Substantial Nexus

Quill Corp. v. North Dakota, 504 U.S. 298 (1992)

  • Quill, an office supplies company, had no physical presence within the state of North Dakota.  In 1987, the statute, which defined “retailer” for tax purposes, was amended to include “every person who engages in regular or systematic solicitation of a consumer market in the state.”  Thus, the Tax Commissioner of North Dakota sent notice to Quill stating that it owed a use tax for purchases that North Dakota residents made through Quill’s mail order catalog.
  • Under the Commerce Clause of the Constitution, a state cannot require an out-of-state retailer to collect use tax unless the retailer has a “substantial nexus” with the taxing state.
  • The Supreme Court sided with Quill, ruling that a taxpayer must have a physical presence in a state in order to require collection of sales or use tax for purchases made by in-state customers. Physical presence means offices, branches, warehouses, employees, etc.


  • If an online retailer has a physical presence in a particular state, such as an office, store or warehouse, it must collect sales tax from customers in that state.  Conversely, if a business has no physical presence in a state, it is not required to collect sales tax for sales from that state.
  • At the time of Quill, the court noted that it was unreasonable to force Internet retailers to comply with over 7,500 tax jurisdictions, and would put a strain on interstate commerce.  Some estimates place this number even higher, with the number at 11,000.  In addition, many states make certain products, such as groceries, exempt from certain taxes.  Without any sort of uniform sales tax, requiring retailers to comply with every jurisdiction's tax may be unworkable.
  • In light of Quill, states responded with laws designed to collect sales and use tax, in a more direct manner.