North Carolina Sales Tax Case Filed with U.S. Supreme Court

Date April 17, 2023

Quad Graphics Inc. has filed a petition for review with the U.S. Supreme Court (SCOTUS) relative to a recent decision in a sales tax case by the North Carolina Supreme Court. The North Carolina Supreme Court upheld a sales tax assessment of $3.24 million, by a 6-1 vote, issued against Quad Graphics by the North Carolina Department of Revenue (“NC DOR”) on sales that took place outside North Carolina.

Quad Graphics is a seller of printed materials based in Wisconsin. The NC DOR issued a sales tax assessment on sales made by Quad Graphics between 2009 and 2011 to customers located in North Carolina. Quad Graphics did sell the printed materials to North Carolina customers, but the sales occurred entirely outside the state of North Carolina. Quad Graphics received the orders in Wisconsin, delivered the goods to common carriers at their shipping dock (outside North Carolina), and title and risk of loss passed to the customer at this point (also outside of North Carolina).

The North Carolina Supreme Court overturned the decision of a lower Court decision that the sales tax assessment was unconstitutional under the Commerce Clause. Both Courts cited McLeod v. J. E. Dilworth Co., 322 U.S. 327 (1944) in their reasoning. The Dilworth case determined that “a state may not tax sales that occur beyond its borders, even when the goods are purchased for delivery into the taxing state.” There is a notable distinction between sales tax and use tax. A sales tax applies to the sale of goods while the use tax applies to the use of goods (potentially purchased out-of-state). Therefore, a state may tax the in-state use of goods but is not entitled to tax the out-of-state sale of goods. The North Carolina Supreme Court concluded that the state could subject goods purchased for delivery into North Carolina to its sales tax, effectively overruling Dilworth.

The question before the SCOTUS is whether Dilworth remains good law. Quad Graphics argued in its petition that allowing Courts to disregard precedent “would invite anarchy”. They also pointed to potential uncertainty for taxpayers and the risk of significant tax assessments all for (a taxpayer) following precedents established by SCOTUS. The decision by the North Carolina Supreme Court is troublesome for taxpayers as it opens the door for other states to tax transactions occurring outside their borders. Please check our website for updates on this case and whether it is accepted for review by SCOTUS.

If you have questions on sales tax, use tax or other SALT matters, please contact the HBK SALT Advisory Group at

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