Amicus Curiae Brief — Quill Corp. v. North Dakota

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No. 91-194

ers ‘oprice OF THE Cui

Supreme Court of the United

OCTOBER TERM, 1991

QUILL CORPORATION,

‘ Petitioner,

STATE OF NORTH DAKOTA,

By AND THROUGH ITS TAX COMMISSIONER,

HEIDI HEITKAMP,

Respondent.

On Writ of Certiorari to the

Supreme Court of the State of North Dakota

BRIEF AMICI CURIAE OF THE

NATIONAL ASSOCIATION OF MANUFACTURERS;

THE NATIONAL ASSOCIATION OF BROADCASTERS;

THE AMERICAN ADVERTISING FEDERATION;

THE AMERICAN ASSOCIATION OF ADVERTISING

AGENCIES, INC.; THE INDUSTRY COUNCIL ON

TANGIBLE ASSETS; AND

PRINTING INDUSTRIES OF AMERICA, INC.

IN SUPPORT OF PETITIONER

JAN S. AMUNDSON BRUCE J. ENNIS, JR.*

NATIONAL ASSOCIATION OF DAVID W. OGDEN

MANUFACTURERS THERESA CHMARA

1331 Pennsylvania Ave., N.W. JENNER & BLOCK

Washington, D.C. 20004 21 Dupont Circle, N.W.

(202) 637-3000 Washington, D.C. 20036

Counsel for Amicus (202) 223-4400

National Association of Counsel for Amici

Manufacturers

* Counsel of Record

(Additional Counsel Listed on Inside Cover)

WILSON - Eres PRINTING Co., INC. - 769-0096 - WASHINGTON, D.C. 20001

ss

HENRY L. BAUMANN

NATIONAL ASSOCIATION OF

BROADCASTERS

1771 N Street, N.W.

Washington, D.C. 20036

(202) 429-5454

Counsel for Amicus National

Association of Broadcasters

JOHN KAMP

AMERICAN ASSOCIATION OF

ADVERTISING AGENCIES, INC.

1899 L Street, N.\W.

- Washington, D.C. 20036

(202) 331-7345

Counsel for Amicus American

Association of Advertising

Agencies, Inc.

November 21, 1991

TABLE OF CONTENTS

I EE BED ccccncceccane sscnscseencssonsereesessecesss

Ee

ES EE

SUMMARY OF ARGUMENT ........ i icialbnidireniieneneeteenes

ctl cicsassskcevnievenceeeresees saaiailansiieiciieesiapee

I.

Il.

ITI.

RULES GOVERNING BUSINESS CONDUCT

AND EXPECTATIONS SHOULD BE BOTH

CLEAR AND STABLE ..........2000000..00.--eeeee eee

A. A Healthy and Competitive Economy Re-

NTE TT ceeneemers

B. A Healthy and Competitive Economy Re-

Ss seaetunnenevovecs

THE COURT SHOULD NOT OVERRULE

THE “PHYSICAL PRESENCE” TEST ES-

TABLISHED IN BELLAS HESS BECAUSE

IT IS CLEAR AND WORKABLE, AND BE-

CAUSE BUSINESS HAS JUSTIFIABLY RE-

LIED ON IT _...... | ah a

A. The Bellas Hess Test Is Clear And Work-

ESS ES

B. Business Has Justifiably Relied On The

Te ceseseeees

THE GREATER AMBIGUITY OF AN “ECO-

NOMIC PRESENCE” TEST WOULD JEOP-

ARDIZE RATIONAL BUSINESS PLANNING

AND INVOLVE THE COURT IN POLICY

JUDGMENTS BETTER LEFT TO CON-

a ES 5

10

13

14

15

20

27

ii

TABLE OF AUTHORITIES

CASES Page

Arizona v. Rumsey, 467 U.S. 208 (1984) 0... 13

Arkansas Elec. Co-Op. Corp. v. Arkansas Pub.

Serv. Comm’n, 461 U.S. 375 (1983) .......000... 17

Bloomingdale’s By Mail Ltd. v. Huddleston, No.

89-3017-II (Davidson Cty. Chancery Ct. Tenn.

Bs er ID ccihniemsnicensscucheneliebetiani dia il cata iii 15

Bob Jones University v. United States, 461 U.S.

Tee IIIT. wenssuissediscescineicensccseiiiaiiuntsiniisiiaiamaasiaiailiaiiani is 19

Burnet v. Coronado Oil & Gas Co., 285 U.S. 393

ITI scicas<isciccescienhiososnitinneichthcdiseaiiansahiaiada io tiuagial aati 17, 18

Burke & Sons Oil Co. v. Director of Revenue, 757

S.W.2d 278 (Mo. App. 1988) 2.000.002... 15

California v. Acevedo, 111 S. Ct. 1982 (1991)... 20

Cally Curtis Co. v. Groppo, 214 Conn. 292, 572

PY Fo Be ee eee 4, 15,17

D.H. Holmes Co. v. McNamara, 486 U.S. 24

ETI -ucsciisencinsencipesninesintepnamniimensmiiiai medaka ai, 16

Flood v. Kuhn, 407 U.S. 258 (1972) 200000000. 17, 20

Goldberg v. Sweet, 109 S. Ct. 582 (1989) 00... 17

Good’s Furniture House, Inc. v. Iowa State Bd. of

Tax Review, 382 N.W.2d 145 (Iowa 1986). 4,15

Helvering v. Hallock, 309 U.S. 106 (1940) _.......... 11

Irwin v. Veteran’s Admin., 111 S. Ct. 453 (1990)... 11

James B. Beam Distilling Co. v. Georgia, 111 S. Ct.

RE RIRRS e ECIIS AERoRE 11

Keogh v. Chicago & Northwestern R. Co., 260

I 20

L.L. Bean, Inc. v. Com. Dept. of Revenue, 516 A.2d

ee Gy WI: I Si 4,14

Moragne v. States Marine Lines, Inc., 398 U.S. 375

RE aN SE US ARES Ba eR 13

National Bank of Genesee v. Whitney, 103 U.S.

GIT “sincinsscesoshasteehhictnabhadiosenmasivedhadinaisdtealedtcsismssciast passim

National Bellas Hess, Inc. v. Department of Reve-

eS RO, CELT passim

Nat. Geographic Soc. v. Cal. Bd. of Equalization,

i naieehiscsale 17

Oregon ex rel. State Land Bd. v. Corvallis Sand

and Gravel Co., 429 U.S. 363 (1977) ...... Mn ANA 12

iii

TABLE OF AUTHORITIES—Continued

Patterson v. McLean Credit Union, 109 S. Ct. 2363

III css as atecasaleeanbaienceeaneeicotiedaammaeanenninataat

Page

8, 13

Payne v. Tennessee, 111 8. Ct. 2597 (1991) ....... 11, 12,18

Pearle Health Services, Inc. v. Taylor, 799 S.W.2d

I I TID anaitiecnnsniinnccsvcomnssdpasininaiionianestinenetiiiines 15

Prudential Ins. Co. v. Benjamin, 328 U.S. 408

REESE PER nev merase ers en TORR) ene Na 18, 24

Public Util. Comm’n of RI. v. Attleboro Steam &

Elee. Co., 278 U.S. 88 (1927) .................-.-.-........ 17

Rowe-Genereux, Inc. v. Vermont Dept. of Tazes,

138 Vt. 130, 411 A.2d 1345 (Vt. 1980) 4,15

S.F.A. Folio Collections v. Bannon, 585 F.2d 666

TED © cisihcocicsctcsiatoldcnsnaleniasginaaiiididaiaibeinginaniianee 15,17

SFA Folio Collections, Inc. v. Huddleston, No. 89-

3015-III (Davidson Cty. Chancery Ct. Tenn.

I TE III 0. -<-sicecsecehenninndnenaisaesidiaiamiabciassinaieinindbess 15

Sheddon v. Goodrich, 8 Ves. 481, 32 Eng. Rep. 441

Siig MII «csi sesinvcsrusnopceniendeneenipadcapieniieamidanssbiaadabied 10

Square D. Co. v. Niagara Frontier Tariff Bureau,

ee I icsseiscccscatdovcipntontltecsiesscecintedimigunteians 20

State of North Dakota v. Quill Corp., 470 N.W.2d

CMRI, oiiscilicinnsiss ictbisiantainiannnseitscbiedbedeeteitetanninneneniel passim

The Propeller Genesee Chief v. Fitzhugh, 12 How.

