Who Was Quill?
Quill Corporation was — and is — an office supply company. Nowadays, they sell paper, ink cartridges, 4th of July S’mores Party Packs, and practically everything else you could possibly describe as office supplies, right there on your desktop or smartphone at Quill.com.
In 1997, Quill was sued by the state of North Dakota for failing to collect sales tax from its 3,000 customers in North Dakota. The law of the state said that every “retailer maintaining a place of business in” North Dakota had to collect taxes. Quill had no offices, warehouses, or workers in North Dakota.
But in 1987, North Dakota added something to its sales tax laws. It claimed that any company that regularly solicited business in North Dakota had a presence there. “Regularly” was defined as three times a year. If Quill sent out a spring catalog and a fall catalog, and made a phone call around the holidays, they established nexus as far as North Dakota was concerned. Quill disagreed, and refused to collect a use tax for North Dakota.
North Dakota sued.
The court agreed with Quill. They said that the state couldn’t prove that it had spent anything on Quill. North Dakota consumers might owe a use tax in the state where they enjoyed roads and libraries and law enforcement, but Quill hadn’t used any of the state’s services and therefore shouldn’t have to get involved in sales and use tax.
A higher court disagreed. North Dakota had created an economic climate that created a demand for office supplies, they said. The state also had to dispose of 24 tons of catalogs and flyers from Quill. Those benefits, they reckoned, were worth Quill’s trouble of collecting and sending in the taxes.
The Quill case went to the Supreme Court, since it would be bound to influence other states. The Supreme Court decided that Quill was right. With no presence in the state and no obvious benefit from the services of the state, Quill’s million dollars in sales in North Dakota did not require Quill to collect or remit sales or use taxes.
While conversations about online sales tax collection nowadays don’t focus on the value the e-tailer receives from the states, that was a big issue when the Quill decision was made. The relevant legal precedent, the Supreme Court said, “requires some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax,” and that the “income attributed to the State for tax purposes must be rationally related to `values connected with the taxing State.’ “
What about nexus?
When the Quill case was decided, nobody was shopping online. Quill’s customers, like the Sears & Roebuck customer of the 19th century, had a paper catalog. While North Dakota felt that the paper catalog was enough to establish a “sufficient physical presence,” the Supreme Court did not.
An online store in the 21st century can give customers as much of a sense of connection as they’d have from walking into a physical store. They can’t touch the goods, but live chat and video may provide a level of information and experience that is far beyond that of a paper catalog. This is the idea of “virtual nexus.”
Recognition of a virtual presence can make a company’s online presence sufficient to establish nexus.
Things have changed
This is the conclusion the Supreme Court has reached when it comes to Quill. A South Dakota office manager can use Quill’s Battery Finder, get office party decor tips from Quill’s blog, take advantage of special coupons from Quill, and generally act like virtual besties. That’s enough of a connection, even if the 20th century catalog wasn’t.
The average ecommerce company, along with manufacturers, direct sales merchants, and many more businesses, will now have to register, collect, and comply with sales tax in all 50 states. Fortunately, Sales Tax DataLINK makes this a practical option. Contact us now to find the right-sized solution for your needs.
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