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Remote Sellers Stay Tuned: U.S. Supreme Court to Review South Dakota’s Sales Tax Economic Nexus Provision

The 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.

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.

For more information, please contact Scott Smith, Director, State and Local Tax Services, Scott.Smith@CohnReznick.com or 845-544-3906 

Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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