OU Fe es I ED cites seeseniesenes 12, 16

Thomas v. Washington Gas Light Co., 448 US. -

261 (1980) .............. AE AE oo 11, 13, 14, 16

United States v. Title Ins. & Trust Co., 265 U.S.

472 (1924) . silane 12

Vasquez v. Hillery, 474 US. 254 (1986) FE So ae 11

Welch v. Texas Dept. of Highways and Public

Transp., 483 U.S. 468 (1987) —...........----0..... 13

White v. Massachusetts Council of Constr. Em-

ployers, Inc., 460 U.S. 204 (1983) ....0000000......... 18

CONSTITUTION, STATUTES, REGULATIONS

Cee BA, Bi TG GB soiiccencicicoectecseccccncccenesece 24

Ariz. Rev. Stat. Ann. § 42-1401(5) (b) (1991) —_.... 20

Ark. Stat. Ann. § 26-53-121(b) (Supp. 1989) —...... 20

iv

TABLE OF AUTHORITIES—Continued

Conn. Gen. Stat. Ann. §§ 12-407(12)(g) & (15)

- (e) (West Supp. 1991) 00.0000.

Fla. Stat. § 212.0596(2) (e) (West Supp. 1991)...

Ga. Code Ann. § 48-8-2(3) (H) (Supp. 1991)

Kan. Stat. Ann. § 79-3702 (h) (2) (Supp. 1990)...

La. Rev. Stat. Ann. § 47:301(4) (1) (West Supp.

RR See PE SS ee ee ee

Mass. Ann. Laws ch. 64H § 1 (West Supp. 1991) __.

Minn. Stat. Ann. § 297A.21, subd. 4 (a) (1991)

Mo. Ann. Stat. § 144.605(2) (a) (Vernon Supp.

RE SCRE ees CON A I a ae oe eee

N.C. Gen. Stat. § 195-164.8(b) (5) (Supp. 1991)

N.D.A.C. § 81-04.1-01-03.1 000. Ee a

N.D.C.C. § 57-40.2-01 (7) 2000s

Okla. Stat. Ann. tit. 68, § 1354.1-5 (West Supp.

SESE I SNE ANS SUN EY ee NG oy US

Pa. Stat. Ann. tit. 72, §7201(b)(3) (Purdon

RRR TERT SE sar eee ae a ERs ee

R.I. Gen. Laws §§ 44-18-15(1)(E) & -23(c)

(Michie Supp. 1990) CC I A Aiea

Tenn. Code Ann. § 67-6-102 (6) (J) (|

Utah Code Ann. §§ 59-12-102(9) (c) & (17) (b)

(Bibemie Bem. BOOR) nn... nn n.ncccccc.cccccccncccececcoseesess

Vt. Stat. Ann. tit. 32, §9701(g)(F) (Supp.

RE ESE eR SS ACs a oe eee

LEGISLATIVE HISTORY AND PROPOSED BILLS

H.R. 1242, 100th Cong., 1st Sess., 133 Cong. Rec.

H835 (daily ed. Feb. 25,1987)

H.R. 2230, 101st Cong., 1st Sess., 135 Cong. Rec.

H1662 (daily ed. May 4,1989)

H.R. 3521, 100th Cong., Ist Sess., 133 Cong. Rec.

H8916 (daily ed. Oct. 21,1987)

North Dakota House Concurrent Resolution No.

3083, 1987 Session Laws, Chapter 851 (Apr. 2,

RECREATE ERE ie

S. 480, 101st Cong., 1st Sess., 135 Cong. Rec.

$1920 (daily ed. Mar. 1, 1989)

19

eS _

v

TABLE OF AUTHORITIES—Continued

S. 639, 100th Cong., Ist Sess., 183 Cong. Rec.

$2682 (daily ed. Mar. 3, 1987) rates

S. 1099, 100th Cong., Ist Sess., 133 Cong. ‘Rec.

$5600 (daily ed. Apr. 28, 1987) .........

Collection of State Sales and Use Taxes by ‘Out-

of-State Vendors: Hearings Before _ the

Subcomm. on Taxation and Debt Management

of the Senate Comm. on Finance to Consider

S. 639 and related S. 1099, the Equity in Inter-

state Competition Act of 1987, 100th Cong.,

lst Sess. (1987) _. pt ee a oe

Interstate Sales Tax Collection Act of 1987 and the

Equity in Interstate Competition Act of 1987:

Hearings Before the Subcomm. on Monopolies

and Commercial Law of the House Comm. on

the Judiciary to Consider H.R. 1242, H.R. 1891

and H.R. 3521, 100th Cong., 2d Sess. (1988)

MISCELLANEOUS

Brief Amicus Curiae of the Direct Marketing As-

sociation In Support of the Petition for Cer-

tiorari and In Support of Summary Reversal,

Page

19

19

19

19

No. 91-194, at 2 (Filed Sept. 3, 1991) . ...15, 23-24

Peter F. Drucker, THE NEW REALITIES (1989) .

Frank H. Easterbrook, Stability and Reliability in

Judicial Decisions, 73 Cornell L. Rev. 422

(1988)

FEDERALIST PAPERS, No. i (A. Hamilton) (C.

Rossiter ed. 1961)

FEDERALIST PAPERS, No. 78 (A. Hamilton) (C.

I

Hartman, Collection of the Use Tax on ‘Out-

of State Mail-Order Sales, 39 Vand. L. Rev. 993

(1986) ; 2

Jurinski, Agency Relationships in Determining

Nexus: Groping for a Solution, 7 J. of State

Taxation 321 (1989)

12

_ 11,18

25

8

25

9,10

vi

TABLE OF AUTHORITIES—Continued

Levering, An Examination of the Merits of Fed-

eral Legislation to Require Out-of-State Mail

Order Companies to Collect State Use Taxes, 4

N.Y.U. Inst. on St. and Local Tax’n, § 8.03

I BES ASE RA ee cS ee SO en a

J. Macey, Costs and Benefits of Stare Decisis, 65

Chi. Kent. L. Rev. 93 (1989) . =

Henry Paul Monaghan, Stare Decisis and Constitu-

tional Adjudication, 88 Colum. L. Rev. 723

(1988) ....... EP ei) «eR eee TNO eee ee RT

Walter Nagel, The Emergence of A Single Nexus

Standard, Tax Notes (Tax Analysts) 327

Page

24

10

18

ON sic ccheieesondinnstnbinndin 9, 10, 25

Note, Collecting the Use Tax on Mail-Order Sales,

78 Geo. Ld. GBS (4901) .......................................

TOUCHE Ross, A Study to Determine the Economic

Impact on Mail Order Firms of Multi-State

Sales Tax Collection (1986) pe eS

Daniel T. White, Emerging State Use Tax Collec-

tion Legislation and the Out-of-State Mail Order

Vendor: One Unconstitutional Step Beyond

Scripto and National Bellas Hess, 42 Fla. L.

9

24

es Se INN pies dich cbcitece atedecennsidetinccodachasetassbimteninnetia 9, 10,14

IN THE

Siuprenve Court of the United States

OCTOBER TERM, 1991

No. 91-194

QUILL CORPORATION,

Petitioner,

Vv.

STATE OF NORTH DAKOTA,

By AND THROUGH ITs TAX COMMISSIONER,

HEIDI HEITKAMP,

Respondent.

On Writ of Certiorari to the

Supreme Court of the State of North Dakota

BRIEF AMICI CURIAE OF THE

NATIONAL ASSOCIATION OF MANUFACTURERS;

THE NATIONAL ASSOCIATION OF BROADCASTERS ;

THE AMERICAN ADVERTISING FEDERATION;

THE AMERICAN ASSOCIATION OF ADVERTISING

AGENCIES, INC.; THE INDUSTRY COUNCIL ON

TANGIBLE ASSETS; AND

PRINTING INDUSTRIES OF AMERICA, INC.

IN SUPPORT OF PETITIONER

INTEREST OF AMICI!

The National Association of Manufacturers of the

United States of America (“NAM”) is a voluntary busi-

ness association of approximately 12,500 companies and

'The parties have consented to the filing of this amici brief.

Their letters of consent are on file with the Clerk of the Court.

2

subsidiaries, employing eighty-five percent of all manu-

facturing workers and producing over eighty percent of

the nation’s manufactured goods. More than 158,000 ad-

ditional businesses are affiliated with NAM through its

Associations Council and Nationa! Industrial Council.

