When the Supreme Court decided Quill v. North Dakota, 26 years ago, a sales tax case involving an office products catalog business, it created barely a ripple in the retail industry. The Quill decision held that a remote retailer must have a physical presence in a state before the retailer could be required to collect sales tax. In 1992, e-commerce did not exist, and traditional catalog sales were just a minuscule share of total retail sales. Quill is the reason that many online retailers do not collect sales tax on sales to customers in other states. As e-commerce has grown to take a larger and larger share of the total retail market, state legislatures and tax administrators have been busy crafting rules to work-around the physical presence requirement, yet many businesses were nevertheless able to structure their operations to avoid collecting tax on out-of-state sales. On June 21, the Supreme Court released its decision in South Dakota v. Wayfair, reversing its Quill decision. Unlike the minor ripple to the retail industry caused by the Quill decision in 1992, the broad language of the Wayfair decision is a sales tax tsunami that will result in changes to the industry.

The Wayfair case came about because of a South Dakota law that was enacted specifically to test/challenge Quill. The law said that a retailer must collect the state’s sales and use tax even if the retailer has no physical presence in the state, as long as it has either a minimum of $100,000 in annual sales to residents of the state, or 200 or more annual sales transactions to residents. The South Dakota Supreme Court ruled that the law was unconstitutional because it violated Quill’s physical presence standard. The U.S. Supreme Court agreed to review the Wayfair case, and finally answer the question of whether the growth in significance of e-commerce to the retail industry warrant either saying “yes,” the Quill standard is still valid, or “no,” Quill is no longer viable in today’s online world.