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Limitations on States' Jurisdiction to Impose Sales and Use Taxes (Portfolio 1420)

Product Code: TPOR44
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Limitations on States' Jurisdiction to Impose Sales and Use Taxes, written by Maryann B. Gall and Laura A. Kulwicki  both of Jones Day, explores the constitutional limitations imposed by the Commerce Clause, Due Process Clause, Equal Protection Clause, and First Amendment as they apply in the context of state sales and use taxation. Providing an historical background on federal legislation, this Portfolio examines legislative efforts — including the fallacy of the “fairness” rationale — pursued under the state jurisdiction-to-tax umbrella. It also addresses the constitutional restrictions that limit the states' ability to compel out-of-state sellers to collect use tax on mail order sales and other issues concerning the taxation of mail order and out-of-town sellers.  

In addition, this Portfolio discusses the constitutional requirement of “substantial nexus” and the United States Supreme Court and state court interpretations of it at length. It reviews 11 pre-Quill state nexus cases and more than a dozen post-Quill cases and discusses state attempts to legislatively “overrule” the effects of Quill and Bellas Hess through the passage of state anti-Bellas Hess statutes and proposed federal legislation. 

Finally, Limitations on States' Jurisdiction to Impose Sales and Use Taxes discusses the creation of nexus through third parties, such as through the use of in-state agents or representatives, and affiliate nexus. Also reviewed are relevant cases addressing the creation of nexus through occasional or sporadic in-state presence. 

Limitations on States' Jurisdiction to Impose Sales and Use Taxes allows you to benefit from:

  • Hundreds of hours of original research on specific tax planning topics from leading practitioners in this area.
  • Invaluable practice documents including tables, charts and lists.
  • Plain-English guidance from world-class experts.
  • Real-world and in-depth analysis that lets you explore various options.
  • Time-saving access to relevant sections of tax laws, regulations, court cases, IRS documents and more.
  • Alternative approaches to both common and unique tax scenarios.

This Portfolio is part of the Premier State Tax Library, a comprehensive series, which covers major state tax transactions and issues with expert, in-depth analysis, and offers commentary on a wide range of multi-state and state-specific taxation topics, including Sales and Use, Corporate Income, Individual Income, Property, Gross Receipts, Limitations on States' Authorities to Tax, Credits and Incentives, Electronic Commerce, Mergers and Acquisitions, Procedure and Administration, Special Industries, and more.

 

