, although the two notions cannot always be
separated, clarity of consideration and of decision would be
promoted if the two issues are approached, where they are
presented, at least tentatively as if they were separate and
distinct, not intermingled ones." International Harvester
Co. v. Department of Treasury, 322 U. S. 340, 353 (1944)
(Rutledge, J., concurring in part and dissenting in part).
Heeding Justice Rutledge's counsel, we consider each
constitutionallimit in turn.
III
The Due Process Clause "requires some definite link, some
minimum connection, between a state and the person, property or
transaction it seeks to tax,"
Miller Brothers Co. v.
Maryland, 347
U. S. 340, 344-345 (1954), and that the "income attributed to
the State for tax purposes must be rationally related to 'values
connected with the taxing State,'"
Moorman Mfg. Co. v.
Bair, 437 U.
S. 267, 273 (1978) (citation omitted). Here, we are concerned
primarily with the first of these requirements. Prior to
Bellas
Hess, we had held that that requirement was satisfied in a
variety of circumstances involving use taxes. For example, the
presence of sales personnel in the State 3 or the maintenance of
local retail stores in the State 4 justified the exercise of that
power because the seller's local activities were "plainly accorded
the protection and services of the taxing State."
Bellas
Hess, 386 U. S., at 757. The furthest extension of that power
was recognized in
Scrip to, Inc. v.
Carson, 362 U. S. 207 (1960), in
which the Court upheld a use tax despite the fact that all of the
seller's in-state solicitation was performed by independent
contractors. These cases all involved some sort of physical
presence within the State, and in
Bellas Hess
3 Felt & Tarrant Mfg. Co. v. Gallagher,
306 U. S. 62 (1939).
4 Nelson v. Sears, Roebuck & Co.,
312 U. S. 359 (1941).
307
the Court suggested that such presence was not only sufficient
for jurisdiction under the Due Process Clause, but also necessary.
We expressly declined to obliterate the "sharp distinction ...
between mail-order sellers with retail outlets, solicitors, or
property within a State, and those who do no more than communicate
with customers in the State by mail or common carrier as a part of
a general interstate business." 386 U. S., at 758.
Our due process jurisprudence has evolved substantially in the
25 years since
Bellas Hess, particularly in the area of
judicial jurisdiction. Building on the seminal case of
International Shoe Co. v.
Washington, 326 U. S. 310 (1945), we
have framed the relevant inquiry as whether a defendant had minimum
contacts with the jurisdiction "such that the maintenance of the
suit does not offend 'traditional notions of fair play and
substantial justice.'"
Id., at 316 (quoting
Milliken
v.
Meyer, 311
U. S. 457, 463 (1940)). In that spirit, we have abandoned more
formalistic tests that focused on a defendant's "presence" within a
State in favor of a more flexible inquiry into whether a
defendant's contacts with the forum made it reasonable, in the
context of our federal system of Government, to require it to
defend the suit in that State. In
Shaffer v.
Heitner,
433 U. S. 186,
212 (1977), the Court extended the flexible approach that
International Shoe had prescribed for purposes of
in
personam jurisdiction to
in rem jurisdiction, concluding
that "all assertions of statecourt jurisdiction must be evaluated
according to the standards set forth in
International Shoe
and its progeny."
Applying these principles, we have held that if a foreign
corporation purposefully avails itself of the benefits of an
economic market in the forum State, it may subject itself to the
State's
in personam jurisdiction even if it has no physical
presence in the State. As we explained in
Burger King Corp.
v.
Rudzewicz, 471 U. S. 462 (1985):
"Jurisdiction in these circumstances may not be avoided merely
because the defendant did not physi-
308
cally enter the forum State. Although territorial
presence frequently will enhance a potential defendant's
affiliation with a State and reinforce the reasonable
foreseeability of suit there, 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 residents of another State, we have
consistently rejected the notion that an absence of physical
contacts can defeat personal jurisdiction there." Id., at
476 (emphasis in original).
Comparable reasoning justifies the imposition of the collection
duty on a mail-order house that is engaged in continuous and
widespread solicitation of business within a State. Such a
corporation clearly has "fair warning that [its] activity may
subject [it] to the jurisdiction of a foreign sovereign."
Shaffer v.
Heitner, 433 U. S., at 218 (STEVENS, J.,
concurring in judgment). In "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.
In this case, there is no question that Quill has purposefully
directed its activities at North Dakota residents, that the
magnitude of those contacts is more than sufficient for due process
purposes, and that the use tax is related to the benefits Quill
receives from access to the State. We therefore agree with the
North Dakota Supreme Court's conclusion that the Due Process Clause
does not bar enforcement of that State's use tax against Quill.
309
IV
Article I, § 8, cl. 3, of the Constitution expressly authorizes
Congress to "regulate Commerce with foreign Nations, and among the
several States." It says nothing about the protection of interstate
commerce in the absence of any action by Congress. Nevertheless, as
Justice Johnson suggested in his concurring opinion in
Gibbons v.
Ogden, 9 Wheat. 1, 231-232, 239 (1824),
the Commerce Clause is more than an affirmative grant of power; it
has a negative sweep as well. The Clause, in Justice Stone's
phrasing, "by its own force" prohibits certain state actions that
interfere with interstate commerce.
South Carolina State Highway
Dept. v.
Barnwell Brothers, Inc., 303 U. S. 177, 185
(1938).
Our interpretation of the "negative" or "dormant" Commerce
Clause has evolved substantially over the years, particularly as
that Clause concerns limitations on state taxation powers. See
generally P. Hartman, Federal Limitations on State and Local
Taxation §§ 2:9-2:17 (1981). Our early cases, beginning with
Brown v.
Maryland, 12 Wheat. 419 (1827), swept
broadly, and in
Leloup v.
Port of Mobile, 127 U. S. 640, 648
(1888), we declared that "no State has the right to lay a tax on
interstate commerce in any form." We later narrowed that rule and
distinguished between direct burdens on interstate commerce, which
were prohibited, and indirect burdens, which generally were not.
See,
e. g., Sanford v.
Poe, 69 F.5d
6 (CA6 1895), aff'd
sub nom. Adams Express Co. v.
Ohio State Auditor, 165 U. S. 194, 220
(1897).
Western Live Stock v.
Bureau of Revenue,
303 U. S. 250,
256258 (1938), and subsequent decisions rejected this formal,
categorical analysis and adopted a "multiple-taxation doctrine"
that focused not on whether a tax was "direct" or "indirect" but
rather on whether a tax subjected interstate commerce to a risk of
multiple taxation. However, in
Freeman v.
