U.S. Supreme Court Rules Physical Presence Not Required to Collect Use Tax


This article is reproduced with permission from Spidell Publishing, Inc.

In a 5-4 decision, the U.S. Supreme Court ruled that states may now require internet retailers to collect use tax on sales made to customers in their state even if the out-of-state retailer does not have physical presence in the state. (South Dakota v. Wayfair, Inc. (June 21, 2018) U.S. Supreme Court, Case No. 17-494) This decision reverses the Court’s earlier decision in Quill Corp. v. North Dakota. ((1992) 504 U.S. 298)

Wayfair involved the constitutionality of South Dakota’s law that requires out-of-state retailers to collect use tax on sales made to South Dakota customers if the seller on an annual basis:

  • delivers more than $100,000 of goods or services into South Dakota; or
  • engages in 200 or more separate transactions for the delivery of goods and services into the state.

The Court remanded the case back to the South Dakota Supreme Court to determine whether the law meets the other requirements of the Commerce Clause, but indicated that it thought the law was otherwise constitutional.

Forty-one states, including California and the District of Columbia filed briefs in support of South Dakota, so it is highly likely that these states will be enacting similar legislation in the very near future.

The decision can be viewed at: www.supremecourt.gov/opinions/17pdf/17-494_j4el.pdf.

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