Governor Leavitt assumed office in January, 1993, a pivotal time in history when the forces of globalization and the opportunities presented by the electronic highway were just being recognized. In his inaugural address, Governor Leavitt noted the challenges and opportunities presented by the changing economy and invited Utah citizens to join him in meeting those challenges.
Just a few months before, the United States Supreme Court, in Quill v. North Dakota, had decided a case that would have tremendous impact on the retail industry, as it grew and changed under the forces of electronic commerce and globalization. The Quill Company was actually a fairly traditional mail order retailer. It sold office supplies through its catalogue. And it sold a lot of office supplies. Quill did not have a store or warehouse in North Dakota and, according to prior Supreme Court precedent, National Bellas Hess, it did not believe it should be required to collect sales tax for North Dakota on goods that it sold in the state. North Dakota, on the other hand, believed that both the mail order industry and federal case law on interstate commerce had changed in the twenty-five years since National Bellas Hess had been decided and, with the advent of computers and the growth of interstate sales, it was no longer appropriate for Quill to avail itself of the North Dakota market without collecting sales taxes that competing North Dakota merchants would be required to collect.
The Supreme Court split the baby. It overturned the part of National Bellas Hess that said it was a violation of due process for a state like North Dakota to impose a tax collection burden on an out-of-state retailer. In other words, the Court acknowledged that it would not be fundamentally unfair to make Quill collect the tax. They upheld the part of National Bellas Hess, however, that said the collection requirement would “unduly burden interstate commerce.” In so holding, it appears that the Court was not overly concerned with North Dakota’s particular law. What was “more significant [was] that similar obligations might be imposed by the Nation’s 6,000-plus taxing jurisdictions” and that ‘“many variations in rates of tax, in allowable exemptions, and in administrative and record-keeping requirements could entangle a [mail-order house] in a virtual welter of complicated obligations. ’”3 By limiting their decision to the Commerce Clause, the Court essentially invited Congress to determine the appropriate balance between the legitimate needs of interstate commerce and fairness for Main Street retailers.
Within a few years, it became apparent to Governor Leavitt and other perceptive observers that Quill, which was a minor irritant for states when limited to traditional catalogue merchants, could become a catastrophic when applied to the burgeoning forces of electronic commerce and globalization. The changes and challenges identified conceptually in his inaugural address could not only immediately reduce state and local tax revenues, they could place Main Street retailers at an insuperable competitive disadvantage.