Hewit,
329 U. S. 249,
256 (1946), we embraced again the formal distinction between direct
and indirect taxation, invalidating Indiana's imposition of a gross
receipts tax on a
310
particular transaction because that application would "impos[e]
a direct tax on interstate sales." Most recently, in
Complete
Auto Transit, Inc. v.
Brady, 430 U. S., at 285, we
renounced the
Freeman approach as "attaching constitutional
significance to a semantic difference." We expressly overruled one
of
Freeman's progeny,
Spector Motor Service, Inc. v.
O'Connor, 340
U. S. 602 (1951), which held that a tax on "the privilege of
doing interstate business" was unconstitutional, while recognizing
that a differently denominated tax with the same economic effect
would not be unconstitutional.
Spector, as we observed in
Railway Express Agency, Inc. v.
Virginia, 358 U. S. 434, 441
(1959), created a situation in which "magic words or labels" could
"disable an otherwise constitutional levy."
Complete Auto
emphasized the importance of looking past "the formal language of
the tax statute [to] its practical effect," 430 U. S., at 279, and
set forth a four-part test that continues to govern the validity of
state taxes under the Commerce Clause.5
Bellas Hess was decided in 1967, in the middle of this
latest rally between formalism and pragmatism. Contrary to the
suggestion of the North Dakota Supreme Court, this timing does not
mean that
Complete Auto rendered
Bellas Hess
"obsolete."
Complete Auto rejected
Freeman and
Spector's formal distinction between "direct" and "indirect"
taxes on interstate commerce because that formalism allowed the
validity of statutes to hinge on "legal terminology,"
"draftsmanship and phraseology." 430 U. S., at 281.
Bellas
Hess
5 Under our current Commerce Clause jurisprudence, "with certain
restrictions, interstate commerce may be required to pay its fair
share of state taxes."
D. H. Holmes Co. v.
McNamara,
486 U. S. 24, 31
(1988); see also
Commonwealth Edison Co. v.
Montana,
453 U. S. 609,
623-624 (1981) ("It was not the purpose of the commerce clause to
relieve those engaged in interstate commerce from their just share
of [the] state tax burden even though it increases the cost of
doing business") (internal quotation marks and citation
omitted).
311
did not rely on any such labeling of taxes and therefore did not
automatically fall with
Freeman and its progeny.
While contemporary Commerce Clause jurisprudence might not
dictate the same result were the issue to arise for the first time
today,
Bellas Hess is not inconsistent with
Complete
Auto and our recent cases. Under
Complete Auto's
four-part test, we will sustain a tax against a Commerce Clause
challenge so long as the "tax [1] is applied to an activity with a
substantial nexus with the taxing State, [2] is fairly apportioned,
[3] does not discriminate against interstate commerce, and [4] is
fairly related to the services provided by the State." 430 U. S.,
at 279.
Bellas Hess concerns the first of these tests and
stands for the proposition that a vendor whose only contacts with
the taxing State are by mail or common carrier lacks the
"substantial nexus" required by the Commerce Clause.
Thus, three weeks after
Complete Auto was handed down, we
cited
Bellas Hess for this proposition and discussed the
case at some length. In
National Geographic Society v.
California Bd. of Equalization, 430 U. S. 551, 559
(1977), we affirmed the continuing vitality of
Bellas Hess'
"sharp distinction ... between mail-order sellers with [a physical
presence in the taxing] State and those ... who do no more than
communicate with customers in the State by mail or common carrier
as part of a general interstate business." We have continued to
cite
Bellas Hess with approval ever since. For example, in
Goldberg v.
Sweet, 488 U. S. 252, 263
(1989), we expressed "doubt that termination of an interstate
telephone call, by itself, provides a substantial enough nexus for
a State to tax a call. See
National Bellas Hess ... (receipt
of mail provides insufficient nexus)." See also
D. H.
Holmes Co. v.
McNamara, 486 U. S. 24, 33 (1988);
Commonwealth Edison Co. v.
Montana, 453 U. S. 609, 626
(1981);
Mobil Oil Corp. v.
Commissioner of Taxes, 445
U. S., at 437;
National Geographic Society, 430 U. S., at
559. For these reasons, we disagree with the State Supreme Court's
conclu-
312
sion that our decision in
Complete Auto undercut the
Bellas Hess rule.
The State of North Dakota relies less on
Complete Auto
and more on the evolution of our due process jurisprudence. The
State contends that the nexus requirements imposed by the Due
Process and Commerce Clauses are equivalent and that if, as we
concluded above, a mail-order house that lacks a physical presence
in the taxing State nonetheless satisfies the due process "minimum
contacts" test, then that corporation also meets the Commerce
Clause "substantial nexus" test. We disagree. Despite the
similarity in phrasing, the nexus requirements of the Due Process
and Commerce Clauses are not identical. The two standards are
animated by different constitutional concerns and policies.
Due process centrally concerns the fundamental fairness of
governmental activity. Thus, at the most general level, the due
process nexus analysis requires that we ask whether an individual's
connections with a State are substantial enough to legitimate the
State's exercise of power over him. We have, therefore, often
identified "notice" or "fair warning" as the analytic touchstone of
due process nexus analysis. In contrast, the Commerce Clause and
its nexus requirement are informed not so much by concerns about
fairness for the individual defendant as by structural concerns
about the effects of state regulation on the national economy.
Under the Articles of Confederation, state taxes and duties
hindered and suppressed interstate commerce; the Framers intended
the Commerce Clause as a cure for these structural ills. See
generally The Federalist Nos. 7, 11 (A. Hamilton). It is in this
light that we have interpreted the negative implication of the
Commerce Clause. Accordingly, we have ruled that that Clause
prohibits discrimination against interstate commerce, see,
e.
g., Philadelphia v.
New Jersey, 437 U. S. 617 (1978), and
bars state regulations that unduly burden interstate commerce, see,
e. g., Kassel v.
Consolidated Freightways Corp. of
Del., 450 U. S.
662 (1981).
313
The
Complete Auto analysis reflects these concerns about
the national economy. The second and third parts of that analysis,
which require fair apportionment and nondiscrimination, prohibit
taxes that pass an unfair share of the tax burden onto interstate
commerce. The first and fourth prongs, which require a substantial
nexus and a relationship between the tax and state-provided
services, limit the reach of state taxing authority so as to ensure
that state taxation does not unduly burden interstate commerce.6
Thus, the "substantial nexus" requirement is not, like due process'
"minimum contacts" requirement, a proxy for notice, but rather a
means for limiting state burdens on interstate commerce.
