May 26, 2017 marked the 25th anniversary of the U.S. Supreme Court decision of Quill vs North Dakota. (“Quill”). This decision held that Quill, the office supply company, did not have to charge North Dakota sales tax on the mail order sales it sent to customers in North Dakota because Quill did not have a sufficient physical presence or connection with the state of North Dakota. The Court held that Quill had “due process” nexus with North Dakota which requires only an intentional effort to market to North Dakota customers. However, and this is the important part, the Court concluded that Quill DID NOT have ‘commerce clause’ nexus with North Dakota which is required before the state can compel Quill, or any other out-of-state seller, to collect sales tax unless there is some minimal physical presence in that state. There must be some physical connection with the taxing state before ‘commerce clause’ nexus is established in that state. The Court made it clear that Congress holds the key to solving this problem because the matter is governed by the commerce clause of the U.S. Constitution. The Constitution gives Congress absolute authority over all matters of interstate commerce.

Time does not heal all wounds. For 25 years the states have been forced to live with this decision which they argue has cost them billions of dollars in sales tax revenue. They have pulled out all the stops to stretch the Quill ruling as far as they can in an effort to capture as many remote sellers as possible for purposes of remitting back tax and collecting future tax. For 25 years businesses and practitioners have been forced to navigate the ever changing state tax landscape on what states consider nexus creating activities and balance those requirements against the Quill ruling.

Some commentators (mostly state tax officials) say it’s time to say ‘goodbye’ to Quill. They argue that the decision is old and can’t possibly apply to the current e-commerce model. While the way remote business is conducted has changed dramatically in 25 years, the Constitution has not changed and, the last time I looked, the commerce clause was still there. The Supreme Court did not issue its Quill decision based on the method of marketing used by Quill. Rather, the Court held that unless the seller has some physical connection with the taxing state, the taxing state cannot require the seller to collect their sales tax. This conclusion was not conditional on the method of sales solicitation used by the seller.

Federal Legislation

Almost immediately after the Quill decision was issued, the states began lobbying Congress to quickly remedy this outrageous conclusion. Bills were drafted and introduced but nothing happened. For 25 years (13 sessions of Congress) no meaningful advancement has been made at the Congressional level to give the states the authority they want to force every remote business, regardless of their connection with their state, to register and collect sales tax on every sale made to customers in their state. Even if Congress had given these states such authority, it is unlikely that states would have the ability to capture every business that they want to register in their state.

Over 15 years ago, 20 states gathered to form the Streamlined Sales Tax Program (“SSTP”). Their thinking was that if the states could form a uniform system of rules and processes which would make compliance easier for these out-of-state retailers, Congress would have no choice but to pass legislation that overturns Quill. 15 years have passed and the SSTP has taken on a life of its own, well beyond what it was designed to do. Despite the SSTP, there is still no federal legislation.

Proposed legislation has included bills that would give states unfettered authority to tax any business on any sale made into their state and bills that would make permanent the Quill decision. Still, nothing has happened and there is no real sense of momentum that I can tell for any legislation to pass.

State Response

For the first 15 years after the Quill decision was issued, the states focused their collective efforts on getting various types of federal legislation passed to undue the harm caused by Quill.  After 15 frustrating years, the states quickly realized that they would need to take matters into their own hands. States began passing legislation describing ‘affiliate nexus’, ‘click through nexus’, and ‘economic nexus’ and various bills that require sellers to notify customers of their requirement to pay use tax on internet purchases. There has also been some litigation on these matters and, as expected, there is a mixed bag of results. Some state courts held the ‘click through nexus’ legislation to be constitutional while other state courts held them to be unconstitutional. There was simply no universal momentum that the states could use to force e-commerce and other remote sellers to comply with their sales tax laws.

Most recently, states like Alabama and South Dakota passed laws generously known as ‘economic nexus’ laws. The expressed goal is to force companies to challenge these laws (at their own expense) so that the state can force the case before the Supreme Court in hopes of overturning Quill. So far, no state level court has held these laws to be legal. The affected taxpayers, though, have incurred substantial legal fees to fight the illegal assessments issued by these states. Despite these losses, the states are determined to fight this battle to the Supreme Court. But then what?

The collective wisdom from many state tax administrators and tax organizations is that the Supreme Court will automatically realize the error of their way in 1992 when it issued the Quill decision and overwhelmingly sustain these economic nexus rules. Nothing could be further from the truth. The Constitution in 2017 is the same as it was in 1992. The Commerce Clause has not changed in any way that would somehow allow the Court to easily overturn Quill. There is no assurance that the Court would even consider these appeals let alone rule in favor of the states. All the while, several taxpayers are incurring legal fees to fight these matters. The state of Alabama should be forced to pay the legal fees if it loses this fight.


After 25 years since the Quill decision was disclosed, the standard of what creates nexus for sales tax has changed very little. However, the way remote business is done in 2017 is dramatically different than the way it was done in 1992. This change is causing many businesses to unwittingly create nexus in states under the rules outlined in Quill. In 1992 it would have been hard to imagine the network of virtual retailers, suppliers, shippers, and order processors in place in 2017 that support the $100 billon annual e-commerce retail sales industry. What the states may not be aware of, though, is that many large and small e-commerce companies have registered and are collecting and remitting sales tax in states where they have nexus based on the physical nexus standard outlined in Quill.   The rate of compliance may not be as fast as the states would like but many of these volunteer filers are companies that the states would have no way of identifying or contacting. Yet, because these companies have some type of physical presence in a taxing state, they are stepping forward to register and collect tax. Some, even, are paying back taxes due for prior years.

With no short-term solution to the Quill physical presence nexus standards and with little legal support to uphold the states’ attempt to pass and enforce draconian nexus legislation, it may be time for the states to adopt a business focused approach so that companies that want to register and want to come forward can do so without the needless compliance requirements best reserved for companies with physical locations in the state. Further, if states would forgive back taxes, they would likely be overrun with new registrations from companies that want to comply but can’t overcome the historical liability issues.

Even if federal legislation that is favorable to the states was passed or if Quill were overturned, there will never be 100 percent compliance on remote commerce sales tax compliance. The states need to be adopting new tax systems that make it easier for these sellers to register and collect the tax that is due on sales made to states where they have sales. Unnecessary Secretary of State and bonding requirements must to be eliminated from remote seller registration applications. There also needs to be a way for foreign sellers to register without incurring a wide variety of costs just to get permission to collect and pay the tax. In short, the states may gain more ground and revenue by implementing systems that are friendlier to the significant number of e-commerce companies that want to register and collect sales tax on the sales they make to a wide number of states. In some cases, the state sales tax policies and procedures, and not Quill, may be the most significant obstacle preventing states from collecting more sales tax.


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