The National Association of Broadcasters (“NAB”),

organized in 1922, is a non-profit incorporated trade as-

sociation that serves and represents America’s radio and

television stations and all the major networks.

The American Advertising Federation (“AAF’) is a

national irade association encompassing all elements of

the advertising industry, including as members companies

that produce and advertise consumer products; advertis-

ing agencies; magazine and newspaper publishers; radio

and television broadcasters; radio and television networks;

outdoor advertising organizations; and other media. Its

membership also includes twenty-one national trade asso-

ciations; over two hundred local advertising clubs, with

52,000 members; and over two hundred college chapters,

with 6,000 student members.

The American Association of Advertising Agencies, Inc.

(“A.A.A.A.”) is the national trade association of the ad-

vertising agency business. The A.A.A.A. was founded in

1917 and includes as members 760 agencies, which oper-

ate more than 1,480 offices in the United States and 810

offices in 72 other countries. A.A.A.A. member agencies

and their offices place approximately eighty percent of all

agency-produced national! advertising in the United States.

The Industry Council On Tangible Assets (“ICTA”) is

a non-profit trade association incorporated in Washington,

D.C. in June, 1983. ICTA’s members sell, distribute,

trade, import, refine, store, or manufacture tangible

assets—defined as, but not limited to, precious metals,

numismatic coins, bullion coins, stamps, gems, sports-

cards, jewelry, antiques and art objects. There are ap-

3

proximately five thousand businesses in the United States,

ranging from small “mom and pop” shops to multi-

national businesses—that buy and sell these tangible as-

sets. These articles are often unique, one-of-a-kind items,

such as a particular coin. The nature of the market thus

necessitates that collectors use an extensive 50-state net-

work of local dealers to find the specific item they seek.

This requires advertising in national trade papers and

over computer networks. These weekly and monthly trade

papers—published nationally—are a trading market and

informational tool for consumers, who can cross-check

prices with other dealers and comparison shop, thereby

promoting competition and fair business practices.

Printing Industries of America, Inc. (“PIA”) is a na-

tional trade association representing the interests of firms

engaged in the printing business and printing support

industries, such as suppliers and dealers. PIA’s member-

ship consists of approximately 13,500 member firms, with

31 affiliates throughout the United States and Canada

serving specified metropolitan or regional areas. PIA

addresses needs of its members that are national in scope.

Amici’s members manufacture, sell or advertise goods.

Many of those transactions are interstate in nature.

Amici therefore have a direct interest in preserving the

free flow of interstate business and interstate advertising.

North Dakota has asked the Court to overrule the long-

standing precedent of National Bellas Hess, Ine. v. De-

partment of Revenue, 386 U.S. 753 (1967), in which the

Court held that States could not impose a use tax collec-

tion duty on a company with no physical presence in the

taxing State. This request raises issues of vital signifi-

cance to all manufacturing, advertising and business in-

terests in this country.

Amici are vitally interested in clear and stable rules

upon which businesses may rely in ordering their affairs.

The need for a healthy national economy can be facili-

d

tated only through clarity and predictability in the law.

That is why amici are concerned that the North Dakota

Supreme Court has disregarded clear Supreme Court

precedent and has substituted for the Bellas Hess “physi-

cal presence” test an “economic presence” test specifically

rejected by the Court in that decision. Amici believe that

principles of stare decisis counsel against discarding the

bright-line test of Rellas Hess—upon which business has

reasonably relied and structured its affairs—for the un-

workable “economic presence” test adopted by the North

Dakota Supreme Court. Amici also believe that the im-

plications of overruling Bellas Hess would extend beyond

the facts of this case. Business interests would no longer

have confidence that they can rely on clear precedents of

this Court, and that loss of confidence would harm the

ability of businesses to engage in the efficient economic

planning that is necessary to preserve a healthy and com-

petitive national economy.

INTRODUCTION

In Bellas Hess, the Court held that States may not im-

pose a use tax collection duty on mail order sellers “who

do no more than communicate with customers in the State

by mail or common carrier as part of a general interstate

business.” Bellas Hess, 386 U.S. at 758. The bright-line

“physical presence” test of Bellas Hess has been applied

repeatedly by lower courts to hold that an interstate busi-

ness with no “physical presence” in the taxing State can-

not be subjected to a use tax collection duty.’

2 See, e.g., Cally Curtis Co. v. Groppo, 214 Conn. 292, 572 A.2d

302 (Conn.), cert. denied, 111 S.Ct. 77 (1990); L.L. Bean, Ine. v.

Com. Dept. of Revenue, 516 A.2d 820, 826 (Pa. Cmwlth. 1986);

Good's Furniture House, Inc. v. lowa State Bd. of Tar Review, 382

N.W.2d 145, 150 (lowa), cert. denied, 479 U.S. 817 (1986); Rowe-

Genereur, Inc. v. Vermont Dept. of Taxes, 138 Vt. 130, 411 A.2d

1345, 1349 (Vt. 1980); see infra note 16 (discussion of application

of Bellas Hess test by lower courts).

5

Although the North Dakota legislature realized that

imposing use tax collection duty on companies without any

“physical presence” in North Dakota would be prohibited

by Bellas Hess, absent congressional action, it nevertheless

enacted legislation that requires use tax collection by every

business that engages in “regular or systematic solicita-

tion,” even if that business does not have a physical pres-

ence in the State. N.D.C.C, § 57-40.2-01(7).° However,

‘ongress declined to enaci enabling legislation (see Point

Il, infra), so North Dakota’s Tax Commissioner brought

an action in state court seeking a declaration that Quill

Corporation (“Quill”) was required to collect use tax on

its interstate sales to North Dakota residents. State of

North Dakota v. Quill Corp., 470 N.W.2d 203, 205 (1991).

The state trial court granted summary judgment in

Quill’s favor, finding the statute unconstitutional as ap-

plied to Quill because North Dakota had failed to estab-

lish nexus under the Bellas Hess physical presence test.

Id. at 205-06.

The North Dakota Supreme Court reversed. It held

that the bright-line physical presence test of Bellas Hess

should be abandoned, because the “burgeoning technologi-

cal advances of the 1970’s and 1980’s have created revolu-

tionary communications abilities and marketing methods

which were undreamed of in 1967,” when Bellas Hess was

decided, and because the “sheer volume” of direct mail

transactions had increased since the Bellas Hess decision.

Id. at 208-09. The North Dakota Supreme Court applied

an “economic presence” test taken directly from Justice

* North Dakota House Concurrent Resolution No. 3083, 1987

Session Laws, Chapter 851 (Apr. 2, 1987), urged the United States

Congress to “enact legislation to allow imposition of state sales and

use taxes on mail order sales to purchasers within a state by out-

of-state mail order companies,” because North Dakota recognized

that Bellas Hess precludes imposition of use tax collection duties on

mail-order companies whose only connection to the State is through

the mail and common carriers.

6

Fortas’ dissent in Bellas Hess, id. at 214, and concluded

that Quill’s economic presence in North Dakota was suffi-

cient to support imposition of a use tax collection duty.

Id. at 216.

Quill is a direct mail order seller engaged in an inter-

state business. Like the mail order company in Bellas

Hess, Quill has no stores, warehouses, sales agents or

other “physical” contacts with the State seeking to impose

the collection duty. Furthermore, Quill’s “economic” pres-

ence in North Dakota is substantially less than the eco-

nomic presence Bellas Hess had in Illinois: the interstate

sales at issue in Bellas Hess were approximately $2 mil-

lion per year, which is twice the dollar value of the inter-

state sales at issue in this case. Jd. at 204.4 By any meas-

ure, Bellas Hess had a greater “economic presence” in the

taxing State than does the petitioner here.

Under the test of Bellas Hess, Quill could not be sub-

jected to a use tax collection duty. To uphold application

of the North Dakota statute to Quill, therefore, the Court

must overrule Bellas Hess. The justifications advanced by

the North Dakota Supreme Court for such a drastic step

are not supported by the case law or the record. The

legal and factual underpinnings of Bellas Hess remain

valid, and the “physical presence” test has proven to be a

clear and workable test upon which business has justifi-

ably relied in ordering its affairs.