Accordingly, contrary to the State's suggestion, 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 that
State as required by the Commerce Clause.7
6 North Dakota's use tax illustrates well how a state tax might
unduly burden interstate commerce. On its face, North Dakota law
imposes a collection duty on every vendor who advertises in the
State three times in a single year. Thus, absent the
Bellas
Hess rule, a publisher who included a subscription card in
three issues of its magazine, a vendor whose radio advertisements
were heard in North Dakota on three occasions, and a corporation
whose telephone sales force made three calls into the State, all
would be subject to the collection duty. What is more significant,
similar obligations might be imposed by the Nation's 6,000-plus
taxing jurisdictions. See
National Bellas Hess, Inc. v.
Department of Revenue of Ill., 386 U. S. 753, 759-760
(1967) (noting that the "many variations in rates of tax, in
allowable exemptions, and in administrative and record-keeping
requirements could entangle [a mail-order house] in a virtual
welter of complicated obligations") (footnotes omitted); see also
Shaviro, An Economic and Political Look at Federalism in Taxation,
90 Mich. L. Rev. 895, 925-926 (1992).
7We have sometimes stated that the
"Complete Auto test,
while responsive to Commerce Clause dictates, encompasses as well
... due process requirement[s]."
Trinova Corp. v.
Michigan Dept. of Treasury, 498 U. S. 358, 373
(1991). Although such comments might suggest that every tax that
passes contemporary Commerce Clause analysis is also valid under
the Due Process Clause, it does not follow that the converse is as
well
314
The State Supreme Court reviewed our recent Commerce Clause
decisions and concluded that those rulings signaled a "retreat from
the formalistic constrictions of a stringent physical presence test
in favor of a more flexible substantive approach" and thus
supported its decision not to apply
Bellas Hess. 470 N. W.
2d, at 214 (citing
Standard Pressed Steel Co. v.
Department of Revenue of Wash., 419 U. S. 560 (1975), and
Tyler Pipe Industries, Inc. v.
Washington State Dept. of
Revenue, 483 U.
S. 232 (1987)). Although we agree with the state court's
assessment of the evolution of our cases, we do not share its
conclusion that this evolution indicates that the Commerce Clause
ruling of
Bellas Hess is no longer good law.
First, as the state court itself noted, 470 N. W. 2d, at 214,
all of these cases involved taxpayers who had a physical presence
in the taxing State and therefore do not directly conflict with the
rule of
Bellas Hess or compel that it be overruled. Second,
and more importantly, although our Commerce Clause jurisprudence
now favors more flexible balancing analyses, we have never
intimated a desire to reject all established "bright-line" tests.
Although we have not, in our review of other types of taxes,
articulated the same physical-presence requirement that
Bellas
Hess established for sales and use taxes, that silence does not
imply repudiation of the
Bellas Hess rule.
Complete Auto, it is true, renounced
Freeman and
its progeny as "formalistic." But not all formalism is alike.
Spector's formal distinction between taxes on the "privilege
of doing business" and all other taxes served no purpose within our
Commerce Clause jurisprudence, but stood "only as a trap for the
unwary draftsman."
Complete Auto, 430 U. S., at 279. In
contrast, the bright-line rule of
Bellas Hess furthers the
ends of the dormant Commerce Clause. Undue
true: A tax may be consistent with due process and yet unduly
burden interstate commerce. See,
e. g., Tyler Pipe Industries,
Inc. v.
Washington State Dept. of Revenue, 483 U. S. 232 (1987).
315
burdens on interstate commerce may be avoided not only by a
case-by-case evaluation of the actual burdens imposed by particular
regulations or taxes, but also, in some situations, by the
demarcation of a discrete realm of commercial activity that is free
from interstate taxation.
Bellas Hess followed the latter
approach and created a safe harbor for vendors "whose only
connection with customers in the [taxing] State is by common
carrier or the United States mail." Under
Bellas Hess, such
vendors are free from state-imposed duties to collect sales and use
taxes.8
Like other bright-line tests, the
Bellas Hess rule
appears artificial at its edges: Whether or not a State may compel
a vendor to collect a sales or use tax may turn on the presence in
the taxing State of a small sales force, plant, or office. Cf.
National Geographic Society v.
California Bd. of
Equalization, 430
U. S. 551 (1977);
Scrip to, Inc. v.
Carson,
362 U. S. 207
(1960). This artificiality, however, is more than offset by the
benefits of a clear rule. Such a rule firmly establishes the
boundaries of legitimate state authority to impose a duty to
collect sales and use taxes and reduces litigation concerning those
taxes. This benefit is important, for as we have so frequently
noted, our law in this area is something of a "quagmire" and the
"application of constitutional principles to specific state
statutes leaves much room for controversy and confusion and little
in the way of precise guides to the States in the exercise of their
indispensable power of
8 In addition to its common-carrier contacts with the State,
Quill also licensed software to some of its North Dakota clients.
See n. 1,
supra. The State "concedes that the existence in
North Dakota of a few floppy diskettes to which Quill holds title
seems a slender thread upon which to base nexus." Brief for
Respondent 46. We agree. Although title to "a few floppy diskettes"
present in a State might constitute some minimal nexus, in
National Geographic Society v.
California Ed. of
Equalization, 430
U. S. 551, 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.
316
taxation." Northwestern States Portland Cement Co. v. Minnesota,
358 U. S. 450,
457-458 (1959).
Moreover, a bright-line rule in the area of sales and use taxes
also encourages settled expectations and, in doing so, fosters
investment by businesses and individuals.9 Indeed, it is not
unlikely that the mail-order industry's dramatic growth over the
last quarter century is due in part to the bright-line exemption
from state taxation created in
Bellas Hess.
Notwithstanding the benefits of bright-line tests, we have, in
some situations, decided to replace such tests with more contextual
balancing inquiries. For example, in
Arkansas Electric
Cooperative Corp. v.
Arkansas Pub. Servo Comm'n,
461 U. S. 375
(1983), we reconsidered a bright-line test set forth in
Public
Util. Comm'n of R. 1. v.
Attleboro Steam &
Electric Co., 273 U. S. 83 (1927).
