National Bellas Hess, Inc. v. Department of Revenue

City, Missouri. It is licensed to do business in only that State and in Delawaré, where it is incorporated. Although the company has neither outlets nor sales representatives in Illinois, the appellee, Department of Revenue, obtained a judgment from the Illinois Supreme Court that National is required to collect and pay to the State the use taxes imposed by Ill. Rev. Stat. c. 120, § 439.3 (1965).^[1] Since National’s constitutional objections to the imposition of this liability present a substantial federal question, we noted probable jurisdiction of its appeal.^[2]

The facts bearing upon National’s relationship with Illinois are accurately set forth in the opinion of the State Supreme Court:

“[National] does not maintain in Illinois any office, distribution house, sales house, warehouse or any other place of business; it does not have in Illinois any agent, salesman, canvasser, solicitor or other type of representative to sell or take orders, to deliver merchandise, to accept payments, or to service merchandise it sells; it does not own any tangible property, real or personal, in Illinois; it has no telephone listing in Illinois and it has not advertised its merchandise for sale in newspapers, on billboards, or by radio or television , in Illinois.”^[3]

All of the contacts which National does have with the State are via the United States mail or common carrier. Twice a year catalogues are mailed to- the company’s active or recent customers throughout the Nation, including Illinois. This mailing is supplemented by advertising “flyers” which are occasionally mailed to past and potential customers. Orders for merchandise are mailed by the

customers to National and are accepted at its Missouri plant. The ordered goods are then sent to the customers either by mail or by common carrier.

This manner of doing business is sufficient under the Illinois statute to classify National as a “[r]etailer maintaining a place of business in this State,” since that term includes any retailer:

“Engaging in soliciting orders within this State from users by means of catalogues or other advertising, whether such, orders are received or accepted within or without this State.” Ill. Rev. Stat. c. 120, § 439.2 (1965).

Accordingly, the statute requires National to collect and pay to the appellee Department the tax imposed by Illinois upon consumers who purchase the company’s goods for use within the State.^[4] When collecting this tax, National must give the Illinois purchaser “a receipt therefor in the manner and form prescribed by the [appellee],” if one.is demanded.^[5] It must also “keep such records, receipts, invoices and other pertinent books, documents, memoranda and papers as the [appellee] shall require, in such form as the [appellee] shall require, and must submit to such investigations, hearings, and examinations as are needed by the appellee to administer and enforce the use tax law.^[6] Failure to keep such records or to give required receipts is punishable by a fine of up to $5,000 and imprisonment of up to six months.^[7] Finally, to allow, service of process on an out-of-state company like National, the statute designates the Illinois Secretary of State as National’s appointed agent, and jurisdiction in tax collection suits attaches

when process is served on him and the company is notified by registered mail.^[8]

National argues that the liabilities which Illinois has thus imposed violate the Due Process Clause of the Fourteenth Amendment and create an unconstitutional burden upon interstate commerce. These two claims are closely related. For the test whether a particular state exaction-is such, as to. invade the exclusive authority of Congress to fegulate trade between the States: and the test for a State’s compliance with the requirements of due process in this area are similar. See Central R. Co. v. Pennsylvania, 370 U. S. 607 , 621-622 (concurring opinion of Mr. Justice Black). As to the former, the Court has held that “State taxation falling on interstate commerce . . . can only be justified as designed to make such commerce bear a fair share of the cost of the local government whose protection it enjoys.” Freeman v. Hewit, 329 U. S. 249 , 253. See also Greyhound Lines v. Mealey, 334 U. S. 653 , 663; Northwestern Cement Co. v. Minnesota, 358 U. S. 450 , 462. And in determining whether a state táx falls within the confines of the Due Process Clause, the Court has said that the “simple but controlling question is whether the state has given anything for which it can ask return.” Wisconsin v. J. C. Penney Co., 311 U. S. 435 , 444. See also Standard Oil Co. v. Peck, 342 U. S. 382 ; Ott v. Mississippi Barge Line, 336 U. S. 169 , 174. The same principles have been held applicable in determining the power of a State to impose-thé burdens of collecting use taxes upon interstate sales. Here, too, the Constitution requires “some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax.” Miller Bros. Co. v. Maryland, 347 U. S. 340 , 344-345; Scripto,

Inc. v. Carson, 362 U. S. 207 , 210-211.^[9] See also American Oil Co. v. Neill, 380 U. S. 451 , 458.