* Nothing in the language or holding of Bellas Hess suggested

that the holding would have been different if the company’s use of

the mails and of common carriers had produced sales to Illinois

residents of $3 million, $10 million or $20 million, rather than the

$2 million in sales at issue. See generally Bellas Hess, 386 U.S, at

761,

7

SUMMARY OF ARGUMENT

Clarity and stability are essential ingredients of laws

that govern business conduct and expectations. Clear and

stable rules facilitate rational and efficient business plan-

ning and minimize needless and wasteful litigation. Rules

that permit such ordered planning and invite reliance

upon settled principles further the purposes of the Com-

merce Clause. The principle of stare decisis encourages

reliance on clear precedent and enables the business com-

munity to order its affairs and contribute to a healthy and

competitive economy. Point I.

The “physical presence” test established by Bellas Hess,

and applied by this Court and lower courts for a quarter

century, is a clear and workable test that has enabled

business to plan investments with knowledge of potential

tax liability. Because of the long-standing nature of the

Bellas Hess test and the ease of its application to invest-

ment planning, the business community has justifiably re-

lied on it. The extensive reliance by the business commun-

ity supports the application of stare decisis, which has

greatest force in cases involving business and property

rights. Furthermore, the fact that Congress has declined

to exercise its Commerce Clause power to change the rule

of Bellas Hess, though repeatedly urged to do so, is an-

other weighty consideration in favor of stare decisis.

Point IT.

The “economic presence” test adopted by the North

Dakota Supreme Court, and advocated by the dissent in

Bellas Hess, is inherently unworkable. If the Court were

to overrule Bellas Hess and rule that “economic presence”

is sufficient to justify a use tax collection duty, business

interests would not know how much, or what types of,

economic presence would be constitutionally sufficient to

trigger that duty. In future cases, the Court would be re-

quired to draw “economic” lines to develop a workable

test of “economic presence.” During that case-by-case

determination of an “economic presence” test, interstate

8

businesses would be unsure of their use tax obligations,

and would be compelled to pay tax assessments and imple-

ment costly compliance mechanisms that might later be

found unjustified.

Whether to change the test of Bellas Hess, and, if so,

how to define “economic presence,” are policy judgments

better left to Congress. Congress is institutionally better

equipped to weigh the interests of the States against the

interests of interstate businesses, and to decide which rule

best serves the purposes of the Commerce Clause. Point

ITI.

ARGUMENT

I. RULES GOVERNING BUSINESS CONDUCT AND

EXPECTATIONS SHOULD BE BOTH CLEAR AND

STABLE.

The Framers understood that “[t]o avoid an arbitrary

discretion in the courts, it is indispensable that they

should be bound down by strict rules and precedents which

serve to define and point out their duty in every particu-

lar case that comes before them.” THE FEDERALIST

PAPERS, No. 78, at 471 (A. Hamilton) (C. Rossiter ed.,

1961). Clear, bright-line rules obviously facilitate the or-

dering of business affairs and predictability, and minimize

“arbitrary discretion” not only by courts, but also by tax-

ing authorities. Moreover, the doctrine of stare decisis is

a “basic self-governing principle within the Judicial

Branch, which is entrusted with the sensitive and difficult

task of fashioning and preserving a jurisprudential sys-

tem that is not based upon ‘an arbitrary discretion.’ ”

Patterson v. McLean Credit Union, 109 S. Ct. 2363, 2370

(1989).

A. A Healthy and Competitive Economy Requires

Clear Rules.

Clarity in the law.is important to businesses and to the

goal of a healthy economy. The need for clear rules is

particularly acute in the area of taxation, which directly

9

affects the profitability of calculated business activity.

Businesses must be able to invest and act with knowledge

of the actual tax burdens they will bear. Constitutional

rules that “balance” state versus federal interests on an

ad hoc basis generate crippling uncertainty. Rules that

provide predictable outcomes foster reliance and therefore

promote business activity and a healthy national economy.

“Certainty allows businesses to plan and businesses which

plan are more efficient and profitable.” ° Collecting use

taxes—potentially for 6,500 State and local jurisdic-

tions—" is a significant administrative burden, and the

unreimbursed costs of collection are often quite substan-

tial.? Thus, in making virtually every decision—what

business to engage in, how to do it, where to solicit busi-

ness, and where to make investments in plant, warehouse

and property—companies must consider whether they will

5 Daniel T. White, Emerging State Use Taz Collection Legislation

and the Out-of-State Mail Order Vendor: One Unconstitutional

Step Beyond Scripto and National Bellas Hess, 42 Fla. L. Rev. 775,

794 (1990); see also Jurinski, Agency Relationships in Determin-

ing Nexus: Groping for a Solution, 7 J. of State Taxation 321, 321

(1989) (“A basic tenet of our system of taxation is that taxpayers

may arrange their affairs to minimize their tax liabilities. Unlike

tax evasion, tax avoidance through careful planning of both trans-

actions and corporate structures is a legitimate right of every tax-

payer.”); Walter Nagel, The Emergence of A Single Nexus Stand-

ard, Tax Notes (Tax Analysts) 327, 334 (Oct. 16, 1989) (“Uncer-

tainty [about tax obligations] is also undesirable from a taxpayer's

perspective because it does not allow for planning.”).

® White, supra note 5, at 801; Note, Collecting the Use Tax on

Mail-Order Sales, 79 Geo. L.J. 535, 539 (1991).

7 See infra Point III (outlining the substantial administrative

burdens of use tax collection in potentially thousands of State and

local jurisdictions). Payment of the collected use tax to the taxing

jurisdiction fully satisfies the jurisdiction’s claim for payment for

services it has ostensibly provided to the user. Thus, the unreim-

bursed cost of collection is simply a tax on engaging in interstate

commerce, imposed on the interstate seller, not on the “use” of the

seller’s product in the taxing jurisdiction.

10

be required to collect use taxes. Uncertainty concerning

these potential obligations frustrates rational business

planning.*

Clear, certain and bright-line rules in the area of taxa-

tion facilitate reasonable foreseeability, allowing the ven-

dor “prudently to arrange the business contacts with that

State knowing the full ramifications of such actions.” °

In the absence of clear rules, businesses are unable to

make rational and informed decisions concerning risk and

investment. In fact, clarity regarding legal obligations is

so essential to an efficient marketplace that in most cir-

cumstances it is more important that the rule be clear,

than that it be the “best” rule.”

B. A Healthy and Competitive Economy Requires

Stable Rules.

Clarity of legal obligations is necessary to an efficient

marketplace, but is not sufficient. A clear rule that is

subject to change will frustrate rational business planning

as much as a rule that is itself unclear. This Court has

long recognized that stare decisis is the “preferred course”

* Use tax collection duties may also subject businesses to related

penalties and liabilities that differ from one State to the next and

among local communities.

® White, supra note 5, at 793-94; Jurinski, supra note 5, at 330

(“Tax compliance can be effective only if statutes, regulations, and

case law provide bright lines for planning.’’); see also Nagel, supra

note 5, at 334.

1 See Sheddon v. Goodrich, 8 Ves. 481, 497, 32 Eng. Rep. 441,

447 (Ch. 1803) (in case involving property interests, declining

to revisit whether doctrine properly decided because “it is better

the law should be certain, than that every Judge should speculate

upon improvements”); see also J. Macey, Costs and Benefits of

Stare Decisis, 65 Chi. Kent L. Rev. 93, 109 (1989) (advocating

the importance of stare decisis, particularly in “corporate and con-

tractual settings” where “having the ‘correct’ legal rule is less

important than the consistent application of a precisely articulated

rule’’).

11

because it “promotes the evenhanded, predictable, and con-

sistent development of legal principles, fosters reliance on

judicial decisions, and contributes to the actual and per-

ceived integrity of the judicial process.” Payne v. Tennes-

see, 111 S. Ct. 2597, 2609 (1991).

The need for stability is one of the major factors com-

pelling application of stare decisis principles.’ “When

rights have been created or modified in reliance on estab-

lished rules of law, the arguments against their change

have special force.” Thomas v. Washington Gas Light

Co., 448 U.S. 261, 272 (1980). Thus, stare decisis is an

“important social policy” that permits society to “satisfy

reasonable expectations,” Helvering v. Hallock, 309 U.S.

106, 119 (1940), and to “presume that bedrock principles

are founded in the law rather than in the proclivities of

individuals.” Vasquez v. Hillery, 474 U.S. 254, 265

(1986).