Attleboro distinguished between state regulation of
wholesale sales of electricity, which was constitutional as
an "indirect" regulation of interstate commerce, and state
regulation of
retail sales of electricity, which was
unconstitutional as a "direct regulation" of commerce. In
Arkansas Electric, we considered whether to
9 It is worth noting that Congress has, at least on one
occasion, followed a similar approach in its regulation of state
taxation. In response to this Court's indication in
Northwestern
States Portland Cement CO. V.
Minnesota, 358 U. S. 450, 452
(1959), that, so long as the taxpayer has an adequate nexus with
the taxing State, "net income from the interstate operations of a
foreign corporation may be subjected to state taxation," Congress
enacted Pub. L. 86-272, codified at 15 U. S. C. § 381. That statute
provides that a State may not impose a net income tax on any person
if that person's "only business activities within such State
[involve] the solicitation of orders [approved] outside the State
[and] filled ... outside the State."
Ibid. As we noted in
Heublein, Inc. V.
South Carolina Tax Comm'n, 409 U. S. 275, 280
(1972), in enacting § 381, "Congress attempted to allay the
apprehension of businessmen that 'mere solicitation' would subject
them to state taxation .... Section 381 was designed to define
clearly a lower limit for the exercise of [the State's power to
tax].
Clarity that would remove uncertainty was Congress'
primary goal." (Emphasis supplied.)
317
"follow the mechanical test set out in
Attleboro, or the
balance-of-interests test applied in our Commerce Clause cases."
461 U. S., at 390-391. We first observed that "the principle of
stare decisis counsels us, here as elsewhere, not lightly to
set aside specific guidance of the sort we find in
Attleboro."
Id., at 391. In deciding to reject the
Attleboro
analysis, we were influenced by the fact that the "mechanical test"
was "anachronistic," that the Court had rarely relied on the test,
and that we could "see no strong reliance interests" that would be
upset by the rejection of that test. 461 U. S., at 391-392. None of
those factors obtains in this case. First, the
Attleboro
rule was "anachronistic" because it relied on formal distinctions
between "direct" and "indirect" regulation (and on the regulatory
counterparts of our
Freeman line of cases); as discussed
above,
Bellas Hess turned on a different logic and thus
remained sound after the Court repudiated an analogous distinction
in
Complete Auto. Second, unlike the
Attleboro rule,
we have, in our decisions, frequently relied on the
Bellas
Hess rule in the last 25 years, see
supra, at 311, and
we have never intimated in our review of sales or use taxes that
Bellas Hess was unsound. Finally, again unlike the
Attleboro rule, the
Bellas Hess rule has engendered
substantial reliance and has become part of the basic framework of
a sizable industry. The "interest in stability and orderly
development of the law" that undergirds the doctrine of
stare
decisis, see
Runyon v.
McCrary, 427 U. S. 160, 190-191
(1976) (STEVENS, J., concurring), therefore counsels adherence to
settled precedent.
In sum, although in our cases subsequent to
Bellas Hess
and concerning other types of taxes we have not adopted a similar
bright-line, physical-presence requirement, our reasoning in those
cases does not compel that we now reject the rule that
Bellas
Hess established in the area of sales and use taxes. To the
contrary, the continuing value of a bright-line rule in this area
and the doctrine and principles of
stare decisis indicate
that the
Bellas Hess rule remains good law. For
318
these reasons, we disagree with the North Dakota Supreme Court's
conclusion that the time has come to renounce the bright-line test
of
Bellas Hess.
This aspect of our decision is made easier by the fact that the
underlying issue is not only one that Congress may be better
qualified to resolve,lO but also one that Congress has the ultimate
power to resolve. No matter how we evaluate the burdens that use
taxes impose on interstate commerce, Congress remains free to
disagree with our conclusions. See
Prudential Insurance Co.
v.
Benjamin, 328 U. S. 408 (1946).
Indeed, in recent years Congress has considered legislation that
would "overrule" the
Bellas Hess ruleY Its decision not to
take action in this direction may, of course, have been dictated by
respect for our holding in
Bellas Hess that the Due Process
Clause prohibits States from imposing such taxes, but today we have
put that problem to rest. Accordingly, Congress is now free to
decide whether, when, and to what extent the States may burden
interstate mail-order concerns with a duty to collect use
taxes.
Indeed, even if we were convinced that
Bellas Hess was
inconsistent with our Commerce Clause jurisprudence, "this very
fact [might] giv[e us] pause and counse[l] withholding our hand, at
least for now. Congress has the power to protect interstate
commerce from intolerable or even undesirable burdens."
Commonwealth Edison Co. v.
Montana, 453 U. S., at 637
(WHITE, J., concurring). In this situation, it
10 Many States have enacted use taxes. See App. 3 to Brief for
Direct Marketing Association as
Amicus Curiae. An overruling
of
Bellas Hess might raise thorny questions concerning the
retroactive application of those taxes and might trigger
substantial unanticipated liability for mailorder houses. The
precise allocation of such burdens is better resolved by Congress
rather than this Court.
11 See,
e. g., H. R. 2230, 101st Cong., 1st Sess.
(1989); S. 480, 101st Cong., 1st Sess. (1989); S. 2368, 100th
Cong., 2d Sess. (1988); H. R. 3521, lOOth Cong., 1st Sess. (1987);
S. 1099, 100th Cong., 1st Sess. (1987); H. R. 3549, 99th Cong., 1st
Sess. (1985); S. 983, 96th Cong., 1st Sess. (1979); S. 282, 93d
Cong., 1st Sess. (1973).
319
may be that "the better part of both wisdom and valor is to
respect the judgment of the other branches of the Government."
Id., at 638.
The judgment of the Supreme Court of North Dakota is reversed,
and the case is remanded for further proceedings not inconsistent
with this opinion.
It is so ordered.
JUSTICE SCALIA, with whom JUSTICE KENNEDY and JUSTICE THOMAS
join, concurring in part and concurring in the judgment.
National Bellas Hess, Inc. v.
Department of Revenue of
Ill., 386 U. S.
753 (1967), held that the Due Process and Commerce Clauses of
the Constitution prohibit a State from imposing the duty of use-tax
collection and payment upon a seller whose only connection with the
State is through common carrier or the United States mail. I agree
with the Court that the Due Process Clause holding of
Bellas
Hess should be overruled. Even before
Bellas Hess, we
had held, correctly I think, that state regulatory jurisdiction
could be asserted on the basis of contacts with the State through
the United States mail. See
Travelers Health Assn. v.
