Physical presence can be established due to in-state deliveries.

• Author: Esstman, Donald L.

Whether an out-of-state seller is required to collect sales tax often depends on whether the seller has nexus with the state. Nexus is defined as some link or minimum connection between the state and the out-of-state seller doing business in that state; standards vary from state to state. Courts have determined that solicitation of sales by employees or agents within the state is sufficient nexus. (Nexus standards for sales tax are different from the standards set for corporate income tax. This article addresses only sales tax nexus.)

Nexus standards have traditionally been very broad, and are usually judicially established. In a landmark case, National Bellas Hess, Inc. v. Department of Revenue, 87 Sup. Ct. 1389 (1967), the Supreme Court ruled that a mail-order company located in Missouri with no outlets or sales representatives in Illinois could not be required to collect Illinois use tax. In Miller Brothers Co. v. Maryland, 74 Sup. Ct. 535 (1954), the Supreme Court held that Maryland could not constitutionally impose a use tax obligation when die only connection with the state was the occasional in-state delivery by company-owned vehicles. In Quill Corp. v. North Dakota, 112 Sup. Ct. 1904 (1992), the Court reaffirmed that a state cannot require collection of the tax if the seller has no physical presence in the state. These cases went against states aggressively seeking to tax out-of-state sellers with no physical presence. Without a bright-line test, however, the issue of what constitutes sufficient physical presence remains unanswered.

States continue to seek to collect taxes from out-of-state sellers with minimal contacts. In Brown's Furniture v. Illinois Director of Revenue, Ill. Sup. Ct. No. 78195, 4/18/96, a Missouri furniture company sold $675,000 worth of furniture and made 942 deliveries of merchandise to Illinois customers during a 10-month period in 1989. The company placed 2,800 advertisements with various media in Illinois. It bought time on two television stations and four radio stations, and ran print ads in a newspaper published in Quincy, Illinois. The Illinois Supreme Court ruled Brown's Furniture was liable for die collection of Illinois use tax on merchandise it delivered to customers in Illinois...