SUPREME COURT OF THE UNITED STATES

No. 91-194

QUILL CORPORATION, PETITIONER v. NORTH DAKOTA by and through its

TAX COMMISSIONER, HEIDI HEITKAMP on writ of certiorari to the

supreme court of north dakota

[May 26, 1992]

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, (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 Soc.

v. California Bd. of Equalization, 430 U. S. 551, 558 (1977);

Scripto, Inc. v. Carson, 362 U. S. 207, 211 (1960). I agree with

the Court, moreover, that abandonment of Bellas Hess's 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 8. I do not understand this to mean

that the due process standards for 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, 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, 172173 (1989). See also Hilton v. South Carolina Pub.

Railways Comm'n, 502 U. S. ___, ___ (1991) (slip op., at 4);

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. ___, ___ (1991) (slip op., at 18). As the Court notes, the

Bellas Hess rule has engendered substantial reliance and has

become part of the basic framework of a sizeable industry, ante,

at 17.

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 1112. 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 Soc., supra, at 559. It seems to me

important that we retain our ability" and, what comes to the same

thing, that 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 1516, 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 10, 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-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 IV.

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." Bellas Hess, supra, 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 1011. Thus, the Court concludes, Bellas

Hess "did not automatically fall with Freeman and its progeny" in

our decision in Complete Auto. See id., at 11. 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 288289, 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

10, 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

11. This will be news to commentators, who have rightly

criticized Bellas Hess. 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 11.

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 Bellas 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.

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,

"[d]espite 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 12.	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 12. 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 13.

This is very curious, because parts two and three of the Complete

Auto test, which require fair apportionment and nondiscrimination

in order that inter-state 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 1314, and n.6.

The majority's attempt to disavow language in our opinions

acknowledging the presence of due process requirements in the

Complete Auto test is also unpersuasive. See ante, at 1314, n. 6

(citing Trinova Corp. v. Michigan Dept. of Treasury, 498 U. S.

___, ___ (1991) (slip op., at "")). 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 1314. 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

280281. 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," Free man, 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 276277. 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 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 9697

(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 that "[t]he 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 464465 (quoting Miller Bros. v. Maryland, 347 U. S. 340,

344345 (1954)). When the Court announced its four-part 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

anteced- ents for its rule made clear. See Complete Auto, supra,

at 281282, 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 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 insure

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- of-state 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 comparative 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 12

(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 15. First, it

asserts that the Bellas Hess principle "firmly establishes the

boundaries of legitimate state taxing authority and reduces

litigation concerning state taxation." Ibid. It is very

doubtful, 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

560562. 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. See Brief

for Respondent 4547. 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 "bright-line" rule. Reasonable minds surely

can, and will, differ over what showing is required to make out a

"physical presence" adequate to justify imposing responsibil-

ities 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 1516.

Though legal certainty promotes business confidence, the mail

order business has grown exponentially despite the long line of

our post Bellas Hess precedents that signalled 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 16, 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 State's share 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 288289. 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 decisions 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

Respondents 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.

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 18, and n.10. See James B. Beam Distilling Co. v. Georgia,

501 U.S. "" (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 ___ (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 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.