On June 21, the United States Supreme Court, in a 5-4 decision, overturned 26 years of precedent in the landmark decision of South Dakota v. Wayfair, 585 U.S. ___ (2018). In overturning the pre-internet era decision of Quill v. North Dakota, 504 U.S. 298 (1992), the Supreme Court held that a South Dakota law requiring certain out-of-state sellers to collect and remit sales tax regardless of whether they had a physical presence in South Dakota was permissible under the Commerce Clause of the United States Constitution.
Since Quill, the standard for whether a state may require an out-of-state retailer to collect and remit sales tax had been physical presence. In Quill, the court affirmed its prior decision in National Bellas Hess v. Department of Revenue of Illinois, 386 U.S. 753 (1967), which required a seller to have property, people or some other physical connection within the taxing state in order to be required to collect from the buyer and remit to the state in which the buyer resides, a sales tax. Under Quill, online retailers without a physical presence in a state were not required to collect sales tax on goods that they shipped into such state. This resulted in significant tax avoidance; not to mention, an unfair advantage over traditional “brick and mortar” stores which were required to collect the tax. Over the years, with the advent of new technology and the internet, local retailers found it increasingly more difficult to compete with online retailers who could sell their products to a customer without the imposition of a sales tax which local, brick-and-mortar retailers were required to collect. Although the consumer still had an obligation to remit a use tax which was equal to the sales tax that the local retailer would have collected, the majority of consumers did not pay this tax.
