The WasteWatcher: The Staff Blog of Citizens Against Government Waste

To Kill or Not to Kill Quill

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact

In 1992, the Supreme Court ruled in Quill v. North Dakota that if a company did not have a “physical nexus” within the state, that state could not require the company to collect sales taxes from its customers.  However, residents of states with income taxes are supposed to voluntarily pay a “use tax” on such out-of-state transactions when they file their tax returns.  As the number of online transactions continue to grow, there has been an ongoing debate over “bricks and mortar” sellers versus internet sellers, and many states are seeking “lost” sales tax revenue from these online activities.

These states are attempting to enact legislation that would require remote sellers to remit a sales tax in what many are calling the “kill Quill” movement.  Remote sellers would be required to remit a sales tax once their sales in the state reaches a certain dollar or transaction threshold.

The Quill case, along with the Commerce Clause, makes it clear that taxing power must be limited by state borders.  The Quill killing bills would wipe away this constitutional limitation and force businesses to navigate a complex web of taxing jurisdictions.  This would also dramatically raise compliance costs for companies that do not have a physical presence in the state, particularly small online businesses. 

During his National Governors Association’s State of the States address, Governor Terry McAuliffe (D-Va.) discussed the “longtime, state-driven effort to level the playing field for all retailers by allowing states to collect sales taxes on remote sales.”  Governor McAuliffe suggested that the best way to solve this “problem” is with federal legislation.  To date, however, neither the House nor the Senate has considered legislation to require the collection of taxes from remote sellers, so Governor McAuliffe suggests that states pursue “alternative solutions.”

In 2016, South Dakota began pursuing such an “alternative solution” by redefining the physical nexus standard for remote sellers.  A bill was introduced to require out-of-state sellers with annual in-state sales exceeding $100,000 or least 200 separate transactions to collect and remit an online sales tax.  This proposed legislation sparked a flurry of legal challenges by e-commerce businesses and catalog mailers seeking a declaratory judgment against South Dakota’s attempt to wipe away the constitutional limitation that a state’s taxes cannot extend beyond its borders.

The goal of the “kill Quill” movement seems to be to force the Supreme Court or Congress to provide a federal solution to the nexus debate.  However, a federally mandated solution may be a worse option for states looking to collect an online sales tax, since states should be sovereign within their physical boundaries, in which case Congress should not be mandating states to impose an online sales tax on remote sellers.

Regulatory compliance has become a costly expense for businesses both big and small across the country.  Policy makers nationwide put forth pro-growth policies that curb government waste, rather than over taxing businesses for the sake of generating more revenue to fill budgetary gaps.  A 2014 study by the National Association of Manufacturers (NAM) found that compliance regulations cost the U.S. economy nearly $2 trillion every year, equal to approximately 12 percent of the U.S. gross domestic product.  The NAM study also found that small businesses can spend nearly $12,000 per employee annually on compliance regulations.  The excessive costs associated with regulatory compliance has inhibited the ability of small businesses to thrive and reinvest money back into their businesses and communities.

If Congress does not codify Quill or otherwise make that case law clear in federal law, states will inevitably continue to design and implement a punitive sales tax regime on remote sellers.  They should instead do a better job of enforcing the use tax laws they already have to address this supposed problem.


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