Law, College of


Date of this Version



100 KY. L.J. 339 (2012)


The Supreme Court has long held that the Commerce Clause of the United States Constitution prohibits states from imposing sales- or use-tax collection requirements on vendors that do not have a physical presence within their jurisdictions. That limitation on state power was challenged as an anachronism in the early 1990s, but the Supreme Court affirmed the continued validity of its physical-presence mandate in Quill Corporation v. North Dakota. Since that case, the legitimacy of the physical-presence test has been largely accepted for purposes of state sales and use taxes. However, states' frustrations with that rule have only increased during that time. States' growing frustrations with the physical-presence rule are due in large part to the explosive growth of the Internet in the two decades since Quill. That technological development has expanded the pool of vendors that are protected by the physical-presence rule from a relatively small group of retailers (principally mail-order vendors) to a much larger group that is buoyed significantly by Internet retailers. That expanded pool of protected vendors, together with widespread consumer use-tax noncompliance, has resulted in significant revenue losses for states across the nation. States have responded to these losses by aggressively and continuously lobbying Congress to legislatively overturn the physical-presence rule. Despite those efforts, however, Congress has not yet given states the reprieve that they seek.

States have responded to Congress's inaction in this area by taking steps aimed at mitigating the impact of Quill's physical-presence directive. Those actions include adopting statutory provisions attributing a physical presence to remote vendors, adopting unique information-reporting requirements that impose significant burdens on those vendors,' and actively discussing challenging Quill's ongoing validity in court.9 The Oklahoma legislature also recently boldly declared that "the sales and use tax system established under Oklahoma law does not pose an undue burden on out-of-state retailers"--a noted concern of the Quill court in affirming the physical-presence standard. 0 Ultimately, however, none of those efforts to mitigate Quill's impact have provided states with any real relief from the physical-presence test." That test still requires that vendors have some physical presence in the taxing state, something that many Internet retailers lack.