Stare decisis is particularly appropriate in Commerce

Clause cases because the purpose of the Commerce Clause

is to promote a healthy national economy, and adherence

to established rules furthers that objective. Adherence to

established rules, including constitutionally-based rules,

is important because “ready alteration of constitutional

rules makes the effects of statutes and private bargains

less predictable.” Frank H. Easterbrook, Stability and

Reliability in Judicial Decisions, 73 Cornell L. Rev. 422,

431 (1988). Thus, “|clonsiderations in favor of stare

decisis are at their acme in cases involving property and

11 Jrwin v. Veteran’s Admin., 111 S. Ct. 453, 460 n. 3 (1990)

(White, J., concurring) (stare decisis is of “ ‘fundamental impor-

tance to the rule of law’. . . because, among other things, it pro-

motes stability and protects expectations”) (citations omitted) ;

James B. Beam Distilling Co. v. Georgia, 111 S. Ct. 2439, 2452

(1991) (“At its core, stare decisis allows those affected by the law

to order their affairs without fear that the established law upon

which they rely will suddenly be pulled out from under them.” )

(O’Connor, J., dissenting ).

12

contract rights, where reliance interests are involved.”

Payne v. Tennessee, 111 S. Ct. at 2610."

A healthy economy requires long-term investments."

Uncertainty concerning profitability discourages long-

term investments more than it discourages short-term in-

vestments. For virtually all long-term investments, re-

liable predictions of profitability require a legal landscape

that is likely to remain unchanged for several years. Here,

substantial long-term investments have been made in mail

order and other interstate businesses based on the ex-

pectation that the “physical presence” test established in

Bellas Hess would continue to be the law. If the Court

had announced in Bellas Hess that its clear test was sub-

ject to change without notice, many of these investments

would not have been made. Encouraging long-term in-

vestment is essential to a healthy economy, and rules that

ure both clear and stable are the necessary foundation for

such investments.

12 See The Propeller Genesee Chief v. Fitzhugh, 12 How. 443,

458, 13 L.Ed. 1058, 1065 (1851) (holding that “stare decisis is the

safe and established rule of judicial policy, and should always be

adhered to” in cases that “decide any question of property, or lay

down any rule by which the right of property should be deter-

mined”) ; National Banik: of Genesee v. Whitney, 103 U.S. 443, 444

(1881) (“The prosperity of a commercial community depends, in a

great degree, upon the stability of the rules by which its trans-

actions are governed.” See also Oregon ex rel. State Land Bd. v.

Corvallis Sand and Gravel Co., 429 U.S. 363, 381 (1977) (holding

that substantive rules governing real property are “peculiarly sub-

ject to the principle of stare decisis’); United States v. Title Ins.

& Trust Co., 265 U.S. 472, 486-87 (1924) (same).

13 Peter F. Drucker, THE NEW REALITIES 123 (1989) (“invest-

ment” is the “world economy’s economic driver” and the key to

maintenance of a competitive economy).

13

Il. THE COURT SHOULD NOT OVERRULE THE

“PHYSICAL PRESENCE” TEST ESTABLISHED

IN BELLAS HESS BECAUSE IT IS CLEAR AND

WORKABLE, AND BECAUSE BUSINESS HAS

JUSTIFIABLY RELIED ON IT.

For the foregoing reasons, in the business context par-

ticularly, “[vlery weighty considerations underlie the

principle that courts should not lightly overrule past de-

cisions.” Moragne v. States Marine Lines, Inc., 398 U.S.

375, 403 (1970). A party asking the Court to overrule

established law governing business expectations must meet

a “severe burden” of demonstrating why the “broader

societal interests in evenhanded, consistent, and predicta-

ble application of legal rules” should not outweigh any

asserted need for change. Thomas v. Washington Gas

Light Co., 448 U.S. at 272."* Indeed, “any departure from

the doctrine of stare decisis demands special justifica-

tion.” Arizona v. Rumsey, 467 U.S. 203, 212 (1984); see

also Patterson v. McLean Credit Union, 109 S. Ct. 2363,

2370 (1989).

A “special justification’”” may be found to exist where

the precedent has proven to be “an unworkable decision”

that has caused confusion, Patterson, 109 S. Ct. at 2371

(citations omitted), or where there has been little reliance

'*The Court has also held that in the area of business and

commerce, where fostering reliance is most essential, the possi-

bility that a precedent may have been wrongly decided is not suffi-

cient justification to overrule that precedent unless it was unwork-

able, engendered unpredictability, or was itself an aberration

from prior precedent. See National Bank v. Whitney, 103 U.S.

at 444 (holding that “[jludicial decisions affecting the busi-

ness interests of the country should not be disturbed except for

the most cogent reasons, certainly not because of subsequent doubt

as to their soundness”); cf. Welch v. Texas Dept. of Highways and

Public Transp., 483 U.S. 468, 496 (1987) (Scalia, J., concurring)

(recognizing that precedent of state immunity from individual

suits long assumed to be the law, and the basis for numerous fed-

eral statutes, should not be overruled “[e]ven if we were now to

find that assumption [of immunity] to have been wrong”’).

14

on the precedent. Thomas v. Washington Gas Light Co.,

448 U.S. at 272; id. at 277 (declining to preserve prece-

dent that “could only breed uncertainty and unpredicta-

bility” and that “has been so rarely followed” that “there

appears to be little danger that there has been any sig-

nificant reliance on its rule”). In this case, North Dakota

has failed to meet its “severe burden” of demonstrating a

“special justification” to overrule Bellas Hess. As dem-

onstrated below, the “physical presence” test of Bellas

Hess has proven to be clear and workable, and there has

been widespread and justifiable reliance on that test by

the business community.

A. The Bellas Hess Test Is Clear And Workable.

In Bellas Hess, the Court held that a State may not

impose a use tax collection duty on a “seller whose only

connection with customers in the State is by common car-

rier or the United States mail.” 386 U.S. at 758. As

one commentator has noted, this “bright line test...

aids in achieving certainty, and allows mail order busi-

nesses to plan,” because “[r]equiring physical situs in a

taxing state through either agents or property provides

mail order vendors with a clear understanding of the

potential ramifications of their business arrangements.””

Lower courts have had no difficulty applying the simple

Bellas Hess test that lack of any physical presence in the

taxing State is sufficient to excuse any use tax collection

duty.”

15 White, supra note 5, at 794.

16 Although courts have been asked in some cases to determine

whether a particular “type” of physical contact with a taxing state

constitutes sufficient nexus, there has been no question that where

the only contact is through common carrier or mail, the state can-

not impose a use tax collection duty. See, e.g., L.L. Bean, Inc. v.

Com. Dept. of Revenue, 516 A.2d 820, 826 (Pa. Cmwlth. 1986)

‘holding that determination of nexus is a factual question, but no

question that imposition of collection duties is prohibited on “out-

of-state mail-order firms whose only connection with the taxing

15

B. Business Has Justifiably Relied On The Bellas

Hess Test.

Business reliance on Bellas Hess has been substantial

and justified.'* Reliance on Supreme Court decisions is

rational and expected. Indeed, business should be encour-

aged to order its affairs in reliance on rules established

by judicial precedent. In National Bank of Genesee v.

Whitney, 103 U.S. 443 (1881), the Court refused to over-

state is soliciting and filling orders through the stream of inter-

state commerce”) ; Good’s Furniture House, Inc. v. lowa State Bd.

of Tax Review, 382 N.W.2d 145, 150 (lowa) (sufficient nexus where

out-of-state seller utilized own trucks to make deliveries to State,

but reiterating that nexus “cannot be found where the out-of-state

seller merely communicates with customers in the taxing state by

mail or common carrier as in National Bellas Hess’), cert. denied,

479 U.S. 817 (1986); Rowe-Genereux, Inc. v. Vermont Dept. of

Tares, 138 Vt. 130, 411 A.2d 1345, 1349 (Vt. 1980) (holding that

“requisite nexus can be found in the case of a mail order seller with

retail outlets, solicitors or property within the taxing state . .

but cannot be found where the out-of-state seller merely com-

municates with customers in the taxing state by mail or common

carrier as in National Bellas Hess”); see also S.F.A. Folio Col-

lections v. Bannon, 585 A.2d 666, 670-71 (Conn.) (same), cert. de-

nied, 111 S. Ct. 2839 (1991); Cally Curtis Co. v. Groppo, 214 Conn.

