South Dakota vs. Wayfair Inc. – Supreme Court Case

Multi-State –  The Supreme Court (SCOTUS) began hearing arguments in the South Dakota vs. Wayfair case on April 17th.  The case will challenge the South Dakota law that was enacted May 1, 2016. The 1992 case Quill Vs. North Dakota will also be revisited.

In Quill vs. North Dakota, the 26-year old ruling made the internet generally a tax-free zone for most online sellers that do not have a physical presence in a state. In 1992, the SCOTUS ruling was put into place which was long before modern e-commerce became a contender in the sales market.  For over two decades now, the ruling has allowed online sellers to avoid collecting sales tax and ultimately undercut local businesses. This law change will change things for all of the 45 states that currently collect sales taxes.

In the 2016 South Dakota enacted law, remote sellers with no physical location in South Dakota are now required to remit sales tax, as if they have a presence in the state, if, in the previous calendar year of the current year they had or have: (1) an annual sales threshold of $100,000; or (2) 200 separate sales transactions into South Dakota.  The legislation enacting this provision also provided for an automatic injunction if the law was challenged in court. On April 28, 2016, a challenge invoking an injunction was filed.  The injunction will remain in effect throughout the court case.  If the injunction is lifted or dissolved, the obligation to collect will begin from that day forward.

According to the South Dakota Sales Tax guide, any seller selling tangible personal property, products transferred electronically, or services for delivery into South Dakota, who does not have a physical presence in the state, is subject to chapters 10-45 and 10-52, shall remit the sales tax and shall follow all applicable procedures and requirements of law as if the seller had a physical presence in the state, provided the seller meets either of the following criteria in the previous calendar year of the current calendar year.

If SCOTUS decides in favor of South Dakota, this would force all sales tax collecting states to re-evaluate, change, and update their online sales tax laws as well.  However, if they decide in favor of Wayfair, online sales tax laws and issues would remain unresolved.

A decision could be made as early as June.

About Davis Davis & Harmon LLC – Sales Tax Experts: Headquartered in Dallas, Texas, Davis Davis & Harmon LLC – Sales Tax Experts (DDH LLC) specializes in sales/use tax audit consulting and audit defense. Our team of consultants is comprised of former Big 4 sales tax consultants and state sales tax auditors. Each of our consultants has 15 to 20 years of experience, providing our clients with access to a highly specialized team of sales/use tax professionals. At DDH LLC we are committed to maintaining the highest standards in our talent pool. We work hard to meet our clients’ needs by ensuring that you view our firm as an extension of your company and a member of your team.

For sales/use tax compliance questions or audit-related concerns, we are here to help!

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