Concerned about the erosion of its sales tax base and corresponding loss of critical funding for state and local services, the South Dakota Legislature in 2016 enacted a law requiring out-of-state sellers to collect and remit sales tax “as if the seller had a physical presence in the State.”
The Act covers sellers that, on an annual basis, deliver more than $100,000 of goods or services into the State or engage in 200 or more separate transactions for the delivery of goods or services into the State.
Respondents, top online retailers with no employees or real estate in South Dakota, each meet the Act’s minimum sales or transactions requirement, but do not collect the State’s sales tax.
South Dakota filed suit in state court, seeking a declaration that the Act’s requirements are valid and applicable to respondents and an injunction requiring respondents to register for licenses to collect and remit the sales tax. Respondents sought summary judgment, arguing that the Act is unconstitutional.
In a 5-4 opinion the Court overturned its earlier precedents (Quill Corp. v. North Dakota) and rejected the physical presence requirement. The Court said its earlier decisions had been wrongly decided and that the physical presence rule creates cross-border “distortions” and discourages out-of-state sellers from having an in-state physical presence and encourages customers to buy from out-of-state vendors.
Based on the ruling states can now require remote sellers (online retailers) that do not maintain a physical presence/place of business in a state to register, collect and remit sales and use taxes on transactions with instate customers.SCOTUS ruling Wayfair