Virginia ex rel. State Corp. Comm'n, 339 U. S. 643, 646-650
(1950) (blue sky laws). It is difficult to discern any principled
basis for distinguishing between jurisdiction to regulate and
jurisdiction to tax. As an original matter, it might have been
possible to distinguish between jurisdiction to tax and
jurisdiction to compel collection of taxes as agent for the State,
but we have rejected that.
National Geographic Society v.
California Bd. of Equalization, 430 U. S. 551, 558
(1977);
Scrip to, Inc. v.
Carson, 362 U. S. 207, 211
(1960). I agree with the Court, moreover, that abandonment of
Bellas Hess' due process holding is compelled by reasoning
"[c]omparable" to that contained in our post-1967 cases dealing
with state jurisdiction to adjudicate.
Ante, at 308. I do
not understand this to mean that the due process standards for
320
Opinion of SCALIA, J.
adjudicative jurisdiction and those for legislative (or
prescriptive) jurisdiction are necessarily identical; and on that
basis I join Parts I, II, and III of the Court's opinion. Compare
Asahi Metal Industry Co. v.
Superior Court of Cal.,
Solano Cty., 480
U. S. 102 (1987), with
American Oil Co. v.
Neill,
380 U. S. 451
(1965).
I also agree that the Commerce Clause holding of
Bellas
Hess should not be overruled. Unlike the Court, however, I
would not revisit the merits of that holding, but would adhere to
it on the basis of
stare decisis. American Trucking Assns.,
Inc. v.
Smith, 496 U. S. 167, 204 (1990)
(SCALIA, J., concurring in judgment). Congress has the final say
over regulation of interstate commerce, and it can change the rule
of
Bellas Hess by simply saying so. We have long recognized
that the doctrine of
stare decisis has "special force" where
"Congress remains free to alter what we have done."
Patterson v.
McLean Credit Union, 491 U. S. 164, 172-173
(1989). See also
Hilton v.
South Carolina Public Railways
Comm'n, 502 U. S.
197, 202 (1991);
Illinois Brick Co. v.
Illinois,
431 U. S. 720,
736 (1977). Moreover, the demands of the doctrine are "at their
acme ... where reliance interests are involved."
Payne v.
Tennessee, 501
U. S. 808, 828 (1991). As the Court notes, "the
Bellas
Hess rule has engendered substantial reliance and has become
part of the basic framework of a sizable industry."
Ante, at
317.
I do not share JUSTICE WHITE'S view that we may disregard these
reliance interests because it has become unreasonable to rely upon
Bellas Hess. Post, at 331-332. Even assuming for the sake of
argument (I do not consider the point) that later decisions in
related areas are inconsistent with the principles upon which
Bellas Hess rested, we have never acknowledged that, but
have instead carefully distinguished the case on its facts. See,
e. g., D. H. Holmes Co. v.
McNamara, 486 U. S. 24, 33 (1988);
National Geographic Society, supra, at 559. It seems to me
important that we retain our ability-and, what comes to the same
thing, that
321
we maintain public confidence in our ability-sometimes to adopt
new principles for the resolution of new issues without abandoning
clear holdings of the past that those principles contradict. We
seemed to be doing that in this area. Having affirmatively
suggested that the "physical presence" rule could be reconciled
with our new jurisprudence, we ought not visit economic hardship
upon those who took us at our word. We have recently told lower
courts that "[i]f a precedent of this Court has direct application
in a case, yet appears to rest on reasons rejected in some other
line of decisions, [they] should follow the case which directly
controls, leaving to this Court the prerogative of overruling its
own decisions."
Rodriguez de Quijas v.
Shearson/American
Express, Inc., 490 U. S. 477, 484
(1989). It is strangely incompatible with this to demand that
private parties anticipate our overrulings. It is my view, in
short, that reliance upon a square, unabandoned holding of the
Supreme Court is
always justifiable reliance (though
reliance alone may not always carry the day). Finally, the
"physical presence" rule established in
Bellas Hess is not
"unworkable,"
Patterson, supra, at 173; to the contrary,
whatever else may be the substantive pros and cons of the rule, the
"bright-line" regime that it establishes, see
ante, at 314,
is unqualifiedly in its favor. JUSTICE WHITE'S concern that
reaffirmance of
Bellas Hess will lead to a flurry of
litigation over the meaning of "physical presence," see
post, at 331, seems to me contradicted by 25 years of
experience under the decision.
For these reasons, I concur in the judgment of the Court and
join Parts I, II, and III of its opinion.
JUSTICE WHITE, concurring in part and dissenting in part. Today
the Court repudiates that aspect of our decision in
National
Bellas Hess, Inc. v.
Department of Revenue of Ill.,
386 U. S. 753
(1967), which restricts, under the Due Process Clause of the
Fourteenth Amendment, the power of the States to impose use tax
collection responsibilities on out-
322
Opinion of WHITE, J.
of-state mail-order businesses that do not have a "physical
presence" in the State. The Court stops short, however, of giving
Bellas Hess the complete burial it justly deserves. In my
view, the Court should also overrule that part of
Bellas
Hess which justifies its holding under the Commerce Clause. I,
therefore, respectfully dissent from Part 1\1.
I
In Part IV of its opinion, the majority goes to some lengths to
justify the
Bellas Hess physical-presence requirement under
our Commerce Clause jurisprudence. I am unpersuaded by its
interpretation of our cases. In
Bellas Hess, the majority
placed great weight on the interstate quality of the mail-order
sales, stating that "it is difficult to conceive of commercial
transactions more exclusively interstate in character than the
mail-order transactions here involved."
Id., at 759. As the
majority correctly observes, the idea of prohibiting States from
taxing "exclusively interstate" transactions had been an important
part of our jurisprudence for many decades, ranging intermittently
from such cases as
Case of State Freight Tax, 15 Wall. 232,
279 (1873), through
Freeman v.
Hewit, 329 U. S. 249, 256
(1946), and
Spector Motor Service, Inc. v.
O'Connor,
340 U. S. 602
(1951). But though it recognizes that
Bellas Hess was
decided amidst an upheaval in our Commerce Clause jurisprudence, in
which we began to hold that "a State, with proper drafting, may tax
exclusively interstate commerce so long as the tax does not create
any effect forbidden by the Commerce Clause,"
Complete Auto
Transit, Inc. v.
Brady, 430 U. S. 274, 285 (1977), the
majority draws entirely the wrong conclusion from this period of
ferment.
