The Supreme Court’s analysis in Quill Corp. v. North Dakota, 504 U.S. 298 (1992) has been cited favorably again, this time with regard to a Due Process challenge to a federal statute. On February 18, the United States Court of Appeals for the District of Columbia Circuit vacated the denial of a motion for a preliminary injunction brought by a plaintiff challenging the constitutionality of a federal law regulating online sales of tobacco products, and remanded the case for further proceedings. Gordon v. Holder, 2011 WL559002 (D.C. Cir. Feb. 18, 2011). Previewing the issues to be addressed by the District Court on remand, the Court of Appeals cited Quill as “instructive” in analyzing the plaintiff’s claim that the federal statute violates the Due Process Clause.
In a statement likely to send shivers up the spines of the members of the Governing Board of the Streamlined Sales and Use Tax Agreement and other advocates for federal legislation to override Quill’s “physical presence” requirement arising under the Commerce Clause, the D.C. Circuit commented that “there remains an open question whether a national authorization of disparate state levies on e-commerce renders concerns about presence and burden obsolete” as a matter of Due Process. Id. at *4 (emphasis added). While this statement, and the Court’s opinion, does not alter the analysis under Quill of the constitutionality of state tax (and tax-related) laws under the Commerce Clause, it suggests that the concerns about “presence and burden” presented in Quill are potentially also relevant to determining whether a federal law authorizing state tax levies is consistent with the Due Process Clause.
Proponents of federal legislation to allow states to impose sales and use tax collection obligations on Internet retailers and other remote sellers without regard to the sellers’ nexus have long–assumed that the “dormant” Commerce Clause is the only obstacle to such a scheme, and that this obstacle is one which could be swept away by Congress. But, the D.C. Circuit’s statement in Gordon signals that such a law may also face a meaningful challenge under the Due Process Clause, violations of which Congress cannot approve. Citing Quill and International Shoe, the D.C. Circuit notes that “Even national legislation—which can permissibly sanction burdens on interstate commerce—cannot violate the Due Process principles of “fair play and substantial justice.”
The “open question” identified by the Court may mean that genuine simplification of state sales and use tax systems will be a constitutional prerequisite to a national mandate of compliance with such systems, to ensure that basic Due Process requirements have been satisfied. The D.C. Circuit, at least, perceives “disparate” state tax obligations as potentially at odds with fundamental due process.
