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Completely Compliance- SCOTUS to Hear the South Dakota vs. Wayfair Case

by DMA Staff | Apr 10, 2018
DMA_Blog_CC_SD v Wayfair

On January 12, 2018, the Supreme Court of the United States (SCOTUS) granted certiorari (the agreement to review the actions of a lower court) for South Dakota v. Wayfair, IncThis decision has the potential to overturn 26 years’ worth of holdings stemming from the Quill Corp. v. North Dakota decision that established the existing physical presence requirement for imposing tax collection obligations on remote retailers.

The Quill case’s impetus was the state of North Dakota filing an action in state court to force the Quill Corporation, an out-of-state mail-order office equipment retailer, to charge use tax on merchandise shipped via common carrier into and used within the state. The 1992 Quill case, found that retailers can only be forced to collect taxes in states where the company has a “physical presence.” This interpretation of the dormant commerce clause has allowed many online retailers without traditional nexus to sell into a state without collecting and remitting sales tax. In the SCOTUS decision, the court stated that the question of the state imposition of use taxes on interstate commerce would be best addressed by congress, who has subsequently failed to pass pertinent legislation.

The volume of internet based sales in the ensuing years and their exemption from state sales tax had prompted many states to attempt to collect or come to agreements with major online retailers. In 2015, Justice Kennedy wrote to encourage the Court to reconsider Quill. Justice Kennedy had voted in 1992 in favor of Quill, but wrote that it was “questionable even when decided,” and called for a case to use as a vehicle to reexamine the Quill decision.

South Dakota passed its Nexus law ( S.B. 106) in 2016 directly targeting the Quill decision. The law targeted not physical presence, but economic presence by requiring retailers with more than $100,000 in annual sales within South Dakota to collect and remit the 4.5% tax on purchases. After enacting the law, the state targeted the largest retailers that would meet the threshold and sent notices to each. Three of the four retailers targeted challenged the state’s demands and went to trial. Quill was upheld and the state filed suit and asked the courts to declare the measure constitutional.

South Dakota has been supported in their endeavor to overturn the Quill decision by 41 other states, as well as the District of Columbia, through the filing of amicus briefs which support the reexamination of the dormant commerce clause due to the technological and economic changes of the past quarter century.

Wayfair is the named respondent in the case; however, Overstock.com, Inc, and Newegg, Inc were also originally named in the state’s lawsuit.

The case will be heard in the SCOTUS on Tuesday, April 17, 2018. Transcripts of the hearing will be available on the same day, with audio recordings of the oral arguments available on Friday of the same week. The court’s ruling will not be known until the end of the term which is currently set for June 2018.

Completely Compliance is a quarterly e-newsletter exclusively for clients and employees of DMA. It is intended to provide relevant sales/use tax news, events, and information. As such, this e-newsletter should be used for general informational purposes only, and not as a substitute for consultation with professional tax, legal, or other competent advisers. Before making any decision or taking any action based upon information contained in this e-newsletter, you should consult with a DMA professional.