WASHINGTON -- The Supreme Court Tuesday ruled that mail-order catalog companies cannot be required to collect use taxes for states in which they sell their products but do not have a physical presence, but cleared the way for Congress to impose such a taxing requirement.
With literally billions of dollars in taxing revenue riding on its decision, the court overturned an aspect of its 1967 National Bellas Hess decision in favor of mail-order companies, but not enough of the ruling to allow states to immediately begin taxing the companies.
In Bellas Hess the court said mail-order businesses had no obligation to collect taxes for states in which they had no physical presence but conducted business.
The court Tuesday said that physical presence rationale remains law, but said it no longer is governed by the due process clause of the 14th Amendment, but only by the commerce clause.
The distinction is vitally important: Congress has the power to regulate commerce, but cannot impose legislation that violates due process.
'Congress is now free to decide whether, when, and to what extent the states may burden interstate mail-order concerns with a duty to collect use taxes,' Justice John Paul Stevens wrote for the court.
The decision to reverse the due process analysis of Bellas Hess was unanimous, but only five justices voted for that portion of the opinion upholding the commerce clause portion of the ruling.
North Dakota's highest court had ruled that technological changes since 1967 and evolving Supreme Court standards on taxation of interstate commerce have made Bellas Hess void, and ordered Quill Corp., a national mail-order business selling office supplies, to collect taxes.
Quill appealed to the Supreme Court, saying Bella Hess is 'still valid precedent' and must be reaffirmed.
The court Tuesday, in part, agreed.
'Although we agree with the state court's assessment of the evolution of our cases, we do not share its conclusion that this evolution indicates that the commerce clause ruling of Bellas Hess is no longer good law,' Stevens wrote.
Twenty-two states filed a friend-of-the-court brief asking that the case be granted and the justices use it to overturn the court's 1967 ruling, which they claim collectively costs them billions of dollars annually.
'Dramatic advances in telecommunications and computer technology have created the functional equivalent of physical presence and have permitted a vastly expanded economic presence almost a hundred times greater in dollar volume than in 1967,' the states argued.
In fact, since 1967 mail order sales nationally have increased from $2.4 billion to $150 billion a year, the states said.
As long as mail-order companies are not required to collect state sales or use taxes such as those imposed on retail stores, they can undercut the prices of local merchants and effectively take tax dollars from states in which they profit, the states argued.
The ability of mail-order companies to avoid collecting use taxes cost the 46 states that have sales and use taxes and the District of Columbia more than $2 billion in 1988, they claimed.
Justice Byron White, dissenting from the second part of the court's ruling, said Bellas Hess should be reversed outright.
'In today's economy, physical presence frequently has very little to do with a transaction a state might seek to tax,' wrote White. '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.'
Quill, the sixth largest retailer of office equipment and supplies in North Dakota, sends some 24 tons of mail to its North Dakota customers annually, but also communicates with its customers through fax orders, computer programming, toll-free telephone lines and telecommunications technology.NEWLN: ------NEWLN:91-194 Quill Corp. vs. State of North Dakota
