History and Decision - SD v. Wayfair
Updated: Mar 4, 2019
South Dakota v. Wayfair is a decision that has turned the Sales Tax world on its ear. It gave states the power to legislate out of state sellers' responsibility to collect sales tax from in-state customers. South Dakota implemented economic nexus standard in March of 2016. The intent of the bill was to stir up just enough of an uproar to eventually force the Supreme Court of The United States to reconsider the findings of the 1992 SCOTUS case Quill v. North Dakota. The Quill case set forth the physical presence standard for sales and use tax nexus. This meant that business had to have a physical presence within a state (property, employees, agents acting on their behalf, etc.) to be required by the states to register and collect sales tax.
As online shopping grew, customers began to take advantage of websites that did not charge sales tax (essentially saving people 7-10% on purchases). Though states have complimentary use tax laws, which require customers to remit the tax directly to the state on untaxed taxable purchases, almost no individuals and few businesses abide by them. States such as South Dakota were sick of losing out on this tax revenue and implemented economic nexus thresholds. The economic nexus standard in South Dakota is $100,000 OR 200 individual transactions. South Dakota sent notices to several large online retailers essentially stating the retailers were going to be over the threshold and they needed to register to collect sales tax. Wayfair, Newegg, and Overstock took remained steadfast in their business practices by referencing the Quill case.
After failing to get a definitive ruling in the Six Circuit Judicial Court of South Dakota and the South Dakota Supreme Court, the state decided to request a decision from the Supreme Court of The United States in October 2017. In all, 40 states and President Donald Trump supported South Dakota's wish for a ruling on this matter. After years of sidestepping this issue, the Supreme Court of The United States decided to revisit the Quill decision.
On June 21, 2018 SCOTUS handed down the decision that states may charge tax on purchases made from out of state retailers even if the retailers have no physical presence within the state. The decision was ruled 5-4 in favor of South Dakota. As of January 1, 2019, more than 30 states have standing economic nexus standards for remote sellers.
Q: Which states have the highest and lowest economic nexus thresholds?
A: Oklahoma/Pennsylvania are the lowest with $10,000 threshold (Pennsylvania's threshold is taxable sales whereas Oklahoma's is gross sales). Tennessee/Texas have the highest thresholds with $500,000.
Q: Did the Supreme Court issue a ruling on whether $100,000 or 200 individual transactions was reasonable as a threshold?
A: No. The court said that was for the states to decide. In fact, the four justices who ruled against the decision issued a dissenting opinion stating if any changes to legislation should be made to overturn the Quill decision, it should come from Congress.