In applying, these principles the Court has upheld the power of a State to impose liability upon an out-of-state seller to collect a local use tax in a variety of circumstances. Where the sales were arranged by local agents in the taxing State, we have upheld such power; Felt & Tarrant Co. v. Gallagher, 306 U. S. 62 ; General Trading Co. v. Tax Comm’n, 322 U. S. 335 .' We have reached the same result where the mail order seller maintained local retail stores. Nelson v. Sears, Roebuck & Co., 312 U. S. 359 ; Nelson v. Montgomery Ward, 312 U. S. 373 .^[10] In those situations the out-of-state seller was plainly accorded the protection and services of the taxing State. The case in this Court which represents the furthest constitutional reach to date of a State’s power to deputize an out-of-state retailer as its collection agent for a use tax is Scripto, Inc. v. Carson, 362 U. S. 207 . There we held that Florida could constitutionally impose upon a Georgia seller the duty of collecting a state use tax upon the sale of goods shipped to customers in Florida. In that case the seller had “10 wholesalers, jobbers, or ‘salesmen’ conducting continuous local solicitation in Florida and forwarding the resülting orders

from that State to Atlanta for shipment of the ordered goods.” 362 U. S., at 211 .

But the Court has never held that a State may impose the duty of use tax collection and payment upon a seller whose only connection with customers in the State is by common carrier or the United States mail. Indeed, in the Sears, Roebuck case the Court sharply differentiated such a situation from one where the seller had local retail outlets, pointing out that “those other concerns ... are not receiving benefits from Iowa for which it has the power to exact & price.” 312 U. S., at 365. And in Miller Bros. Co. v. Maryland, 347 U. S. 340 , the Court held that Maryland could not constitutionally impose a use tax obligation upon a Delaware seller who had no retail outlets or sales solicitors in Maryland. There the seller advertised its wares to Maryland residents through newspaper and radio advertising, in addition to mailing circulars four times a year. As a result, it made substantial sales to Maryland customers, and made deliveries to them by its own trucks and drivers.

In order to uphold the power of Illinois to impose use tax burdens .on National in this case, we would have to repudiate totally the sharp distinction which these and other debisions have drawn between mail order sellers with retail outlets, solicitors, or property within a State, and those who do no more than communicate with customers in the State by mail or common carrier as part of a general interstate business. But this basic distinction, which until now has been generally recognized by the state taxing authorities,^[11] is a valid one, and we decline to obliterate it.

We need not rest on the broad foundation of all that Was said in the Miller Bros. opinion,, for here-there was neither local advertising nor local household deliveries, upon which the dissenters in Miller Bros. so largely relied. 347 U. S., at 358 . Indeed, it is difficult to conceive of commercial transactions more exclusively interstate in character than the mail order transactions here involved. And if the power of Illinois to impose use tax burdens upon National were upheld, the resulting impediments upon the free conduct of its interstate business would be neither imaginary nor remote. For if Illinois can impose such burdens, so can every other State, and so, indeed, can every municipality, every school district, and every other political subdivision throughout the Nation with power to impose sales and use taxes.^[12] The many variations in rates of tax,^[13] in allowable exemptions, and in administrative and record-keeping requirements^[14] could entangle National’s inter

state business in a virtual welter of complicated obligations to local jurisdictions with no legitimate claim to impose “a fair share of the cost of the local government.”

The very purpose of. the Commerce Clause was to ensure a rational economy free from such unjustifiable local entanglements. Under the Constitution, this is a domain where Congress alone has the power of regulation, and control.^[15]

The judgment is

Reversed.

with whom Mr. Justice Black and Mr. Justice Douglas join,

dissenting.

In my opinion, this Court’s decision in Scripto, Inc. v . Carson, 362 U. S. 207 (1960), as well as a realistic approach to the facts of appellant’s business, .dictates affirmance of the judgment of the Supreme Court of Illinois.

National Bellas Hess is a large retail establishment specializing in wearing apparel. Directly and through subsidiaries, it operates a national retail mail order business With headquarters in North Kansas City, Missouri, and its wholly owned subsidiaries operate a large number of retail stores in -various States. In 1961, appellant’s net sales were in the neighborhood of

$60,000,000, and its accounts receivable amounted td about $15,500,00o.^[1]

Its sales in Illinois amounted to $2,174,744 for the approximately 15 months for which the taxes in issue in this case were assessed. This substantial volume is obtained by twice-a-year catalogue mailings, supplemented by “intermediate smaller ‘sales books’ or ‘flyers,’ ” as the court below styled them. The catalogue contains about 4,000 items of merchandise. The company’s mailing list includes over 5,000,000 names. The “flyers” are sent to an even larger list than the catalogues and are occasionally mailed in bulk addressed to “occupant.”

