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Sales Tax AlertU.S. Supreme Court Rules in South Dakota v. Wayfair



On June 21, 2018, the Supreme Court of the United States issued its widely anticipated decision in South Dakota v. Wayfair, et al. No. 17-494. In a 5-4 decision, the Court held that the physical presence rule for state tax jurisdiction is incorrect and not a requirement under the Commerce Clause of the U.S. Constitution. Therefore, states may require out-of-state retailers, including online sellers, to collect and remit state sales tax on sales made to in-state consumers, even if the seller has no physical presence in the state (that is, no brick-and-mortar-locations, warehouses, headquarters, employees, independent contractors, etc.)


In Quill Corp. v. North Dakota (1992), the Supreme Court decided that the substantial nexus requirement of the Commerce Clause of the U.S. Constitution requires a taxpayer (or tax collector) to have a physical presence in a state before the state can impose a state tax (or tax collection obligation).

In a direct challenge to the physical presence rule, South Dakota enacted an economic presence nexus statute for sales and use tax collection in 2016. Under that statute, a remote seller is required to collect and remit sales tax if: (1) the seller's South Dakota sales exceed $100,000; or (2) the seller has more than 200 separate sales transactions into South Dakota.

In summary, the majority opinion, authored by Justice Kennedy (joined by Justices Thomas, Ginsburg, Alito, and Gorsuch), ruled that the "physical presence rule, both as first formulated and as applied today, is an incorrect interpretation of the Commerce Clause." Further, the Majority ruled that South Dakota's $100,000 of sales or 200 separate sales transactions statutory standard to impose the tax collection obligation satisfied the Court's substantial nexus requirement with regard to the Commerce Clause. 

Chief Justice Roberts authored the four Justice dissenting opinion (joined by Justices Breyer, Sotomayor, and Kagan).


  • With South Dakota's success, it is now likely that other states that have not enacted a similar economic nexus statute will follow suit. Some states have already enacted such statutes in anticipation of this ruling. 
  • Wayfair will have wide-ranging implications for all businesses, as well as consumers, and state and local governments.
  • Wayfair changes a remote seller's considerations from "do I have physical presence" to "how do I comply with all of the state and local jurisdictions where I deliver my products or services?"
  • Remote sellers, marketplace facilitators, service providers, licensors of software, and other businesses that have provided services to or delivered their products to customers from a remote location will have to start complying with state and local sales and use taxes. 

If you have any questions about this ruling and its implications, please contact a member of our Tax Consulting Team

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