South Dakota v. Wayfair, Inc.

States have the authority to require out-of-state retailers with no physical presence within the state to collect and remit a sales tax.

South Dakota imposes a sales tax on goods and services which requires retailers to collect and remit the tax to the state. Under South Dakota law, out-of-state retailers are required to collect and remit the tax under certain circumstances. South Dakota sued Respondent, a top online retailer with no physical presence in the state, for failing to collect the tax. Respondent sought summary judgment, arguing that the law was unconstitutional under National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U.S. 753 (1967) and Quill Corp. v. North Dakota, 504 U.S. 298 (1992), which prohibited states from taxing retailers who had no physical presence within the state. The trial court granted summary judgment and the South Dakota Supreme Court affirmed. On appeal, the Supreme Court reversed, holding that the physical presence rule creates market distortions by forming a tax shelter for business that sell to consumers in states where they do not maintain a physical presence. The Court reasoned that the physical presence requirement provides online retailers with an arbitrary advantage over local competitors in the state. Furthermore, the Court held that the physical presence requirement imposes a restriction on states’ authority to collect taxes and perform necessary public functions. Quill and Bellas Hess are overturned. REVERSED and REMANDED