Supreme Court Issues Online Sales Tax Decision in South Dakota v. Wayfair Inc.

On June 21, 2018, the United States Supreme Court ruled 5-4 in favor of South Dakota in South Dakota v. Wayfair Inc., a historic sales tax decision overturning the “physical presence” test that had been in place since Quill Corp. v. North Dakota (1992) and National Bellas Hess, Inc. v. Department of Revenue (1967). Before the Wayfair case, companies had to have a physical presence in a state to be liable for sales tax. The Wayfair decision changed the nexus test to include “economic and virtual presence.” All states, not just South Dakota, now have broader authority to assess sales tax, significantly raising revenue for the states. Below is a summary of the key takeaways:

Key Takeaways from the SCOTUS case:

Interstate sellers can collect sales tax whether or not they have a physical presence in the state.
“Economic and virtual presence” is the new threshold for nexus to impose sales tax.
The case will bar retroactive application of the sales tax.
The ruling opens the door to other states to impose sales and use tax statutes comparable to South Dakota.
Brick-and-mortar retailers will now compete on a level playing field with online retailers.

Tipping the Scales

Justices Clarence Thomas, Neil Gorsuch, Samuel Alito, Ruth Bader Ginsburg, and Anthony Kennedy were in the majority and sided with South Dakota. Chief Justice John Roberts and Justices Stephen Breyer, Elena Kagan and Sonia Sotomayor were in the dissent, arguing Quill should not be overturned and Congress should make the decision due to the complexities that the Wayfair case will have across states, especially those with non-uniform sales tax procedures.