The Multistate Tax Commission has filed an amicus brief in support of the North Carolina Department of Revenue’s appeal to the North Carolina Supreme Court in Quad Graphics, Inc. v. North Carolina Department of Revenue , Docket No. 407A21, of the North Carolina Business Court’s dismissal for a commerce clause violation of the Department’s sales tax assessment against the taxpayer on its sales of printed material delivered to North Carolina addresses provided to the taxpayer by its customers. The taxpayer relied on McLeod v. J.E. Dilworth Co., 322 U.S. 327 (1944) to argue that because the printed materials were transferred to the common carrier outside of North Carolina and the parties agreed that title passed to the purchaser at that point, the sales transactions were completed outside the state, and North Carolina lacked transactional nexus with those sales.
The Commission’s amicus brief argues that Dilworth, which relied on the “free trade” rule (barring states from taxing interstate sales), was implicitly overruled by the rejection in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977) of the free trade rule when the Court expressly overruled Spector Motor Service, Inc. v. O’Connor, 340 U.S. 602 (1951). Complete Auto replaced that rule with its four-part test, which the Department’s assessment satisfies. Also, the brief argues that Dilworth is factually distinguishable, in that North Carolina has adopted statutory rules sourcing the sales of printed material to the North Carolina addresses they were delivered to, and no such rules were in place at the time of Dilworth. Finally, the brief points out that any continuing validity of Dilworth will stand as an obstacle to states simplifying their tax structures by preventing states from merging destination-sourced sales tax with seller-collected use tax.
You can read the brief by clicking here .