The Court attempts to paint
Bellas Hess in a different
hue from
Freeman and
Spector because the former "did
not rely" on labeling taxes that had "direct" and "indirect"
effects on interstate commerce. See
ante, at 310. Thus, the
Court concludes,
Bellas Hess "did not automatically fall
with
Free-
323
man and its progeny" in our decision in
Complete
Auto. See
ante, at 311. I am unpersuaded by this attempt
to distinguish
Bellas Hess from
Freeman and
Spector, both of which were repudiated by this Court. See
Complete Auto, supra, at 288-289, and n. 15. What we
disavowed in
Complete Auto was not just the "formal
distinction between 'direct' and 'indirect' taxes on interstate
commerce,"
ante, at 310, but also the whole notion
underlying the
Bellas Hess physical-presence rule-that
"interstate commerce is immune from state taxation,"
Complete
Auto, supra, at 288.
The Court compounds its misreading by attempting to show that
Bellas Hess "is not inconsistent with
Complete Auto
and our recent cases."
Ante, at 311. This will be news to
commentators, who have rightly criticized
Bellas Hess.1
Indeed, the majority displays no small amount of audacity in
claiming that our decision in
National Geographic Society v.
California Bd. of Equalization, 430 U. S. 551, 559
(1977), which was rendered several weeks after
Complete
Auto, reaffirmed the continuing vitality of
Bellas Hess.
See
ante, at 311.
Our decision in that case did just the opposite.
National
Geographic held that the National Geographic Society was liable
for use tax collection responsibilities in California. The Society
conducted an out-of-state mail-order business similar to the one at
issue here and in
Bellas Hess, and in addition, maintained
two small offices in California that solicited advertisements for
National Geographic Magazine. The Society argued that its physical
presence in California was unrelated to its mail-order sales, and
thus that the
Bel-
1 See,
e. g., P. Hartman, Federal Limitations on
State and Local Taxation § 10.8 (1981); Hartman, Collection of Use
Tax on Out-of-State Mail-Order Sales, 39 Vand. L. Rev. 993,
1006-1015 (1986); Hellerstein, Significant Sales and Use Tax
Developments During the Past Half Century, 39 Vand. L. Rev. 961,
984-985 (1986); McCray, Overturning
Bellas Hess: Due Process
Considerations, 1985 B. Y. U. L. Rev. 265, 288-290; Rothfeld, Mail
Order Sales and State Jurisdiction to Tax, 53 Tax Notes 1405,
1414-1418 (1991).
324
Opinion of WHITE, J.
las Hess rule compelled us to hold that the tax
collection responsibilities could not be imposed. We expressly
rejected that view, holding that the "requisite nexus for requiring
an out-of-state seller [the Society] to collect and pay the use tax
is not whether the duty to collect the use tax relates to the
seller's activities carried on within the State, but simply whether
the facts demonstrate 'some definite link, some minimum connection,
between (the State and) the
person ... it seeks to tax.'"
430 U. S., at 561 (citation omitted).
By decoupling any notion of a
transactional nexus from
the inquiry, the
National Geographic Court in fact
repudiated the free trade rationale of the
Bellas Hess
majority. Instead, the
National Geographic Court relied on a
due process-type minimum contacts analysis that examined whether a
link existed between the seller and the State wholly apart from the
seller's in-state transaction that was being taxed. Citations to
Bellas Hess notwithstanding, see 430 U. S., at 559, it is
clear that rather than adopting the rationale of
Bellas
Hess, the
National Geographic Court was instead politely
brushing it aside. Even were I to agree that the free trade
rationale embodied in
Bellas Hess' rule against taxes of
purely interstate sales was required by our cases prior to 1967,
therefore, I see no basis in the majority's opening premise that
this substantive underpinning of
Bellas Hess has not since
been disavowed by our cases.2
2 Similarly, I am unconvinced by the majority's reliance on
subsequent decisions that have cited
Bellas Hess. See
ante, at 311. In
D. H. Holmes Co. v.
McNamara,
486 U. S. 24, 33
(1988), for example, we distinguished
Bellas Hess on the
basis of the company's "significant economic presence in Louisiana,
its many connections with the State, and the direct benefits it
receives from Louisiana in conducting its business." We then went
on to note that the situation presented was much more analogous to
that in
National Geographic Society v.
California Bd. of
Equalization, 430
U. S. 551 (1977). See 486 U. S., at 33-34. In
Commonwealth
Edison Co. v.
Montana, 453 U. S. 609, 626
(1981), the Court cited
Bellas Hess not to revalidate the
physical-presence requirement, but rather to establish that a
"nexus" must exist to justify imposition of a state tax. And
finally, in
325
II
The Court next launches into an uncharted and treacherous foray
into differentiating between the "nexus" requirements under the Due
Process and Commerce Clauses. As the Court explains: "Despite the
similarity in phrasing, the nexus requirements of the Due Process
and Commerce Clauses are not identical. The two standards are
animated by different constitutional concerns and policies."
Ante, at 312. The due process nexus, which the Court
properly holds is met in this case, see
ante, at Part III,
"concerns the fundamental fairness of governmental activity."
Ante, at 312. The Commerce Clause nexus requirement, on the
other hand, is "informed not so much by concerns about fairness for
the individual defendant as by structural concerns about the
effects of state regulation on the national economy."
Ibid.
Citing
Complete Auto, the Court then explains that the
Commerce Clause nexus requirement is not "like due process'
'minimum contacts' requirement, a proxy for notice, but rather a
means for limiting state burdens on interstate commerce."
Ante, at 313. This is very curious, because parts two and
three of the
Complete Auto test, which require fair
apportionment and nondiscrimination in order that interstate
commerce not be unduly burdened, now appear to become the animating
features of the nexus requirement, which is the first prong of the
Complete Auto inquiry. The Court freely acknowledges that
there is no authority for this novel interpretation of our cases
and that we have never before found, as we do in this case,
sufficient contacts for due process purposes but an insufficient
nexus under the Commerce Clause. See
ante, at 313-314, and
n. 6.
The majority's attempt to disavow language in our opinions
acknowledging the presence of due process require-
Mobil Oil Corp. v.
Commissioner of Taxes ofVt.,
445 U. S. 425,
437 (1980), the Court cited
Bellas Hess for the due process
requirements necessary to sustain a tax. In my view, these
citations hardly signal the continuing support of
Bellas
Hess that the majority seems to find persuasive.
