South Dakota’s online sales tax case heading to U.S. Supreme Court

The South Dakota Supreme Court has affirmed the district court’s opinion in South Dakota v. Wayfair, Inc., 28160-a-GAS, thereby refusing to take up the case. The decision came swiftly and paves the way for the state to bring the case to the Supreme Court of the United States (SCOTUS).

After thorough review of the facts as presented, the court determined it was bound by the SCOTUS decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992) — that a state cannot tax a business unless it has a substantial connection with (i.e., a physical presence in) the state.

The opinion reads, “However persuasive the State’s arguments on the merits of revisiting the issue, Quill has not been overruled. Quill remains the controlling precedent on the issue of Commerce Clause limitations on interstate collection of sales and use taxes. We are mindful of the Supreme Court’s directive to follow its precedent when it ‘has direct application in a case’ and to leave to that Court ‘the prerogative of overruling its own decisions.’”

South Dakota Attorney General Marty Jackley announced the decision on Sept. 14, saying the state was now “one step closer to bringing tax fairness to South Dakota.” He praised the court for recognizing that “‘as internet sales have risen, state revenues have decreased,’” adding, “Today’s decision paves the way to respectfully request the U.S. Supreme Court to provide that much needed fairness to save main streets and jobs across South Dakota.”

This is a victory for the state. The law that triggered the suit, SB 106, was created specifically to challenge Quill. While there’s no guarantee SCOTUS will agree to hear the case, at least some members of the bench are in favor of revisiting Quill. Justice Robert Kennedy wrote in a concurring opinion in 2015 that “it is unwise to delay any longer a reconsideration of the Court’s holding in Quill,” an opinion that may be shared by the court's newest member, Justice Neil Gorsuch.

A judicial solution isn’t the only possible course of action: The United States Congress could grant states the authority to collect tax from remote sellers. While several bills seeking that right have been introduced, none have reached the floor of the House. Tired of waiting for Congressional action, South Dakota and other states (e.g., Alabama, Indiana, and Wyoming) are seeking a solution from the courts.

Chief Justice David Gilbertson penned the opinion, with Justices Janine Kern and Steven Zinter as well as retired Justice Lori Wilbur concurring. The text of the opinion is available here.

Learn more about state attempts to challenge Quill by broadening their sales tax laws at the Avalara Resource Center on Sales Tax Nexus.