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South Dakota v. Wayfair, Inc.

Supreme Court of the United States

April 17, 2018, Argued; June 21, 2018, Decided

No. 17-494.


Justice Kennedy delivered the opinion of the Court.

When a consumer purchases goods or services, the consumer’s State often imposes a sales tax. This case requires the Court to determine when an out-of-state seller can be required to collect and remit that tax. All concede that taxing the sales in question here is lawful. The question is whether the out-of-state seller can be held responsible for its payment, and this turns on a proper interpretation of the Commerce Clause, U. S. Const., Art. I, §8, cl. 3.

In two earlier cases the Court held that an out-of-state seller’s liability to collect and remit the tax to the consumer’s State depended on whether the seller had a physical presence in that State, but that mere shipment of goods into the consumer’s  [*2088]  State, following an order from a catalog, did not satisfy the physical presence requirement. National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U. S. 753, 87 S. Ct. 1389, 18 L. Ed. 2d 505 (1967); Quill Corp. v. North Dakota, 504 U. S. 298, 112 S. Ct. 1904, 119 L. Ed. 2d 91 (1992). The Court granted certiorari here to reconsider the scope and validity of the physical presence rule mandated [***10]  by those cases.

Like most States, South Dakota has a sales tax. It taxes the retail sales of goods and services in the State. S. D. Codified Laws §§10-45-2, 10-45-4 (2010 and Supp. 2017). Sellers are generally required to collect and remit this tax to the Department of Revenue. §10-45-27.3. If for some reason the sales tax is not remitted by the seller, then in-state consumers are separately responsible for paying a use tax at the same rate. See §§10-46-2, 10-46-4, 10-46-6. Many States employ this kind of complementary sales and use tax regime.

 [**414]  Under this Court’s decisions in Bellas Hess and Quill, South Dakota may not require a business to collect its sales tax if the business lacks a physical presence in the State. Without that physical presence, South Dakota instead must rely on its residents to pay the use tax owed on their purchases from out-of-state sellers. “[T]he impracticability of [this] collection from the multitude of individual purchasers is obvious.” National Geographic Soc. v. California Bd. of Equalization, 430 U. S. 551, 555, 97 S. Ct. 1386, 51 L. Ed. 2d 631 (1977). And consumer compliance rates are notoriously low. See, e.g., GAO, Report to Congressional Requesters: Sales Taxes, States Could Gain Revenue from Expanded Authority, but Businesses Are Likely to Experience Compliance Costs 5 (GAO-18-114, Nov. 2017) (Sales Taxes Report); [***11]  California State Bd. of Equalization, Revenue Estimate: Electronic Commerce and Mail Order Sales 7 (2013) (Table 3) (estimating a 4 percent collection rate). It is estimated that Bellas Hess and Quill cause the States to lose between $8 and $33 billion every year. See Sales Taxes Report, at 11-12 (estimating $8 to $13 billion); Brief for Petitioner 34-35 (citing estimates of $23 and $33.9 billion). In South Dakota alone, the Department of Revenue estimates revenue loss at $48 to $58 million annually. App. 24. Particularly because South Dakota has no state income tax, it must put substantial reliance on its sales and use taxes for the revenue necessary to fund essential services. Those taxes account for over 60 percent of its general fund.

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138 S. Ct. 2080 *; 201 L. Ed. 2d 403 **; 2018 U.S. LEXIS 3835 ***; 27 Fla. L. Weekly Fed. S 388; 2018 Comm. Reg. (P & F) 74; 2018 WL 3058015

SOUTH DAKOTA, Petitioner v. WAYFAIR, INC., et al.

Notice: The LEXIS pagination of this document is subject to change pending release of the final published version.

Subsequent History: On remand at, Remanded by, Decision reached on appeal by State v. Wayfair Inc., 2018 SD 62, 916 N.W.2d 819, 2018 S.D. LEXIS 101 (Aug. 9, 2018)


State v. Wayfair Inc., 2017 SD 56, 901 N.W.2d 754, 2017 S.D. LEXIS 111 (Sept. 13, 2017)

Disposition: 2017 S.D. 56, 901 N. W. 2d 754, vacated and remanded.


physical presence, sales tax, commerce clause, sellers, sales, retailers, interstate commerce, remit, consumers, commerce, out-of-state, collection, use tax, remote, customers, taxes, e-commerce, interstate, state tax, stare decisis, physical-presence, compliance, estimated, billion, nexus, Marketing, percent, substantial nexus, transactions, regulation

Constitutional Law, Congressional Duties & Powers, Commerce Clause, Interstate Commerce, Governments, State & Territorial Governments, Interstate Commerce, Tests, State & Territorial Governments, Finance, Tax Law, State & Local Taxes, Administration & Procedure, Collection of Taxes, Sales Taxes, Imposition of Tax, Courts, Judicial Precedent