Online Retailers Must Collect Sales Tax
Out-of-state retailers are now required to collect and remit sales taxes to the states
On June 21, 2018, the Supreme Court decided South Dakota v. Wayfair, Inc. The question presented was whether an out-of-state seller can be required to collect and remit sales tax. The Supreme Court held that they can.
South Dakota taxes retail sales of goods and services in the State. Under prevailing authority, South Dakota could not require a business that has no physical presence in the State to collect its sales tax. South Dakota enacted a law requiring out-of-state sellers to collect and remit sales tax “as if the seller had a physical presence in the State.” South Dakota filed suit in state court, seeking a declaration that the law was valid and applicable to online retailers with no employees or real estate in South Dakota who conducted sales in South Dakota of more than $100,000 of goods or services into the State or engaged in 200 or more separate transactions for the delivery of goods or services into the State. The lower and State Supreme Court ruled in favor of the online retailers on the basis of controlling Supreme Court precedent.
The Supreme Court overruled the controlling precedent and vacated and remanded because “modern e-commerce does not align analytically with a test that relies on the sort of physical presence defined in Quill.”
The 1992 Quill Corp. v. North Dakota decision held that a State may not require a business that has no physical presence in the State to collect its sales tax.
While a tax case, the case sends a strong message on the effects of modern e-commerce on personal jurisdiction. Where some online activities once lacked the requisite minimum contacts with the State required by both the Due Process Clause and the Commerce Clause, that may no longer be the case.
The case is South Dakota v. Wayfair, Inc.