Earlier this month, the United States Supreme Court agreed to hear South Dakota’s challenge in South Dakota v. Wayfair to the 1992 Supreme Court decision in Quill v. North Dakota, which requires a physical presence test to determine whether states can collect sales tax from out-of-state (often catalog) retailers.
The Court’s writ to hear South Dakota v. Wayfair is based on South Dakota’s passage of legislation requiring remote (generally online sellers) to collect and pay sales tax in South Dakota. South Dakota’s law does not require a physical presence test but instead requires an out-of-state seller with total sales in the state of more than $100,000 or entailing over 200 transactions to collect and remit state sales taxes to South Dakota. After passage of the law, several retailers brought suit against South Dakota, claiming the law was unconstitutional in light of Quill. South Dakota’s highest court agreed with the retailers and South Dakota filed a petition for certiorari in the United States Supreme Court.
A decision by the U.S. Supreme Court in favor of South Dakota would likely bring about the passage of state laws requiring online retailers to collect and remit sales tax despite not maintaining a physical presence in the state. For several states, this could mean a significant increase in revenue. The Government Accountability Office recently estimated that in 2017 states did not collect between $8.5 billion and 13.4 billion in revenue from sales taxes from remote sellers. If the U.S. Supreme Court does not decide in favor of South Dakota, the issue could also be decided by Congress through the Remote Transactions Parity Act and the Marketplace Fairness Act.
We’ve been tracking these developments and will continue to provide updates as the issue develops.