On June 21, 2018, the US Supreme Court struck down the “physical presence rule” of Quill and National Bellas Hess which barred states from imposing sales tax collection requirements on certain out-of-state sellers. This decision is expected to have a significant impact on online sales across the country.

The case, South Dakota v. Wayfair, is the first sales tax jurisdiction case heard by the US Supreme Court in 25 years.

The physical presence rule challenged in this case has long been criticized as giving out-of-state sellers an advantage. In its opinion, the Supreme Court held that over time, the physical presence rule became further removed from economic reality and resulted in significant revenue losses to the States. Additionally, the court held that the physical presence rule, both as first formulated and as applied today, is an incorrect interpretation of the Commerce Clause.

Read the Wayfair Opinion

Read the full opinion in South Dakota v. Wayfair here. Additional insight and analysis will be added to this post throughout the week.

About the Case

  • Title:   South Dakota v. Wayfair, Inc., et al.
  • Supreme Court Decision: No. 17–494.
  • Decision Below: State v. Wayfair Inc., 901 N.W.2d 754 (2018) (PDF)
  • Listen: Oral Argument Audio.

The Wayfair case re-examines the Supreme Court’s 1992 holding of Quill v. North Dakota, in which the court ruled that states could not require mail order retailers that lack a physical presence in the state to collect sales tax from their customers. The Quill decision protects Internet retailers that lack physical presence from being forced to collect tax on online sales.

Post-Wayfair Oral Argument Webcast

On April 18, 2018, the Tax Executives Institute (TEI) and Thomson Reuters hosted a two-hour webcast entitled “South Dakota v. Wayfair – Insights on the Oral Argument.”  Eversheds Sutherland Partner Jeff Friedman was among the panelists who addressed the issues raised by Wayfair and provided commentary on the oral arguments.

View Details and listen to the webcast replay now.

Wayfair Case Background

Prior Cases

In 1967, the US Supreme Court held that the Commerce Clause prohibits a state from requiring catalog retailers to collect sales taxes on sales unless the retailer has a physical presence there. Nat’l Bellas Hess v. Dep’t of Rev. of Ill., 386 U.S. 753 (1967).

In 1992, the US Supreme Court declined to overrule the physical presence requirement of Bellas Hess in a state sales tax case involving a  mail-order catalog seller. Quill Corp. v. North Dakota, 504 U.S. 298 (1992). In Wayfair, South Dakota has brought a similar case against three online sellers – Wayfair Inc., Overstock.com, Inc., and Newegg Inc.

More: See the Supreme Court docket for complete case filings.

Photos from Oral Arguments

Eversheds Sutherland partners in the Supreme Court Bar line ahead of the Wayfair oral arguments.
Eversheds Sutherland partners in the Supreme Court Bar line ahead of the Wayfair oral arguments.
Eversheds Sutherland partner Todd Lard and others in the Supreme Court Bar line.
Eversheds Sutherland partner Todd Lard and others in the Supreme Court Bar line.
The Supreme Court Bar line inside ahead of the Wayfair oral arguments.
The Supreme Court Bar line inside ahead of the Wayfair oral arguments.
Eversheds Sutherland partners Jeffrey A. Friedman and Michele Borens in the Supreme Court Bar line ahead of the Wayfair oral arguments.
Eversheds Sutherland partners Michele Borens and Jeffrey A. Friedman in the Supreme Court Bar line ahead of the Wayfair oral arguments.
The public line in front of the Supreme Court around 6 a.m.
The public line in front of the Supreme Court around 6 a.m.
The public line in front of the Supreme Court around 6 a.m.
The public line in front of the Supreme Court around 4:30 a.m.
The public line in front of the Supreme Court around 7 a.m.
The public line in front of the Supreme Court around 7 a.m.
This reporter did two newscasts from the Supreme Court before the South Dakota v. Wayfair oral argument.
This reporter did two newscasts from the Supreme Court before the South Dakota v. Wayfair oral argument.
The public line in front of the Supreme Court around 7 a.m.
The public line in front of the Supreme Court around 7 a.m.
Spectrum News NY1 reporter Samantha-Jo Roth reporting live from the line in front of the Supreme Court.
Spectrum News NY1 reporter Samantha-Jo Roth reporting live from the line in front of the Supreme Court.
The public line in front of the Supreme Court waiting to get into the Wayfair oral arguments.
The public line in front of the Supreme Court waiting to get into the Wayfair oral arguments.
The Supreme Court Bar line walking inside for the South Dakota v. Wayfair oral arguments.
The Supreme Court Bar line walking inside for the South Dakota v. Wayfair oral arguments.
The Supreme Court Bar line walking inside for the South Dakota v. Wayfair oral arguments.
The Supreme Court Bar line walking inside for the South Dakota v. Wayfair oral arguments.
The Supreme Court Bar line waiting for the South Dakota v. Wayfair oral arguments.
The Supreme Court Bar line waiting for the South Dakota v. Wayfair oral arguments.
Long lines around 10:30 a.m. in front of the Supreme Court.
Long lines around 10:30 a.m. in front of the Supreme Court.

Media Coverage:

About Eversheds Sutherland SALT:

As state and local jurisdictions in the US evolve their tax systems and engage in increasingly sophisticated enforcement and litigation strategies, businesses need sound state and local tax (SALT) advice more than ever before. Eversheds Sutherland’s SALT practice is committed to delivering innovative solutions that meet the needs of your business. Read more.