On June 21, 2018, the United States Supreme Court decided South Dakota v. Wayfair, Inc., 585 U.S. __ (2018). In a 5-4 decision, the Court found in favor of the State of South Dakota and overturned its prior holdings in Quill Corp. v. North Dakota, 504 U.S. 298 (1992) and National Bellas Hess, Inc. v. Department of Revenue of Illinois, 386 U.S. 753 (1967), which required an out-of-state seller to have a “physical presence” to establish nexus with the taxing jurisdiction for sales and use tax purposes.
Prior to this ruling, a state could not require an out-of-state seller to collect and remit sales and use tax if the seller did not have a physical connection with the state. This physical connection standard required a seller to have physical activities in a state such as having employees working in a state, storing inventory there, maintaining an office there, attending meetings there, and/or delivering product there in the seller’s owned/rented vehicles, before the seller could be burdened with a state’s sales and use tax registration, collection and remittance obligations.
SOUTH DAKOTA’S CHALLENGE
In 2016, South Dakota enacted economic nexus legislation that required out-of-state sellers to collect and remit sales tax if the seller’s gross revenue from goods or services delivered into South Dakota exceeded $100,000 or if the seller engaged in 200 or more separate transactions for the delivery of goods or services into South Dakota, on an annual basis. [Read More @ Cohn Reznick]