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It has long been the law of the land that a taxpayer must have a discernable physical presence in a state before it can be required to collect and remit sales and use taxes.

The U.S. Supreme Court reaffirmed this bright-line test in the 1992 case of Quill Corp. v. North Dakota. In Quill, the Court held that interstate commerce would be unduly burdened if an out-of-state business were required to comply with the sales and use tax laws of thousands of state and local tax jurisdictions. Requiring a physical presence, the Court reasoned, is a constitutionally sufficient contact – or nexus – with a state or locality to impose sales and use tax collection duties.

Despite the clear precedent in Quill, many state legislatures have questioned its shelf life in our current online economy. When Quill was decided, the internet was merely a concept. Out-of-state businesses not otherwise having a physical presence in a state would seek customers through mail advertisements and catalogs. Business transactions were handled remotely by mail order. Such was the case of the taxpayer in Quill. Now, state legislatures argue, advancements in e-commerce obviate any need for a physical presence in a state or locality. As more and more businesses conduct business solely online, the sales tax revenues of many states has markedly decreased.

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