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.
Wayfair Case Background
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
- Politico, A taxing case on the Supreme Court’s docket“.” Bernie Becker. (April, 17, 2018)
- Tax Notes, “South Dakota Slams Physical Presence Rule as ‘Unworkable and Indefensible.” Jad Chamseddine. (April 10, 2018) (Subscription.)
- Bloomberg, “South Dakota Rebuffs E-retailer Concerns in Last High Court Brief.” Ryan Prete. (April 9, 2018)
- Reuters, “U.S. Supreme Court takes up state online sales tax dispute.” Lawrence Hurley. (Jan. 12, 2018)
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