The Supreme Court/The Supreme Court.iso/pc/ascii/1991/91_0194/91_0194.zx

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SUPREME COURT OF THE UNITED STATES
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No. 91-194
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QUILL CORPORATION, PETITIONER v. NORTH
DAKOTA by and through its TAX COMMIS-
SIONER, HEIDI HEITKAMP
on writ of certiorari to the supreme court of
north dakota
[May 26, 1992]

  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 require-
ment 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 exclu-
sively 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 10-11.  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 288-289, and n.15.  What we disavowed in Com-
plete 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 repudiat-
ed 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 underpin-
ning of Bellas Hess has not since been disavowed by our
cases.
                           II
  The Court next launches into an uncharted and treacher-
ous foray into differentiating between the ``nexus'' require-
ments 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 13-14, 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 unpersua-
sive.  See ante, at 13-14, 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 13-14.  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,'' 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 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 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 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 transac-
tions 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 Bros. v.
Maryland, 347 U. S. 340, 344-345 (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
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
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 transac-
tions; 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 require-
ment 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 advan-
tage 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 acknowledg-
es 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 Nation-
al 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 consti-
tutes 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 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 ``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 15-16.  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 prefer-
ences in deciding this case.  The Court's invitation to
Congress to legislate in this area signals that its preferenc-
es are not immutable, but its approach is different from
past instances in which we have deferred to state legisla-
tures 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. Mon-
tana, 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 unwilling-
ness 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 Distill-
ing 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.