US Supreme Court out-of-state e-commerce Sales Tax

Fri 22nd Jun 2018

The US Supreme Court has ruled in the South Dakota v Wafair Inc case that out-of-state retailers must charge and remit the Sales Tax of their consumer’s home state. This overturns the 1992 Quill Corp v North Dakota ruling which had held a state cannot tax a business unless it had a substantial connection or physical presence (‘nexus’) with the state.

Challenging Quill

The Wayfair case challenged the physical presence standard upheld by the Supreme Court in Quill Corp. v. North Dakota (1992). Quill held that a state cannot tax a business unless it has a substantial connection (nexus) with the state, defined as a physical presence. That decision has now been repealed, and the case has been remanded to the South Dakota Supreme Court “for further proceedings not inconsistent with” the Supreme Court opinion.

South Dakota asked for the ruling from the Supreme Court. The state had implemented an Act to establish economic nexus and maintains that not being able to tax remote sellers is eroding South Dakota’s sales and use tax base, causing “imminent harm to this state.”

South Dakota’s argued the Quill physical-presence exception for sales tax collection duties is causing serious harms this Court could not have seen when it decided Quill in 1992.” Reasons given included:

  • It harms states, which are deprived of critical revenue
  • It harms brick-and-mortar retailers, which are deprived of a level playing field
  • It harms interstate commerce itself, “Quill ends up burdening a lot of interstate commerce — achieving the opposite of its own design.”

In petitioning the court to reject the case, George Isaacson and the rest of the Wayfair team argued that:

“Congress is the proper institution to address this complex issue”

  • South Dakota’s challenge to Quill is “non-justiciable”
  • Principles of stare decisis strongly weigh against granting the petition
  • The petition ignores the issue of retroactive liability
  • Developments in other states further counsel denial of the petition

The court heard oral arguments on April 17, and issued a decision 21 June, 2018.

Implications for US Sales Tax

Many states are now likely to follow South Dakota, and implement economic nexus legislation. Some have already done so, including: Connecticut, Georgia, Kentucky, Hawaii, Illinois, and Iowa.

Congress may move to strictly regulate interstate commerce by pursuing the No Regulation Without Representation Act (H.R. 2887) or pursue the Remote Transactions Parity Act or the similar Marketplace Fairness Act (S. 976), both of which would allow states to tax certain remote sales.


Wayfair-vs-SD

Webinar: US tax experts explain Supreme Court decision on Nexus

Join two leading tax policy experts Scott Peterson and Rachel Le Mieux, CPA, CMI to breakdown the ruling and explain:

  • Whether remote sellers need to file and register in more states
  • How the ruling affects future laws across other states
  • How to determine whether you’re on the hook for sales tax based on where you conduct business
  • Live Q&A from audience

Register now