Detailed Analysis

1420.01. INTRODUCTION

1420.02. CONSTITUTIONAL LIMITATIONS ON USE TAX COLLECTION BY OUT–OF–STATE SELLERS

A. Overview

B. General Limitations on State Jurisdiction to Tax: The Nexus Requirement

C. “Nexus” As Applied By The Courts: The Requirement of Physical Presence

1. Border Sales

2. Mail Order Solicitation Cases

a. Sears and Montgomery Ward

b. Bellas Hess

c. Quill Corporation v. North Dakota

3. Non–Sales or –Use Tax Nexus Cases

a. United States Supreme Court Decisions

b. State Court Decisions

1420.03. THE QUILL DECISION: REVISITING THE VITALITY OF BELLAS HESS

A. In General

B. Bellas Hess: Commerce Clause or Due Process Clause

C. “Economic” Nexus

1. The Bellas Hess Dissent

2. Adjudicative Jurisdiction Decisions

a. In General

b. U.S. Supreme Court Accepts States' Analogy to Adjudicative Jurisdiction

3. Other U.S. Supreme Court Decisions: Goldberg v. Sweet and D.H. Holmes Co. v. McNamara

4. D.H. Holmes Co. Trends - Use Tax on Catalogs

D. The Impact of Industry Changes on State Government

1420.04. LEGISLATIVE EFFORTS

Introductory Material

A. Historical Background: Federal Legislation Regarding State Jurisdiction to Tax

B. Pre–Quill Federal Legislative Efforts

C. Federal Legislative Efforts After Quill

D. The Fallacy of the “Fairness” Rationale

E. State Legislation

1. Anti–Bellas Hess Laws

a. Alabama

b. Arizona

c. Arkansas

d. California

e. Colorado

f. Connecticut

g. Florida

h. Georgia

i. Idaho

j. Illinois

k. Indiana

l. Iowa

m. Kansas

n. Kentucky

o. Louisiana

p. Massachusetts

q. Minnesota

r. Mississippi

s. Missouri

t. Nebraska

u. Nevada

v. New Mexico

w. New York

x. North Carolina

y. North Dakota

z. Ohio

aa. Oklahoma

bb. Rhode Island

cc. South Carolina

dd. South Dakota

ee. Tennessee

ff. Texas

gg. Utah

hh. Vermont

ii. Virginia

jj. Washington

kk. West Virginia

2. Other States

1420.05. PRE–QUILL STATE NEXUS CASES

Introductory Material

A. L.L. Bean Inc. v. Pennsylvania Department of Revenue

B. Bloomingdale's By Mail, Ltd. v. Pennsylvania Department of Revenue

C. District Photo Inc. v. California State Board of Equalization

D. Scholastic Book Clubs Inc. v. California State Board of Equalization

E. Cally Curtis Co. v. Groppo

F. SFA Folio Collections Inc. v. Bannon

G. Pearle Health Services Inc. v. Tennessee Commissioner of Revenue

H. Lands' End Inc. v. California State Board of Equalization

I. B. I. Moyle Associates Inc. v. Wisconsin Dept. of Revenue

J. Direct Marketing Association v. Bennett, et al.

K. L.L. Bean Inc. v. Bracey

1420.06. POST–QUILL DEVELOPMENTS: APPLICATION OF NEXUS PRINCIPLES IN STATE COURT

A. In General

B. Affiliate Nexus

1. Current Inc. v. California State Board of Equalization

2. G.P. Group Inc. v. Missouri Director of Revenue

3. The Country Shop Inc. v. Limbach

4. SFA Folio Collections Inc. v. Tracy

C. Use of In–State Agents or Representatives

1. In–State Employees

a. Carapace Inc. v. Limbach

b. Other Cases

2. In–State “Volunteers” and Unpaid Representatives

a. Educational Reading Service Book Fairs Inc. v. California Board of Equalization

b. In re Scholastic Book Clubs Inc.

c. Troll Book Clubs Inc. v. Pledger

d. Troll Book Clubs Inc. v. Tracy

e. Other Cases

D. Occasional or Sporadic In–State Presence

1. Cole Brothers Circus Inc. v. Huddleston

2. Matter of Orvis Company Inc.

3. Matter of Vermont Information Processing Inc.

4. Matter of NADA Services Corp.

5. Brown's Furniture Inc v. Wagner

6. Share International Inc. v. Florida Department of Revenue

7. Care Computer Systems Inc. v. Arizona Department of Revenue

8. Town Crier Inc. v. Illinois Department of Revenue

9. In re Intercard Inc.

E. Other “Substantial Nexus” Situations

1. Agents and Independent Contractors

2. Occasional Visits

3. Trade Show Nexus

4. Transactional Nexus

5. Voluntary Registration

6. Drop Shipments

7. Provision of In–State Warranty Services

8. Internet Sales and Electronic Commerce

1420.07. ATTORNEYS' FEES

Working Papers

Table of Worksheets

Worksheet 1 Quill Corp. v. North Dakota, 112 S. Ct. 1904 (1992)

Opinion

Worksheet 2 National Bellas Hess, Inc. v. Department of Revenue of the State of Illinois, 386 U.S. 753 (1967)

Opinion

Worksheet 3 Multistate Tax Commission Nexus Bulletin 95–1 Computer Company's Provision of In–State Repair Services Creates Nexus

Worksheet 4 2008 BNA Survey - Sales Tax Nexus

Bibliography

Bibliography

Maryann Gall
Maryann B. Gall is a tax partner with Jones, Day, Reavis & Pogue, resident in the Columbus, Ohio office. Mrs. Gall's practice is concentrated in the areas of state and local taxation with emphasis on tax litigation. She graduated from The Ohio State University in 1967 and received her law degree from OSU's College of Law in 1970, with honors. Mrs. Gall was an Assistant Attorney General in the Taxation Section of the Ohio Attorney General's Office from 1971 until 1974, when she was appointed Chief of the Taxation Section. When she represented the Ohio Tax Commissioner, she argued over 50 cases before the Supreme Court of Ohio. From 1975 to 1976, she was Chief Counsel to the Ohio Attorney General. Thereafter, she has been in private practice, and since 1983, has been a partner at Jones Day, specializing in state tax matters. She is the editor of Banks Baldwin Law Publishing Company's Ohio Tax Service, a quarterly Ohio tax publication, and serves as the editor of the Taxation Chapter (Title 57) of the Ohio Revised Code. Mrs. Gall is a member of the CCH State Tax Advisory Board, the Board of the New York University Institute on State & Local Taxation, and the National Institute on State & Local Taxation. She is a frequent lecturer for the Committee on State Taxation, the Institute of Property Taxation, and Tax Executives Institute. 
Laura Kulwicki
Laura A. Kulwicki was special counsel to Jones, Day, Reavis & Pogue in Cleveland, Ohio when this Portfolio was originally written. Ms. Kulwicki received her B.A. degree from The Ohio State University in 1984 and her J.D., with honors, from The Ohio State University in 1987. A member of the American Bar Association, Ohio State Bar Association, and Cleveland Bar Association, Ms. Kulwicki has published numerous articles on state taxation which have appeared in such publications as State Tax Notes, CCH State Tax Review, and Banks Baldwin Ohio Tax Service. She also has lectured for the Council On State Taxation and other local tax organizations.