On June 21, with a vote of 5-4, the Supreme Court ruled in favor of South Dakota in the court case South Dakota v. Wayfair. This ruling throws out the court's outdated 1992 ruling in Quill Corp. v. North Dakota, which prohibited states from imposing sales tax collection obligations on vendors lacking an in-state physical presence. The in-state physical presence caveat, as proclaimed in Quill, is no longer an applicable standard, particularly with the expansion of the e-commerce era. It was declared that Quill was "unsound and incorrect" and declared South Dakota's law as constitutional. This means that South Dakota's law would withstand a legal challenge on constitutional grounds, however, there was no formal declaration that South Dakota's law becomes valid in absence of Quill. The court simply indicated that Quill would no longer be permissible under the commerce clause.
The ruling likely means that e-commerce merchants will have to comply with a new standard in online sales taxation, which requires merchants without a physical presence to collect and remit sales and use taxes. Several states have made steps in issuing legislation to mirror South Dakota's law, and it is expected that many others will follow. Although this may have opened up the doors to a new revenue stream for states, merchants will have to be aware of the state's reactions to this outcome, including the possibility of new nexus requirements and additional reporting to the states. For more information please contact your state and local tax specialist in one of our many locations.
Wednesday, April 24, 2019 | 7:30 AM – 9:30 AM EDT | The Hartford Club