Fourteenth Amendment, Section 1:
All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.
The operation of the Due Process Clause as a jurisdictional limitation on the taxing power of the states has been an issue in a variety of different contexts, but most involve one of two basic questions. First, is there a sufficient relationship between the state exercising taxing power and the object of the exercise of that power? Second, is the degree of contact sufficient to justify the state’s imposition of a particular obligation? Illustrative of the factual settings in which such issues arise are 1) determining the scope of the business activity of a multi-jurisdictional entity that is subject to a state’s taxing power; 2) application of wealth transfer taxes to gifts or bequests of nonresidents; 3) allocation of the income of multi-jurisdictional entities for tax purposes; 4) the scope of state authority to tax income of nonresidents; and 5) collection of state use taxes.
The Court’s opinions in these cases have often discussed due process and dormant commerce clause issues as if they were indistinguishable. 1 A later decision, Quill Corp. v. North Dakota, 2 however, used a two-tier analysis that found sufficient contact to satisfy due process but not dormant commerce clause requirements. In Quill, 3 the Court struck down a state statute requiring an out-of-state mail order company with neither outlets nor sales representatives in the state to collect and transmit use taxes on sales to state residents, but did so based on Commerce Clause rather than due process grounds. In 2018, the Court, however, reversed course in South Dakota v. Wayfair, overturning Quill’s Commerce Clause holding and upholding a South Dakota law that required certain large retailers that lacked a physical presence in the state to collect and remit sales taxes from retail sales to South Dakota residents. 4 In so holding, the Wayfair Court concluded that while the Due Process and Commerce Clause standards “may not be identical or coterminous,” they are “closely related,” and there are “significant parallels” between the two standards. 5