Subj: Constitutionality - Nexus/Quill: Perspectives of IPI: Center for Technology Freedom From: Bartlett Cleland Institute for Policy Innovation To: Internet Caucus Advisory Committee The Nexus Debate Issues surrounding taxing the Internet are not new; they are the same ones that have plagued catalogue sales for years. This year, about 15 billion catalogues will be delivered to people's homes. That works out to about 50 catalogues for every American. And consumers will spend an estimated $57 billion buying those products. Long before the Internet became the focus of discussion, interstate catalogue sales raised the same questions about sales taxes. States and local communities see their inability to tax interstate sales as a loophole that costs them revenue, and they have gone to the courts in order to force companies to collect the tax for them. In Quill Corp. v. North Dakota , the U.S. Supreme Court ruled in 1992 that the Commerce Clause barred the states from requiring an out-of-state mail-order company to collect taxes on sales made to customers inside the state unless the company had a substantial presence (referred to as "nexus") within the state. Since Quill had no outlets or sales representatives or other significant presence within the state of North Dakota, it did not have to collect the tax. Thus, while states have the right to collect taxes, that authority stops at their borders. However, the states are currently doing their best to change that fact. A number of groups including the National Governors' Association, National League of Cities, National Association of Counties, U.S. Conference of Mayors, National Conference of State Legislators, Council of State Governments and the International City/Council Management Association are backing a proposal that they claim would simplify state sales tax assessments and collections, making it easier to collect taxes on interstate mail-order or online purchases. If successful, the net effect of their proposal would be to bypass Quill.