Minnesota Lawyer – Partner Content
Author: Kristin B. Rowell
One of the most interesting, recent cases before the U.S. Supreme Court is one in which the Court was faced with deciding the extent of a state’s ability to collect tax from sales made to consumers within the state, by an out-of-state merchant, under the Commerce Clause. South Dakota v. Wayfair, Inc., 201 L.Ed.2d 403, 138 S. Ct. 2080 (2018).
The Wayfair decision is an important one—not only because it reflects a recognition by our highest Court about our nation’s ever-expanding interstate economy—but also because it overturned more than 25 years of Supreme Court precedent and “the physical presence rule” outlined in Quill Corp. v. North Dakota, 504 U.S. 298, 112 S.Ct. 1904, 119 L.E.2d 91 (1992). In light of the significance of the Wayfair decision and its impact on local business, Minnesota lawyers should be aware of it.
Many states, including South Dakota, impose sales tax on consumers’ purchases of goods and services within the state. Id. at 2087. The Wayfair decision was an appeal from the dismissal of a declaratory judgment action brought by the State of South Dakota against merchants Wayfair, Inc., Overstock.com, Inc. and Newegg, Inc. (“Respondents”), from whom South Dakota sought to collect sales tax. 138 S.Ct. at 2089. South Dakota’s case against Respondents was based on its recently-enacted state statute requiring merchants selling online goods and services to consumers within South Dakota to collect and remit sales tax to the state. Id. at 2088. The statute was enacted because the South Dakota legislature “found that the inability to collect sales tax from remote sellers was ‘seriously eroding the sales tax base’ and ‘causing revenue losses and imminent harm . . . through the loss of critical funding for state and local services.’” Id. (citing S. 106, 2016 Leg. Assembly, 91st Sess. § 8(1) (S.D. 2016)).