The U.S. Supreme Court made a decision in the South Dakota v. Wayfair, Inc. et al case, affirming that the physical presence test under the 1992 Quill Corp. v. North Dakota case no longer applies to the obligation to collect and remit sales tax on sales to customers in a state.

Simply put, an out of state company can now be required to collect sales tax (related to live or online sales) regardless of whether or not the company (or its representatives) has a physical presence in the state where the sale took place.

More about the ruling

The high court ruled June 21 in favor of South Dakota and threw out its 1992 rule in Quill Corp. v. North Dakota (“Quill”). The rule prohibited states from imposing sales tax collection obligations on vendors who lack a physical presence in the state. States including South Dakota have tried to throw out this rule for years through lawsuits and regulation.

The case traveled to the highest court after e-retailers Wayfair Inc., Overstock.com Inc., and Newegg Inc. challenged South Dakota’s online sales tax statute (which, last year, the South Dakota Supreme Court deemed unconstitutional under Quill).

The court in South Dakota v. Wayfair ruled that Quill is “unsound and incorrect” and ruled that vendors must comply with South Dakota’s law, which requires vendors without a physical presence to collect and remit sales and use taxes if they meet certain sales thresholds.

South Dakota’s law imposes a tax on retailers with 200 transactions or annual in-state sales exceeding $100,000.

E-commerce companies and sellers using platforms such as Amazon.com Inc must now comply with South Dakota’s law.

Will other states follow suit?

The 1992 "Quill" precedent has long provided a defense for retailers. As a result of this decision practically every state that assesses a sales tax may follow South Dakota’s model.

Questions? Contact any member of our Tax Services Team.