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Business Taxes Law Guide—Revision 2024
Sales And Use Tax Court Decisions
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South Dakota v. Wayfair, et al. … (2018)
An Out-of-State Seller’s Physical Presence in Taxing State is Not Necessary for State to Require Seller to Collect and Remit Its Sales Tax
In 2016, South Dakota enacted a statute requiring out-of-state sellers to collect and remit sales tax if the seller, on an annual basis, delivers more than $100,000 of goods or services into the state or engages in 200 or more separate transactions for the delivery of goods or services into the state. South Dakota filed an action in state court seeking a declaration that the requirements of the act are valid and applicable to several large online retailers that met the minimum sales or transactions requirement of the act.
Earlier U.S. Supreme Court decisions interpreting the dormant commerce clause required that an out-of-state seller have a physical presence in the consumer’s state in order to establish sufficient nexus to be required to collect and remit the state’s sales or use tax. Relying on those earlier decisions as controlling precedent, the state trial court granted summary judgment in favor of the retailers, which the South Dakota Supreme Court affirmed.
The U.S. Supreme Court ruled that an out-of-state seller’s physical presence in a taxing state was not necessary for the state to require a seller to collect and remit the state’s sales and use tax, overruling the “physical presence rule” of its earlier decisions. The U.S. Supreme Court held the South Dakota statute satisfied the substantial nexus requirement because it only applied to sellers who engage in a significant quantity of business in the State, and thus, the retailers could be required to collect and remit the state’s sales and use tax. South Dakota v. Wayfair, Inc., et al. (2018) S.Ct. 2080.