A substantial part of Bellas Hess’ sales is on credit. Its catalogue features “NBH Budget Aid Credit” — which requires no money down but requires, the purchaser to make monthly payments which include a service fee or interest charge, and which also incorporates an agreement, unless expressly rejected by the purchaser, for “Budget Aid Family Insurance.” The company also offers “charge account” services — payable monthly including a “service charge” if the account is not fully paid within 30 days. The form to be filled in for credit purchases contains the usual type of information, including place of employment, name of bank, marital status, home ownership or rental. Merchandise can also be bought c. o. d. or by sending a check or money order with the order for goods.^[2]

There should be no doubt that this large-scale, systematic, continuous solicitation and exploitation of the Illinois consumer market is a. sufficient “nexus” to require Bellas Hess to collect from Illinois customers and to

only that it collect from its customer-users — and remit to the State — the use tax which is merely equal to the sales tax which resident merchants must collect and remit. To excuse Bellas Hess from this obligation is to burden and penalize retailers located in Illinois who must collect the sales tax from their customers. In Illinois the rate is 3½%, and when it is realized that in some communities the sales tax requires, in effect, that as much as 5% be added to the amount that customers of local, tax-paying stores must pay,^[3] the importance of the competitive discrimination becomes apparent. While this advantage to out-of-state sellers is tolerable and a necessary constitutional consequence where the sales are. occasional, minor and sporadic and not the result of a calculated, systematic exploitation of the market, it certainly should not be extended to instances where the out-of-state company is engaged in exploiting the local market on a regular, systematic, large-scale basis. In such cases, the difference between the nature of the business conducted by the mail order house and by the local enterprise is not entitled to constitutional significance. The national mail order business amounts to over $2,400,000,000 a year.^[4] Some of this is undoubtedly subject ,to the full range of taxes because of the location of stores in the various States,^[5] and some of it is and should be exempt from state use tax because of its sporadic or minor nature. See Report of the Special Subcommittee on State Taxation of Interstate Commerce of the House Judiciary Committee, H. R. Rep. No. 565, 89th Cong., 1st Sess.,

Vol. 3 (1965), at 770-777. But the volume which, under the present decision, will be placed in a favored position and exempted from bearing its fair burden of the collection of state taxes certainly will be substantial, and as state sales taxes increase, this haven of immunity may well increase in size and importance.

In Scripto, supra, this Court applied a sensible, practical conception of the Commerce Clause. The interstate seller which, in that case, claimed constitutional immunity from the collection of the Florida use tax had, like appellant here, no office or place of business in the State, and had no property or employees there. It. solicited orders in Florida through local “independent contractors” or brokers paid on a commission basis. These brokers were furnished catalogues and samples, and forwarded orders to Scripto, out of state. The Court noted that the seller was “charged with no tax—save when . . . he fails or refuses to collect it” ( 362 U. S., at 211 )^[6] and that the State “reimburs[ed the seller] . . I for its service” as tax collector ( 362 U. S., at 212 ). The same is true in the present case.^[7] I do not see how Scripto is

meaningfully distinguishable from this case. In fact, Scripto involved the sale of a single article of commerce. The “exploitation” of the State’s market was by no means as pervasive or comprehensive as is here involved, nor was there any reference to the company’s use of the State’s credit institutions.

The present case is, of course, not at all controlled by Miller Bros. Co. v. Maryland, 347 U. S. 340 (1954). In that case, as this Court said, the company sold its merchandise at its store in Delaware; there was “no solicitation other than the incidental effects of general advertising ... no invasion or exploitation of the consumer market . . . .” 347 U. S., at 347 . As the Court noted in Scripto, supra, Miller Bros, was a case in which there was “no regular, systematic displaying of its products by catalogs, samples or the like.” 362 U. S., at 212 . On the contrary, in the present case, appellant regularly sends hot only its catalogue, but even bulk mailings soliciting business addressed to “occupant,” and it offers and extends credit to residents of Illinois based on their local financial references.

As the Court says, the test whether an-out-of-state business must comply, with a state levy is variously formulated: “whether the state has given anything for which it can ask return”;^[8] whether the out-of-state business enjoys the protection or benefits of the State;^[9] whether there is a sufficient nexus: “some definite link, some minimum connection, between a state and the, person, property or transaction it seeks to tax.”^[10] However this is formulated^it seems to me entirely clear that a mail order house engaged in the business of regularly, systematically, and on a large scale offering merchandise for sale in a State in competition with local retailers, and