Wednesday, February 23, 2011

D.C. Circuit Cites Quill as Instructive in Analyzing the Due Process Ramifications of a National Tax Scheme

The Supreme Court’s analysis in Quill Corp. v. North Dakota, 504 U.S. 298 (1992) has been cited favorably again, this time with regard to a Due Process challenge to a federal statute. On February 18, the United States Court of Appeals for the District of Columbia Circuit vacated the denial of a motion for a preliminary injunction brought by a plaintiff challenging the constitutionality of a federal law regulating online sales of tobacco products, and remanded the case for further proceedings. Gordon v. Holder, 2011 WL559002 (D.C. Cir. Feb. 18, 2011). Previewing the issues to be addressed by the District Court on remand, the Court of Appeals cited Quill as “instructive” in analyzing the plaintiff’s claim that the federal statute violates the Due Process Clause.

In a statement likely to send shivers up the spines of the members of the Governing Board of the Streamlined Sales and Use Tax Agreement and other advocates for federal legislation to override Quill’s “physical presence” requirement arising under the Commerce Clause, the D.C. Circuit commented that “there remains an open question whether a national authorization of disparate state levies on e-commerce renders concerns about presence and burden obsolete” as a matter of Due Process. Id. at *4 (emphasis added). While this statement, and the Court’s opinion, does not alter the analysis under Quill of the constitutionality of state tax (and tax-related) laws under the Commerce Clause, it suggests that the concerns about “presence and burden” presented in Quill are potentially also relevant to determining whether a federal law authorizing state tax levies is consistent with the Due Process Clause.

Proponents of federal legislation to allow states to impose sales and use tax collection obligations on Internet retailers and other remote sellers without regard to the sellers’ nexus have long–assumed that the “dormant” Commerce Clause is the only obstacle to such a scheme, and that this obstacle is one which could be swept away by Congress. But, the D.C. Circuit’s statement in Gordon signals that such a law may also face a meaningful challenge under the Due Process Clause, violations of which Congress cannot approve. Citing Quill and International Shoe, the D.C. Circuit notes that “Even national legislation—which can permissibly sanction burdens on interstate commerce—cannot violate the Due Process principles of “fair play and substantial justice.”

The “open question” identified by the Court may mean that genuine simplification of state sales and use tax systems will be a constitutional prerequisite to a national mandate of compliance with such systems, to ensure that basic Due Process requirements have been satisfied. The D.C. Circuit, at least, perceives “disparate” state tax obligations as potentially at odds with fundamental due process.


  1. I am unsure how the "open question" would "send shivers up the spines" of Streamlined Sales Tax advocates. The Streamlined Sales and Use Tax Agreement (SSUTA) creates standardized and simplified sales and use tax regulations for states seeking the authorization that will be granted by federal legislation.

    The Main Street Fairness Act (which has been introduced in previous sessions of Congress, most recently as H.R. 5660 in the 111th) does not allow states to force e-commerce retailers to comply with "disparate state levies" -- it only allows states to compel remote sellers to collect sales tax if the state has simplified and standardized its sales and use tax laws pursuant to the SSUTA.

    The SSUTA has enabled 24 sovereign states (soon 28) to share common and simplified sales tax rules and definitions and to eliminate any undue burdens cited in Quill (1992), or more specifically in Bellas Hess (1967), which Quill re-affirmed:

    "The many variations in rates of tax, in allowable exemptions, and in administrative and record-keeping requirements could entangle National's interstate business in a virtual welter of complicated obligations to local jurisdictions."

    The SSUTA, along with modern technology, absolutely renders these historical concerns about presence and burden obsolete. Retailers can now use FREE internet services to calculate, collect, and remit local sales taxes for every jurisdiction in the country -- hardly the "virtual welter" of burden that it was 44 years ago.

    R. David L. Campbell
    Chief Executive Officer
    The Federal Tax Authority (

  2. Mr. Campbell:

    Thank you for your comment. I do not agree, however, that the SSUTA represents true simplification of the sales and use tax systems of SSUTA member states. As my partner, George Isaacson, has repeatedly demonstrated in testimony to Congress in 2003, 2006, and again in 2007, the SSUTA has “resulted in little in the way of tax simplification.”

    In any event, the “open question” identified by the D.C. Circuit suggests that advocates for the SSUTA may need to convince not only Congress to override Quill, as they had already supposed they must do, but also that they must convince the federal courts that SSUTA-authorizing legislation sufficiently addresses very real concerns about “presence and burden” in order to survive scrutiny under the Due Process Clause, as well.