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State C enacted a tax on online retailers. The tax applies to retailers with more than $500,000 in annual sales to State C customers, whether or not the retailer has offices, employees, or inventory in State C. The tax is measured by receipts from State C customers only. A separate provision gives a 50 percent credit to retailers that maintain their headquarters in State C. Revenue from the tax funds roads, consumer-protection enforcement, and digital-fraud investigations that benefit online transactions in the state.
An out-of-state retailer with $3 million in annual State C sales challenges the tax. It has no physical property in State C but advertises to State C residents, ships goods to them, collects customer data from them, and uses State C courts to collect unpaid accounts. The retailer argues that a state may not tax a business without physical presence and that the headquarters credit discriminates against interstate commerce. State C argues that the tax is limited to in-state sales and funds services used by online retailers.
Is State C's tax valid under the dormant Commerce Clause? Discuss substantial nexus, fair apportionment, discrimination, relation to state services, and the headquarters credit.