326
Opinion of WHITE, J.
ments in the
Complete Auto test is also unpersuasive. See
ante, at 313-314, n. 7 (citing
Trinova Corp. v.
Michigan Dept. of Treasury, 498 U. S. 358, 373
(1991)). Instead of explaining the doctrinal origins of the
Commerce Clause nexus requirement, the majority breezily announces
the rule and moves on to other matters. See
ante, at
313-314. In my view, before resting on the assertion that the
Constitution mandates inquiry into two readily distinct "nexus"
requirements, it would seem prudent to discern the origins of the
"nexus" requirement in order better to understand whether the
Court's concern traditionally has been with the fairness of a
State's tax or some other value.
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. In explaining
the sources of the four-part inquiry in
Complete Auto, the
Court relied heavily on Justice Rutledge's separate concurring
opinion in
Freeman v.
Hewit, 329 U. S. 249 (1946), the
case whose majority opinion the
Complete Auto Court was in
the process of comprehensively disavowing. Instead of the
formalistic inquiry into whether the State was taxing interstate
commerce, the
Complete Auto Court adopted the more
functionalist approach of Justice Rutledge in
Freeman. See
Complete Auto, 430 U. S., at 280-281. In conducting his
inquiry, Justice Rutledge used language that by now should be
familiar, arguing that a tax was unconstitutional if the activity
lacked a sufficient connection to the State to give "jurisdiction
to tax,"
Freeman, supra, at 271; or if the tax discriminated
against interstate commerce; or if the activity was subjected to
multiple tax burdens. 329 U. S., at 276-277. Justice Rutledge later
refined these principles in
Memphis Natural Gas Co. v.
Stone, 335 U.
S. 80 (1948), in which he described the principles that the
Complete Auto Court would later substantially adopt: "[I]t
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
327
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." 335
U. S., at 96-97 (concurring opinion) (footnotes omitted).
By the time the Court decided
Northwestern States Portland
Cement Co. v.
Minnesota, 358 U. S. 450 (1959),
Justice Rutledge was no longer on the Court, but his view of the
nexus requirement as grounded in the Due Process Clause was
decisively adopted. In rejecting challenges to a state tax based on
the Due Process and Commerce Clauses, the Court stated: "The taxes
imposed are levied only on that portion of the taxpayer's net
income which arises from its activities within the taxing State.
These activities form a sufficient 'nexus between such a tax and
transactions within a state for which the tax is an exaction.'"
Id., at 464 (citation omitted). The Court went on to observe
that "[i]t strains reality to say, in terms of our decisions, that
each of the corporations here was not sufficiently involved in
local events to forge 'some definite link, some minimum connection'
sufficient to satisfy due process requirements."
Id., at
464-465 (quoting
Miller Brothers Co. v.
Maryland,
347 U. S. 340,
344-345 (1954)). When the Court announced its fourpart synthesis in
Complete Auto, the nexus requirement was definitely
traceable to concerns grounded in the Due Process Clause, and not
the Commerce Clause, as the Court's discussion of the doctrinal
antecedents for its rule made clear. See
Complete Auto,
supra, at 281-282, 285. For the Court now to assert that our
Commerce Clause jurisprudence supports a separate notion of nexus
is without precedent or explanation.
Even were there to be such an independent requirement under the
Commerce Clause, there is no relationship between the
physical-presence/nexus rule the Court retains and Commerce Clause
considerations that allegedly justify it. Perhaps long ago a
seller's "physical presence" was a sufficient part of a trade to
condition imposition of a tax on
328
Opinion of WHITE, J.
such presence. But in today's economy, physical presence
frequently has very little to do with a transaction a State might
seek to tax. Wire transfers of money involving billions of dollars
occur every day; purchasers place orders with sellers by fax,
phone, and computer linkup; sellers ship goods by air, road, and
sea through sundry delivery services without leaving their place of
business. It is certainly true that the days of the door-to-door
salesperson are not gone. Nevertheless, an out-of-state direct
marketer derives numerous commercial benefits from the State in
which it does business. These advantages include laws establishing
sound local banking institutions to support credit transactions;
courts to ensure collection of the purchase price from the seller's
customers; means of waste disposal from garbage generated by
mail-order solicitations; and creation and enforcement of consumer
protection laws, which protect buyers and sellers alike, the former
by ensuring that they will have a ready means of protecting against
fraud, and the latter by creating a climate of consumer confidence
that inures to the benefit of reputable dealers in mail-order
transactions. To create, for the first time, a nexus requirement
under the Commerce Clause independent of that established for due
process purposes is one thing; to attempt to justify an
anachronistic notion of physical presence in economic terms is
quite another.
III
The illogic of retaining the physical-presence requirement in
these circumstances is palpable. Under the majority's analysis, and
our decision in
National Geographic, an out-ofstate seller
with one salesperson in a State would be subject to use tax
collection burdens on its entire mail-order sales even if those
sales were unrelated to the salesperson's solicitation efforts. By
contrast, an out-of-state seller in a neighboring State could be
the dominant business in the putative taxing State, creating the
greatest infrastructure burdens and undercutting the State's home
companies by its compara-
329
tive price advantage in selling products free of use taxes, and
yet not have to collect such taxes if it lacks a physical presence
in the taxing State. The majority clings to the physical-presence
rule not because of any logical relation to fairness or any
economic rationale related to principles underlying the Commerce
Clause, but simply out of the supposed convenience of having a
bright-line rule. I am less impressed by the convenience of such
adherence than the unfairness it produces. Here, convenience should
give way. Cf.
Complete Auto, supra, at 289, n. 15 ("We
believe, however, that administrative convenience ... is
insufficient justification for abandoning the principle that
'interstate commerce may be made to pay its way' ").
Also very questionable is the rationality of perpetuating a rule
that creates an interstate tax shelter for one form of
business-mail-order sellers-but no countervailing advantage for its
competitors. If the Commerce Clause was intended to put businesses
on an even playing field, the majority's rule is hardly a way to
achieve that goal. Indeed, arguably even under the majority's
explanation for its "Commerce Clause nexus" requirement, the
unfairness of its rule on retailers other than direct marketers
should be taken into account. See
ante, at 312 (stating that
the Commerce Clause nexus requirement addresses the "structural
concerns about the effects of state regulation on the national
economy"). I would think that protectionist rules favoring a
$180-billion-a-year industry might come within the scope of such
"structural concerns." See Brief for State of New Jersey as
Amicus Curiae 4.
