Tax Court Cases

Tax Court Cases: National Bellas Hess v. Department of Revenue of the State of Illinois 386 U.S. 753 (1967)

Fact

The Appellant

National Bellas Hess was a mail-order house selling various consumer products. The primary location of the company’s business was in Missouri. This company had no tangible property in the State of Illinois. It had no physical sales outlets, no representatives, solicitors, or telephone listings in Illinois. In addition, National Bellas Hess did not advertise in Illinois by billboards, radio, television, or newspapers. The company mailed catalogs to customers across the United States twice a year, supplemented by flyers, including in Illinois. Orders for the National Bellas Hess merchandise were mailed to the appellant’s plant in Missouri and later sent to the customers through common carrier or mail. Do you need any help for completing your assignment ? Contact us at eminencepapers.com. We endeavor to provide you with excellent service.

The Appellee

The Department of Revenue of the State of Illinois got a judgment at the Illinois Supreme Court mandating that the appellant should collect and pay the State the use tax that the Illinois Department of Revenue imposes on consumers who buy the appellant’s products with the State.

Issue

The issue in this case was determining whether National Bellas Hess legally advertising and operating business within the State of Illinois to warrant the payment of the use tax to the Illinois state government. The appellant argued that requiring the company to pay the use tax in its State has created an undue liability on the Due Process Clause under the Fourteenth Amendment, making it hard for businesses to perform interstate commerce. The Illinois Supreme Court decision that required the appellant to pay the tax invaded the exclusive authority of Congress to regulate trade between states.

The appellee argued that engaging in soliciting orders through the distribution of catalogs or any other forms of advertising is practicing commerce within the State whether the orders are received within or outside the State. Therefore, National Bellas Hess was required to pay the State the use tax for goods purchased by consumers in Illinois. The Illinois State Department required that the appellant keep all the records of transactions performed with consumers in terms of receipts, invoices, or any other financial documents that prove the business relationship between the company and the consumers. Failure to keep such records would be punishable by a fine of up to $5,000 or 6 months imprisonment.

The issue in this court case was determining whether the State of Illinois Department of Revenue’s decision to impose the duty to collect use tax on the appellant was lawful.

Conclusion

The Supreme Court ruled that the appellant was not required to collect sales tax unless it had a physical location within the State. The Commerce Clause prohibits a State from imposing use tax collection duty on a business whose only connection with the buyers within the State is by mail or a common carrier.

Analysis

The principle applied in this case was to determine whether state tax falls under the confines of the Fourteenth Amendment’s Due Process Clause. If the state tax falls under the confines of the Due Process Clause, then no State court is allowed to overturn the decisions that the United States Congress has made. The court also needed to determine whether the State of Illinois has given anything for which to ask something in return. This same principle had been applied in determining whether a State can impose tax upon interstate sales in Miller Bros. Co. v. State of Maryland, 347 U.S. 340. Here, the constitution requires some minimum connection and definite link between the State and the person, transaction, or property it seeks to sell. The court stated that “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.” This opinion was cited from Miller Bros Co. v. Maryland 347 U.S. 340. If the sales were arranged by a local agent within the taxing State, then the court held that the State had the power to impose the duty to collect use tax. The court declined to hold the decision made in Miller Bros. Co. v. State of Maryland, 347 U.S. 340 because, in the case of National Bellas Hess, there had been no local advertising and household deliveries for which Miller Bros. had been reliant. The court held that if it were to uphold the Illinois Supreme Court ruling, it would cause impediments in the conduct of free interstate business because other States would be accorded the power to impose the use tax for businesses not located in their states.

The ruling of this court case was made on the principle that the Commerce Clause prohibits a State from imposing consumer use tax collection duty on a business whose only connection with the consumer is through a carrier or mail. The court stated that the very purpose of the Commerce Clause was to ensure that it was a national economy free of local entanglements. This is a domain that only the United States Congress has the power to control. Therefore, the court would interfere with the Due Process Clause by changing this. The Due Process Clause of the Fourteenth Amendment prohibits any state court from enforcing any laws that would prohibit the United States citizens from accessing the immunities accorded to them by the Federal law or deny any person within its jurisdiction the equal protection of the law. By interfering with the inter-state commerce, the Supreme Court of Illinois had prevented National Bellas Hess from performing free interstate transactions as protected by Federal law.

After this court ruling, any business with no physical location within a state was not required to collect use tax from the consumers regardless of whether they had performed any consumer transactions. A business operating remotely from a given State does not have any physical stores, representatives, telephone listings, or solicitors and does not advertise or physically deliver its products in a State is not required to collect use tax from buyers in that particular State. However, part of this court case ruling was overruled in 1992 in Quill Corp v. North Dakota (Lane, 1992). This court overruled that the Clause requires physical presence in a state for the use tax to be imposed.

References

Lane, C. V. (1992). National Bellas Hess, Inc.: Obsolescent Precedent or Good Law after Quill Corp. v. North Dakota. Wash. & Lee L. Rev., 49, 1183.

Miller Bros. Co. v. State of Maryland, 347 U.S. 340

National Bellas Hess v. Department of Revenue of the State of Illinois 386 U.S. 753

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Tax Court Cases: National Bellas Hess v. Department of Revenue of the State of Illinois 386 U.S. 753 (1967)

The purpose of this assignment is to familiarize you with the various tax court cases involving individual and corporate transactions that have been decided at all levels of the United States court system. These cases have often established the precedent for the treatment of certain tax transactions, and serve as a source of tax research. Assigned court cases will reinforce the key concepts learned in class. Students will summarize their choice of the following court cases (or their own selection with pre-approval by the instructor), using the “FICA” model of analysis. FICA stands for Fact, Issue, Conclusion, and Analysis and allows you to concisely summarize the conclusions of a court case.

Tax Court Cases

To summarize the case, follow these steps:

• State the facts of the case in a clear and concise matter
• Identify the issue(s)/laws at hand
• State the conclusion of the court
• Complete your analysis of the findings as presented in the case (answer the question: “why did the court rule this way on this issue?”)

Briefs should be at least two pages long, single-spaced, 12-point font.

Note: I am working on the National Bellas Hess v. Depart. of rev of the state of Illinois case. Please complete it on this case. Thanks