Sales tax alert for online retailers: US Supreme Court to hear challenge to economic presence sales tax nexus law

The US Supreme Court (the “Court”) has granted certiorari in South Dakota v. Wayfair,[1] a case that could ultimately determine whether remote sellers are required to collect and remit sales and use taxes on transactions involving customers in states where the seller itself lacks physical presence.

The case is on appeal from the South Dakota Supreme Court, and involves a challenge to that state’s economic presence nexus provision. That law requires remote sellers that sell tangible personal property, electronically transferred products, or taxable services for delivery into South Dakota to register, collect, and remit South Dakota sales taxes on those sales as if the seller has a physical presence in the state.[2]  Similar provisions have been implemented in at least 11 other states since 2015.

At issue in the case is the continued viability of the physical presence nexus standard that was formally enunciated in the 1992 Quill Corp. v. North Dakota decision. In Quill, the Court expressly stated that it was up to Congress to determine the appropriate constitutional standard for allowing states to impose a sales and use tax collection obligation. However, in the 26 years since the decision was issued, Congress has not adopted such a standard which has caused a number of states in recent years to draft laws or promulgate regulations that directly contradict the Court’s precedent in hopes of getting the Court to revisit the issue.

If you are responsible for managing sales tax for an online retailer, please contact us for more information about the potential impact of the Wayfair case.



[1] South Dakota v. Wayfair, Inc. et al, 2017 S.D. 56 (S.D. S. Ct. Sept. 13, 2017), petition for cert. granted, Dkt. No. 17-494 (U.S. S. Ct. Jan. 12, 2018).

[2] The registration requirement applies only if, in the previous calendar year, the seller either: 1) had over $100,000 in gross revenue from delivery of these goods into South Dakota, or 2) sold these goods for delivery into South Dakota in 200 or more separate transactions.

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