IV
The Court attempts to justify what it rightly acknowledges is an
"artificial" rule in several ways. See
ante, at 315. First,
it asserts that the
Bellas Hess principle "firmly
establishes the boundaries oflegitimate state authority to impose a
duty to collect sales and use taxes and reduces litigation
concerning those taxes."
Ante, at 315. It is very
doubtful,
330
Opinion of WHITE, J.
however, that the Court's opinion can achieve its aims.
Certainly our cases now demonstrate two "bright-line" rules for
mail-order sellers to follow: Under the physical-presence
requirement reaffirmed here, they will not be subjected to use tax
collection if they have no physical presence in the taxing State;
under the
National Geographic rule, mail-order sellers will
be subject to use tax collection if they have some presence in the
taxing State even if that activity has no relation to the
transaction being taxed. See
National Geographic, 430 U. S.,
at 560-562. Between these narrow lines lies the issue of what
constitutes the requisite "physical presence" to justify imposition
of use tax collection responsibilities.
Instead of confronting this question head on, the majority
offers only a cursory analysis of whether Quill's physical presence
in North Dakota was sufficient to justify its use tax collection
burdens, despite briefing on this point by the State.3 See Brief
for Respondent 45-47. North Dakota contends that even should the
Court reaffirm the
Bellas Hess rule, Quill's physical
presence in North Dakota was sufficient to justify application of
its use tax collection law. Quill concedes it owns software sent to
its North Dakota customers, but suggests that such property is
insufficient to justify a finding of nexus. In my view, the
question of Quill's actual physical presence is sufficiently close
to cast doubt on the majority's confidence that it is propounding a
truly "brightline" rule. Reasonable minds surely can, and will,
differ over what showing is required to make out a "physical
pres-
3 Instead of remanding for consideration of whether Quill's
ownership of software constitutes sufficient physical presence
under its new Commerce Clause nexus requirement, the majority
concludes as a matter of law that it does not. See
ante, at
315, n. 8. In so doing, the majority rebuffs North Dakota's
challenge without setting out any clear standard for what meets the
Commerce Clause physical-presence nexus standard and without
affording the State an opportunity on remand to attempt to develop
facts or otherwise to argue that Quill's presence is
constitutionally sufficient.
331
ence" adequate to justify imposing responsibilities for use tax
collection. And given the estimated loss in revenue to States of
more than $3.2 billion this year alone, see Brief for Respondent 9,
it is a sure bet that the vagaries of "physical presence" will be
tested to their fullest in our courts.
The majority next explains that its "bright-line" rule
encourages "settled expectations" and business investment.
Ante, at 316. Though legal certainty promotes business
confidence, the mail-order business has grown exponentially despite
the long line of our
post-Bellas Hess precedents that
signaled the demise of the physical-presence requirement. Moreover,
the Court's seeming but inadequate justification of encouraging
settled expectations in fact connotes a substantive economic
decision to favor out-of-state direct marketers to the detriment of
other retailers. By justifying the
Bellas Hess rule in terms
of "the mail-order industry's dramatic growth over the last quarter
century,"
ante, at 316, the Court is effectively imposing
its own economic preferences in deciding this case. The Court's
invitation to Congress to legislate in this area signals that its
preferences are not immutable, but its approach is different from
past instances in which we have deferred to state legislatures when
they enacted tax obligations on the States' shares of interstate
commerce. See,
e. g., Goldberg v.
Sweet, 488 U. S. 252 (1989);
Commonwealth Edison Co. v.
Montana, 453 U. S. 609 (1981).
Finally, the Court accords far greater weight to
stare
decisis than was given to that principle in
Complete
Auto itself. As that case demonstrates, we have not been averse
to overruling our precedents under the Commerce Clause when they
have become anachronistic in light of later decisions. See
Complete Auto, 430 U. S., at 288-289. One typically invoked
rationale for
stare decisis-an unwillingness to upset
settled expectations-is particularly weak in this case. It is
unreasonable for companies such as Quill to invoke a "settled
expectation" in conducting affairs without being taxed. Neither
Quill nor any of its
amici point to any investment deci-
332
Opinion of WHITE, J.
sions or reliance interests that suggest any unfairness in
overturning
Bellas Hess. And the costs of compliance with
the rule, in light of today's modern computer and software
technology, appear to be nominal. See Brief for Respondent 40;
Brief for State of New Jersey as
Amicus Curiae 18. To the
extent Quill developed any reliance on the old rule, I would submit
that its reliance was unreasonable because of its failure to comply
with the law as enacted by the North Dakota State Legislature.
Instead of rewarding companies for ignoring the studied judgments
of duly elected officials, we should insist that the appropriate
way to challenge a tax as unconstitutional is to pay it (or in this
case collect it and remit it or place it in escrow) and then sue
for declaratory judgment and refund.4 Quill's refusal to comply
with a state tax statute prior to its being held unconstitutional
hardly merits a determination that its reliance interests were
reasonable.
The Court hints, but does not state directly, that a basis for
its invocation of
stare decisis is a fear that overturning
Bellas Hess will lead to the imposition of retroactive
liability.
Ante, at 317, 318, n. 10. See
James B. Beam
Distilling Co. v.
Georgia, 501 U. S. 529 (1991). As
I thought in that case, such fears are groundless because no one
can "sensibly insist on automatic retroactivity for any and all
judicial decisions in the federal system."
Id., at 546
(WHITE, J., concurring in judgment). Since we specifically limited
the question on which certiorari was granted in order
not to
consider the potential retroactive effects of overruling
Bellas
Hess, I believe we should leave that issue for another day. If
indeed fears about retroactivity are driving the Court's decision
in this case, we would be better served, in my view, to address
4 For the federal rule, see
Flora v.
United
States, 357 U. S.
63 (1958); see generally J. Mertens, Law of Federal Income
Taxation § 58A.05 (1992). North Dakota appears to follow the same
principle. See
First Bank of Buffalo v.
Conrad, 350
N. W. 2d 580, 586 (N. D. 1984) (citing 72 Am. Jur. 2d § 1087).
333
those concerns directly rather than permit them to infect our
formulation of the applicable substantive rule.
Although Congress can and should address itself to this area of
law, we should not adhere to a decision, however right it was at
the time, that by reason of later cases and economic reality can no
longer be rationally justified. The Commerce Clause aspect of
Bellas Hess, along with its due process holding, should be
overruled.
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