292, 572 A.2d 302 (Conn.) (same), cert. denied, 111 S. Ct. 77

(1990) ; Burke & Sons Oil Co. v. Director of Revenue, 757 S.W.2d

278, 280 (Mo. App. 1988) (same).

Even though the Tennessee Supreme Court recognized the valid-

ity of the Bellas Hess rule last year, Pearle Health Services, Inc.

v. Taylor, 799 S.W.2d 655 (Tenn. 1990), a lower court recently held

that Tennessee could impose a use tax collection duty on direct

mail operators with no physical presence in the state. SFA Folio

Collections, Inc. v. Huddleston, No. 89-3015-III (Davidson Cty.

Chancery Ct. Tenn. Mar. 11, 1991); Bloomingdale’s By Mail Ltd.

v. Huddleston, No, 89-3017-II (Davidson Cty. Chancery Ct. Tenn.

Mar. 8, 1991). The Bloomingdale’s case is on appeal to the Ten-

nessee Supreme Court and the SFA Folio case has been stayed

pending the outcome of the Bloomingdale’s appeal.

See Brief Amicus Curiae of the Direct Marketing Association

In Support of the Petition for Certiorari and In Support of Sum-

mary Reversal, No. 91-194, at 2 (Filed Sept. 3, 1991).

16

rule a precedent—even though it questioned the “sound-

ness” of it—because the Court presumed that business

had relied on the precedent:

The Construction of the Act of Congress thus given

has been acted upen by the national banks throughout

the country ever since it was published. It is not

unreasonable to suppose that they have conducted

their business and made loans to a large amount in

reliance upon it, and that in many cases great in-

jury would follow a departure from it. Judicial de-

cisions affecting the business interests of the country

should not be disturbed except for the most cogent

reasons, certainly not because of subsequent doubt as

to their soundness. The prosperity of a commercial

community depends, in a great degree, upon the

stability of the rules by which its transactions are

governed.

Id. at 444 (‘emphasis added)."* In this case, business

interests have in fact relied upon Bellas Hess. Direct mail

order companies and other interstate businesses have de-

signed their operations and planned their investments

in reliance on the “physical presence” test. Their re-

liance in fact is an even more compelling argument for

stare decisis than the “supposed” reliance in Whitney.

In light of this actual and substantial reliance, the argu-

ment for stare decisis has “special force” in this case.

Thomas v. Washington Gas Light Co., 448 U.S. at 273.

That reliance has been fully justified because courts,

including this Court, have consistently reaffirmed and

applied the test of Bellas Hess, and this Court has never

intimated that Bellas Hess might te overruled.”

18 See The Propeller Genesee Chief v. Fitzhugh, supra note 12,

in which the court said it would be “bound to follow” business

precedent.

1 See, e.g., D.H. Holmes Co. v. McNamara, 486 U.S. 24, 32-33

(1988) (finding “ ‘nexus aplenty” with Louisiana and finding case

17

The doctrine of stare decisis has greatest force in cases

of congressional domain where Congress has the authority

to enact legislation that alters the rule established by

the Court.*” Although this case deals with a constitu-

distinguishable from Bellas Hess because D.H. Holmes had thir-

teen stores in Louisiana while Bellas Hess’ “only connection with

its Illinois customers was by mail or common carrier”) ; Nat. Geo-

graphic Soc. v. Cal. Bd. of Equalization, 430 U.S. 551, 559 (1977)

(reaffirming “sharp distinction” between mail order companies

in the State like Bellas Hess “who do no more than communicate

with customers by mail or common carrier as part of a general in-

terstate business” and those that have a “physical” presence within

the taxing State); see also Goldberg v. Sweet, 109 S. Ct. 582, 589-90

(1989) (holding that taxation of interstate telephone call in State

of origination and termination where service address is listed or

bill is paid is permissible, but expressing “doubt that termination

of an interstate telephone call, by itself, provides a substantial

enough nexus for a State to tax a call,” citing the Bellas Hess

holding that “receipt of mail provides insufficient nexus”). Indeed,

this Court denied certiorari in two recent cases where lower courts

upheld the validity of the “physical presence” test of Bellas Hess

and rejected arguments similar to those raised by North Dakota in

this case. See S.F.A. Folio Collections v. Bonnon, 585 A.2d 666,

670-71 (Conn.), cert. denied, 111 S. Ct. 2839 (1991); Cally Curtis

Co. v. Groppo, 214 Conn. 292, 572 A.2d 302 (Conn.), cert. denied,

111 S. Ct. 77 (1990).

The substantial reliance on the precedent of Bellas Hess by busi-

ness interests here thus distinguishes this case from Arkansas

Elec. Co-Op. Corp. v. Arkansas Pub. Serv. Comm’n, 461 U.S. 375,

392 (1983), where the Court abandoned the bright line test of

Public Util. Comm'n of RJ. v. Attleboro Steam & Elec. Co., 273

U.S. 83 (1927). In Arkansas Electric, the Court could “see no

strong reliance interests that would be threatened” by rejection

of the prior test. The contrary is true in this case.

2° Burnet v. Coronado Oil & Gas Co., 285 U.S. 393, 406 (1931)

(Brandeis, J., dissenting) (“Stare decisis is usually the wise

policy . . . even where the error is a matter of serious concern,

provided correction can be had by legislation”); see also Flood v.

Kuhn, 407 U.S. 258, 283 (1972). The Court has at times indicated

that it may be most bound by principles of stare decisis in cases

involving statutory interpretation, because Congress can change

18

tionally-based rule, precedents based on the “dormant”

aspect of the Commerce Clause are very different from

precedents based on the First Amendment, the Fourth

Amendment, or other provisions of the Constitution that

are designed to restrict the power of Congress. Congress

has plenary power under the Commerce Clause, and could

by statute modify the rules governing States’ imposition

of use tax collection duties. See Prudential Ins. Co. v.

Benjamin, 328 U.S. 408, 423 (1946) (Congressional au-

thority over interstate commerce is “plenary” and “su-

preme”’).*! Because Congress has the authority to change

the test established in Bellas Hess and adopt an economic

presence test, the Court should be more reluctant to over-

those precedents by statute (and presumably would have an incen-

tive to do so if the Court had interpreted the statute in a way not

intended by Congress), and less bound by principles of stare de-

cisis in eases involving questions of constitutional interpretation,

because Congress cannot ordinarily change constitutional prece-

dents by statute. See Payne v. Tennessee, 111 S.Ct. at 2609-10

(“Stare decisis is not an inexorable command. ... This is particu-

larly true in constitutional cases, because in such cases ‘correction

through legislative action is practically impossible’”) (quoting

Burnet v. Coronado Oil & Gas Co., 285 U.S. at 407 (Brandeis, J.,

dissenting)). Commentators have criticized the constitutional/

statutory distinction in stare decisis jurisprudence on the grounds

that “[rjeady overruling of constitutional cases . . . reduces the

stability of governmental institutions,” see Frank H. Easterbrook,

Stability and Reliability in Judicial Decisions, 73 Cornell L. Rev.

422, 430 (1988), and that often the “results,” if not the decisions,

“can be ‘overruled’ by statute.” Henry Paul Monaghan, Stare

Decisis and Constitutional Adjudication, 88 Colum. L. Rev. 723,

742 (1988), In any event, this case is more akin to statutory inter-

pretation cases because under the Commerce Clause Congress has

the constitutional authority to change the test established by Bellas

Hess if it believes a different test is warranted.

21 White v. Massachusetts Council of Constr. Employers, Inc.,

460 U.S. 204, 213 (1983) (“The Commerce Clause is a grant of

authority to Congress, and not a restriction on the authority of

that body.”).

~— -

19

rule Bellas Hess than it would be to overrule decisions

based on provisions of the Constitution that restrict con-

gressional power.

Moreover, Congress is fully aware of the Bellas Hess

test and through the years has considered legislation to

change that test.** Congress has conducted hearings and

commissioned studies to evaluate state use taxes and use

tax collection duties.** But Congress has declined to enact

such legislation, leaving the test of Bellas Hess undis-

turbed. It is difficult to discern congressional intent from

congressional silence, but the refusal of Congress to exer-

cise its plenary power to change a “negative” Commerce

Clause ruling of this Court should counsel against adop-

tion of a new rule Congress has considered, but declined

to adopt.** The Bellas Hess test should thus be retained,

and any revision left to Congress.

