Remote Sellers Stay Tuned: U.S. Supreme Court to Review South Dakota’s Sales Tax Economic Nexus Provision
SynopsisThe United States Supreme Court recently granted certiorari in South Dakota v. Wayfair, Inc., et al. In this case, South Dakota is seeking to uphold its sales tax economic nexus statute. The state’s statute compels remote sellers to collect sales and use taxes on sales to South Dakota customers, even in situations where the seller lacks any South Dakota physical presence. Such legislation, however, is directly contrary to the ruling in Quill v. North Dakota (“Quill”). In its petition for certiorari, South Dakota asked the Supreme Court to reexamine the sales and use tax physical presence nexus rule set forth in Quill.
Based on the United States Supreme Court’s decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), taxpayers selling taxable goods and services into a state are not required to collect state sales taxes unless the taxpayer (seller) has a physical presence in the state in which the buyer is based. In 2016, in direct conflict with Quill, South Dakota enacted an economic nexus provision, S.B. 106, for sales tax purposes, requiring taxpayers with no physical presence to collect South Dakota sales tax if the out-of-state seller amassed $100,000 of sales or 200 or more transactions over the prior 12 months.
The South Dakota economic presence nexus legislation was specifically designed to challenge Quill. Wayfair, Inc. and other taxpayers challenged S.B. 106, and, in 2017, the South Dakota Supreme Court held that the economic nexus provisions imposed on remote retailers was invalid in light of the United States Supreme Court’s physical presence rule set forth in Quill.
What does CohnReznick think?Sales tax nexus rules are constantly being pushed, with the enactment of various Amazon/remote-seller nexus and notice reporting rules. Also, in addition to South Dakota, several other states have passed similar sales tax economic nexus provisions directly contrary to Quill. The Supreme Court’s review of this case will have broad implications, but, regardless of the outcome, remote sellers need to be ready to either collect and remit sales tax, or adhere to the various notice reporting provisions. There is clearly more to come on this issue.
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