Last week the U.S. Supreme Court granted a review of an appeal filed by the State of South Dakota in the case of South Dakota v. Wayfair Inc., paving the way for an important decision on whether sales tax can be applied to online purchases.
The U.S. Supreme Court set precedence in 1992 with its ruling in Quill v. North Dakota deciding that online retailers are not required to collect sales tax unless they have a physical presence in a state. Traditional brick-and-mortar retailers argue this puts them at an unfair disadvantage with online retailers, plus it decreases the amount of sales tax collected by the state.
South Dakota passed a law in 2016 requiring out-of-state sellers with more than $100,000 in annual sales or 200 transactions in the state to pay sales tax on the purchases. Four out-of-state retailers (Overstock.com, Newegg, Systemax and Wayfair) filed a motion for summary judgment arguing the law contradicted the physical presence requirement of Quill v. North Dakota. The Sixth Judicial Circuit of South Dakota and the South Dakota Supreme Court granted the retailers’ summary judgement and the State of South Dakota filed an appeal with the U.S. Supreme Court.
The decision made by the U.S. Supreme Court in this case is being closely watched nationwide as it is expected to provide clarity for other states who are faced with the same issue on the legality of collecting sales tax on online purchases.