22 Legislation proposing a uniform federal response to state

imposition of use tax collection obligations has been introduced

numerous times. See, e.g., H.R. 2230, 101st Cong., Ist Sess., 135

Cong. Rec. H1662 (daily ed. May 4, 1989); S. 480, 101st Cong.,

Ist Sess., 135 Cong. Rec. 81920 (daily ed. Mar. 1, 1989); H.R.

3521, 100th Cong., Ist Sess., 133 Cong. Rec. H8916 (daily ed. Oct.

21, 1987); H.R. 1242, 100th Cong., Ist Sess., 183 Cong. Rec. H835

(daily ed. Feb. 25, 1987); S. 1099, 100th Cong., Ist Sess. 133

Cong. Rec. 85600 (daily ed. Apr. 28, 1987); S. 639, 100th Cong.,

Ist Sess., 133 Cong. Rec. S2682 (daily ed. Mar. 3, 1987).

23 See Interstate Sales Tax Collection Act of 1987 and the Equity

in Interstate Competition Act of 1987: Hearings Before the Sub-

comm, on Monopolies and Commercial Law of the House Comm. on

the Judiciary to Consider H.R. 1242, H.R. 1891 and H.R. 3521,

100th Cong., 2d Sess. (1988); Collection of State Sales and Use

Taxes by Out-of-State Vendors: Hearings Before the Subcomm.

on Taxation and Debt Management of the Senate Comm. on Finance

to Consider S. 639 and related S. 1099, the Equity in Interstate

Competition Act of 1987, 100th Cong., Ist Sess. (1987).

24Cf. Bob Jones University v. United States, 461 U.S. 574,

600-01 (1983) (holding that Court’s general reluctance to rely on

congressional silence inapplicable in situation where Congress by

20

III. THE GREATER AMBIGUITY OF AN “ECONOMIC

PRESENCE” TEST WOULD JEOPARDIZE RA-

TIONAL BUSINESS PLANNING AND INVOLVE

THE COURT IN POLICY JUDGMENTS BETTER

LEFT TO CONGRESS.

When the Court has determined that precedent must

be overruled, it has often done so to substitute a clearer

and more workable rule. See, e.g., California v. Acevedo,

111 S. Ct. 1982 (1991). That justification does not apply

here. The “economic presence” test adopted by the North

Dakota Supreme Court, and urged by several States, is

inherently less certain than the Bellas Hess “physical

presence” test. For example, many state statutes—in-

cluding the North Dakota statute at issue in this case—

impose use tax collection duties on retailers (including

direct mail businesses) who solicit sales on a “contin-

uous,” “regular,” “systematic,” “purposeful,” “substan-

tial” or “recurring” basis.** The uncertainty of such an

holding hearings and considering several bills on the precise issue

without taking any action demonstrated that it had “prolonged

and acute awareness” of the issue and “acquiesced” in the status of

the administrative rulings at issue); see also Flood v. Kuhn, 407

U.S. at 283 (recognizing that inapplicability of antitrust laws to

major league baseball was an “aberration,” but declining to over-

rule precedent in light of congressional awareness of issue and

congressional decision not to enact different legislation) ; Square D.

Co. v. Niagara Frontier Tariff Bureau, 476 U.S. 409, 424 (1986)

(declining to overrule Keogh v. Chicago & Northwestern R. Co.,

260 U.S. 156 (1922), where rule had received “careful, intense and

sustained congressional awareness” and Congress chose not to

change the rule).

25 See Ariz. Rev. Stat. Ann. § 42-1401(5)(b) (1991) (“substan-

tial and recurring”); Ark. Stat. Ann. § 26-53-121(b) (Supp. 1989)

(“continuous, regular or systematic”); Conn. Gen. Stat. Ann.

$§ 12-407(12)(g) & (15)(e) (West Supp. 1991) (“regular or

systematic”) ; Fla. Stat. § 212.0596(2)(e) (West Supp. 1991) (“pur-

posefully or systematically”); Ga. Code Ann. § 48-8-2(3)(H) (Supp.

1991) (“regular or systematic”); Kan. Stat. Ann. § 79-3702(h) (2)

(Supp. 1990) (“regular or systematic”); La. Rev. Stat. Ann.-

§ 47:301(4)(1) (West Supp. 1991) (“regular or systematic”) ;

—

21

economic presence test will create widespread confusion.

Interstate business will be forced to speculate whether

their solicitations are sufficiently regular, systematic or

substantial to subject them to use tax duties, and will

be unable to forecast tax liability and investment risk.

Courts will be forced to decide countless issues: what is

the meaning of “regular” or “systematic”; whether solici-

tations that are substantial in number but not “con-

tinuous” are sufficient; and whether requiring use tax

collection for a “purposeful” but “slight” economic pres-

ence unduly burdens interstate commerce.

Indeed, the North Dakota statute at issue in this case

is likely to spawn additional litigation. North Dakota

requires use tax collection by every business that engages

in “regular or systematic solicitation.” N.D.C.C. § 57-

40.2-01(7). The North Dakota Administrative Code de-

fines “regular or systematic solicitation” as “three or

more separate transmittances of any advertisement or

advertisements” during a twelve-month period. N.D.A.C.

$ 81-04.1-01-03.1. Thus, even if the Court determines in

this case that Quill’s solicitations in North Dakota would

be sufficient under a constitutionally-based “economic

presence” test to justify a use tax collection duty, the

Court will be required in future cases to determine

whether a company with merely three, five or ten solici-

Mass. Ann. Laws ch. 64H §1 (West Supp. 1991) (“regularly or

systematically”); Minn. Stat. Ann. § 297A.21, subd. 4(a) (1991)

(“regular or systematic”); Mo. Ann. Stat. § 144.605(2)(a) (Vernon

Supp. 1991) (“purposefully or systematically”); N.C. Gen. Stat.

§ 105-164.8(b) (5) (Supp. 1991) (“purposefully or systematically” ) ;

Okla. Stat. Ann. tit. 68, § 1354.2 (West Supp. 1992) (“continuous,

regular or systematic”); Pa. Stat. Ann. tit. 72, § 7201(b)(3) (Pur-

den 1990) (“regularly or substantially”); R.I. Gen. Laws §§ 44-18-

15(1)(E) & -23(c) (Michie Supp. 1990) (“regular or systematic”)

Tenn. Code Ann. § 67-6-102(6)(J) (1989) (“regular or systematic” ) ;

Utah Code Ann. §§ 59-12-102(9)(c) & (17) (b) (Michie Supp. 1991)

(“regular or systematic”); Vt. Stat. Ann. tit. 32, § 9701(9)(F)

(Supp. 1990) (“regular, systematic or seasonal’’).

22

tations (and no physical presence in North Dakota) may

constitutionally be compelled to collect use tax. The Court

will also be required, when reviewing other state statutes

or local ordinances that focus on sales rather than on

solicitations, to determine whether $1,000 of business,

or ten sales, constitutes sufficient economic presence to

justify the burden on interstate commerce created by use

tax collection duties. Those “economic” lines cannot be

established in this case, which involves the solicitations of

one company in one taxing locale. Furthermore, deter-

mining where the “economic” line should be drawn is a

policy judgment better left to Congress.

Even if the Court could engage in case-by-case adjudi-

cation until a clear and workable definition of “economic

presence” emerges, in the interim, interstate businesses

will be unable to order their affairs and plan their invest-

ments with reasonable certainty. Although businesses

can easily comply with the physical presence test of Bellas

Hess by not placing stores, warehouses or salespeople in

a particular State, unless and until an “economic pres-

ence” test is spelled out precisely in future cases, busi-

nesses will be unable to gauge their use tax collection

duties with reasonable certainty.

Moreover, the factual predicate for the Bellas Hess

test remains entirely valid. The burden of collection that

North Dakota (and other States and localities) would

impose on interstate commerce would even be compounded

by the greater volume of mail] order sales and the greater

number of local taxing jurisdictions.** Despite the advent

26 The North Dakota Supreme Court justified its departure from

Bellas Hess, in part, on the ground that the percentage of sales

from mail order companies, as compared with those of in-state

retailers, has supposedly increased since Bellas Hess was decided.

Id. at 209-10. It is pure conjecture to suppose, however, that this

Court would have decided Bellas Hess differently had mail order

companies in general had a greater percentage of overall sales in

23

of new computer technology that might be utilized to

facilitate compliance with use tax collection duties, enor-

mous and costly administrative burdens remain.*’ Al-

though computer tax programs can (at significant ex-

pense) track different tax rates, computers cannot take

account of myriad exemptions from tax (for both pur-

chasers and goods) that are authorized by many statutes

and local ordinances. See Brief Amicus Curiae of the

Direct Marketing Association in Support of the Petition

for Certiorari and In Support of Summary Reversal, No.

