On May 26, 1992, the U.S. Supreme Court issued its opinion in Quill Corp. v. North Dakota (504 US 298). This was a significant nexus ruling modifying the earlier National Bellas Hess decision (386 US 753 (1967)). In Quill, the Court ruled that physical presence was not required for due process nexus but still required for commerce clause purposes.

That meant that Congress could modify the ruling since it controls the commerce clause, but not the due process clause. But that was difficult to do so states started finding ways to find physical presence. For example, we saw New York enact the so-called “Amazon” law where the state found a connection between certain affiliates in the state helping to sell a company’s products and receiving a commission.

Finally, another case got to the Court – Wayfair, and the Court concluded “that the physical presence rule of Quill is unsound and incorrect.” I think that makes sense as it did lead to odd results. For example, a company would have sales tax obligations for having an employee in a state even for a few days. But another company with more sales in the state has no sales tax obligations in the state becuase it was able to avoid physical presence in the state. In fact, Wayfair is a multi-billion dollar company that avoided physical presence in South Dakota. Yet, the company with hundreds of engineers could easily create a software program to collect sales tax from all customers and properly remit it to the appropriate states.

In Wayfair, the Court found that South Dakota’s new nexus rule where a vendor has sales tax obligations if it delivered over $100,000 of goods or services into the state during the year or had 200 or more transactions of in-state deliveries.

Quill is still cited in some cases. It has a role in nexus history which is something I’m working on writing an article about – for the 30th anniversary.

Let me know if you have any observations to share. Thanks.

Annette Nellen, San Jose State University