Yesterday, June 21, 2018, The U.S. Supreme Court issued what is most likely the Court’s most significant decision on state taxation in the last 50 years. The Court’s widely anticipated 5-4 decision in South Dakota v. Wayfair, et al. No. 17-494 held that the physical presence requirement for state tax jurisdiction is incorrect and not a requirement under the Commerce Clause of the U.S. Constitution.
South Dakota enacted an economic presence nexus statute for sales and use tax collection on March 22, 2016. Under that statute, a remote seller is required to collect and remit sales tax if the seller’s South Dakota sales exceed $100,000 or the seller has more than 200 separate sales transactions into South Dakota. On January 12, 2018, the Court agreed to hear the case by granting South Dakota’s petition for a writ of certiorari. On April 17, 2018, the Court held oral argument in the case.
In summary, the majority (Justices Kennedy, Thomas, Ginsburg, Alito, and Gorsuch) ruled that the “physical presence rule, both as first formulated and as applied today, is an incorrect interpretation of the Commerce Clause.” Further, the majority ruled that South Dakota’s $100,000 of sales or 200 separate sales transactions statutory requirement satisfied the substantial nexus requirement. However, the case was remanded to the South Dakota Supreme Court for further proceedings to determine if any other features of the South Dakota law discriminated against or unduly burdened interstate commerce.
Practically, this may mean your vendors and customers may be changing their practices. We will continue to follow this case’s developments and the states’ reactions to this change and invite you to call us to discuss your sales tax matters with us at 410-363-3200.