Due Process Implications Related to State Notice and Economic Nexus Laws

Abstract

Justice Kennedy’s concurring opinion in Direct Marketing Association v. Brohl marked a rare occasion: a Supreme Court Justice urged states to promulgate laws that violate the Commerce Clause. The hope that Justice Kennedy shares with the states is that the Supreme Court will ultimately have an opportunity to recraft the Commerce Clause analysis in relation to sales and use tax collection. Given the chance, Justice Kennedy would do away with Quill Corp. v. North Dakota’s physical presence standard and replace it, in all likelihood, with some sort of measurement based on an out-of-state vendor’s economic presence in the state.

As the issue plays out in coming years, the Commerce Clause will take center stage. In all of this though, the Due Process Clause should not be ignored. This Article considers due process implications related to state economic nexus laws that were promulgated in response to Justice Kennedy’s concurring opinion. It identifies due process vulnerabilities among these laws and offers a recommendation on how the states might accommodate both the Commerce Clause (assuming a reversion from physical presence) and the Due Process Clause.

To complement this discussion, a due process analysis is offered with respect to state notice-and-reporting statutes. The Tenth Circuit recently upheld Colorado’s notice-and-reporting law as a lawful exercise of state power under the Commerce Clause. Other states have followed Colorado’s model and enacted their own versions. This Article tests these laws for due process vulnerability and identifies Louisiana’s version as a model for other states.

Keywords: Tax, Due Process Clause, Commerce Clause, Nexus, State and Local Tax

JEL Classification: K34