Illinois. In fact, the Bellas Hess Court—concluding that it would be

“difficult to conceive of commercial transactions more exclusively

interstate in character than the mail order transactions” there (and

here) involved—held explicitly that the tax collection duty could not

be imposed because of the burden that such taxation would impose

on the mail order company. Those burdens have increased. When

Bellas Hess was decided, only 11 states and 2,300 jurisdictions im-

posed use taxes. Bellas Hess, 386 U.S. at 758-59 & nn.11, 12. The

Court nevertheless found the collection duty burdensome because of

the “many variations in rates of tax, in allowable exemptions and in

administrative and record-keeping requirements.” Jd. at 759 (em-

phasis added). Today, over 6,500 jurisdictions impose their own

use taxes. Note, supra note 6, at 539. If the rule urged by North

Dakota is adopted, 6,500 jurisdictions might require use tax col-

lection by companies without physical presence in their respective

jurisdictions.

*7 For example, many of amicus ICTA’s members are small shops

with few or no employees. For them, the administrative costs of

collecting various use taxes and keeping current on the use tax

laws and regulations of many jurisdictions would be prohibitive.

Many of these members do not have computer systems, other than

word processing programs for mailing lists and inventory manage-

ment. In most coin shops, for example, bookkeeping is done manu-

ally. Monitoring and complying with a plethora of state and local

tax requirements would be impossible, forcing small dealers out of

business or restricting their ability to sell to collectors in states

with use tax collection duties, thereby creating a less competitive

market for consumers. Several “mom and pop” businesses have in-

dicated to ICTA that they will either cease to advertise or cease

business operations if advertising is deemed sufficient to create

nexus for the purpose of use tax collection.

24

91-194, at 10-13 (Sept. 3, 1991).** Additionally, an inde-

pendent study has shown that the average mail order

firm spends fifteen percent of tax collected on compliance

costs, while being reimbursed by the taxing State at the

rate of only one percent. TOUCHE Ross, A Study to De-

termine the Economic Impact on Mail Order Firms of

Multi-State Sales Tax Collection, at 5 (1986).%° If com-

panies were required to collect use taxes in jurisdictions

where they have no physical presence, those costs would

substantially increase. Thus, the expansion of tax lia-

bility entailed by the North Dakota Supreme Court’s rule

would seriously hamper interstate commerce.

If these burdens are to be imposed on interstate com-

merce, in derogation of the Bellas Hess rule, the change

should be accomplished by Congress, not the Court. In

many areas the Constitution requires considerable defer-

ence to the views of the States. The Commerce Clause,

however, gives Congress plenary power: “Congress shall

have Power... [t]o regulate Commerce with Foreign

Nations, and among the several States, and with the

Indian Tribes.” Constitution, Art. 1, § 8, Cl. 3; see Pru-

dential Ins. Co. v. Benjamin, 328 U.S. 408, 423 (1946)

(the power of Congress over interstate commerce is

“plenary” and “supreme’’). By entrusting the responsi-

28 See also Levering, An Examination of the Merits of Federal

Legislation to Require Out-of-State Mail Order Companies to Collect

State Use Taxes, 4 N.Y.U. Inst. on St. and Local Tax’n, § 8.03 [1],

at 8-12 (1986) (“Every set of exemptions is a different maze of

complexities.” ) .

2° Additional costs mail-order firms would face under the North

Dakota Supreme Court’s test include: direct payments attributable

to customer error in not including use tax or including an insuffi-

cient amount; increased costs of filing tax returns with local juris-

dictions that require separate filing and remittance; costs of being

audited by more jurisdictions; additional credit card fees (which

are assessed on the total amount, including taxes); and increased

employee training and computer costs. Jd. Legal fees for filing re-

turns and monitoring over 6,500 jurisdictions would also rise.

25

bility to regulate interstate commerce exclusively to Con-

gress, the founders were attempting to design a frame-

work that would ensure a healthy national economy.”

Indeed, the Court concluded its opinion in Bellas Hess

with a virtual] invitation to Congress to review its deci-

sion: “this is a domain where Congress alone has the

power of regulation and control.” 386 U.S. at 760. Con-

gress is best able to determine whether “technological

advances” or an increase in “volume” necessitates a

change in the Bellas Hess test. Congress can more effi-

ciently and fairly evaluate the “economic realities.” *'

Congress is better able to weigh the competing policy

interests to decermine whether the “physical presence”

test has lost its utility and whether a clear “economic

presence” test can be crafted that would protect inter-

state businesses from undue “local entanglements.” “

For example, Congress could require a single tax rate

(which States could then apportion among their politieal

subdivisions), thereby reducing substantially the costs

3° THE FEDERALIST PAPERS, No. 11, at 87 (A. Hamilton) (C.

Rossiter ed. 1961) (“Under a vigorous national government, the

natural strength and resources of the country, di. ected to a common

interest, would baffle all the combinations of European jealousy

to restrain our growth.’’).

31 Note, supra note 6, at 565 (arguing that congressional, rather

than judicial, action is necessary because “[w]hen Congress drafts

legislation on use tax collection both the mail-order industry and

the state taxing agencies are represented .. .”).

%2 Proponents and critics of the “physical presence” test alike

have argued that Congress, not the judiciary, is better equipped

to establish a workable “economic presence” test that will foster

certainty and stability and permit interstate businesses to order

their investments in reliance on clear principles. See, e.g., Nagel,

supra note 5, at 334 (“Ideally, the Supreme Court should not be

in the business of making state tax law.”); Hartman, Collection

of the Use Tax on Out-of-State Mail-Order Sales, 39 Vand. L. Rev.

993, 1028 (1986) (arguing that Congressional action is needed be-

cause “[t]here appears to be no adequate judicial machinery to

establish ... [fair compliance] costs’).

26

and administrative burdens of use tax collection. Con-

gress could specify that certain businesses, or businesses

with sales or solicitations below a certain level, are en-

tirely exempt from use tax collection duties. Congress

could also enact legislation that would be phased in over

a period of years, thereby avoiding undue disruption and

permitting businesses to adjust their investments and

plans to accommodate the burdens and costs of new use

tax collection responsibilities.”

The Court has long recognized that where business

interests have relied on rules and interpretations estab-

lished by the Court, “[i]f there should be a change, the

Legislature can make it with infinitely less derangement

of the interests of the country than would follow a new

ruling of the court.” National Bank v. Whitney, 103 U.S.

at 444. This is particularly true in Commerce Clause

cases, where Congress obviously has the greater compe-

tence to weigh the policy arguments for or against a new

rule.

Thus, because the Court should assume that Congress

will change judicial rules regulating interstate commerce

if there is a need to do so, and because stave decisis should

apply with particular force to precedents on which busi-

ness has justifiably relied, the Court should not overrule

Bellas Hess.

33 Amici take no position on whether Congress should enact

legislation, and offer these examples of possible congressional action

simply to illustrate why Congress is best suited to make the im-

portant policy judgments required in this area of taxation of inter-

state commerce.

27

CONCLUSION

For the foregoing reasons, the judgment below should

be reversed.

Respectfully submitted,

JAN S. AMUNDSON BRUCE J. ENNIS, JR.*

NATIONAL ASSOCIATION OF Davip W. OGDEN

MANUFACTURERS THERESA CHMARA

1331 Pennsylvania Ave., N.W. JENNER & BLOCK

Washington, D.C. 20004 21 Dupont Circle, N.W.

(202) 637-3000 Washington, D.C. 20036

Counsel for Amicus (202) 223-4400

National Association of Counsel for Amici

Menupacturere * Counsel of Record

HENRY L. BAUMANN

NATIONAL ASSOCIATION OF

BROADCASTERS

1771 N Street, N.W.

Washington, D.C. 20036

(202) 429-5454

Counsel for Amicus National

Association of Broadcasters

JOHN KAMP

AMERICAN ASSOCIATION OF

ADVERTISING AGENCIES, INC.

1899 L Street, N.W.

Washington, D.C. 20036

(202) 331-7345

Counsel for Amicus American

Association of Advertising

Agencies, Inc.

November 21, 1991