The tax consequence of the U.S. Supreme Court’s ruling in the case of South Dakota v. Wayfair Inc. is that states can assert nexus for sales and use tax purposes without requiring a seller’s physical presence in the state, and it overturns prior Supreme Court precedent in Quill Corp. v. North Dakota. The Quill decision had required retailers to have a physical presence in a state beyond merely shipping goods into a state after an order from an in state resident before a state could require the seller to collect sales taxes from in state customers. The tax consequence of the new decision impact thousands of retailers.
South Dakota, like many states, imposes a sales tax on the sale of goods in the state and a complimentary use tax. Because compliance with the use tax on untaxed purchases from out of state vendors is low, South Dakota estimates it loses between $48 million to $58 million a year in sales and use tax revenue from sales to state residents by out of state businesses that do not collect sales tax for the state. Because it has no income tax, its sales tax revenue makes up about 60% of the state funds each year, so the loss of those funds is substantial. The tax consequence of the new law will be to bring in additional revenue to the state.
To try to counteract the loss of this revenue, in 2016, South Dakota enacted a law, S.B. 106, requiring out of state seller’s that annually delivered more than $100,000 of goods or services into the state or engaged in 200 or more separate transactions for the delivery of goods or services into the state to collect and remit sales taxes to So
uth Dakota. South Dakota’s new law prohibited retroactive application of this requirement and also provided that the law could be stayed until it had been determined to be constitutional. The new law, now being constitutional, changes the tax consequence for South Dakota.