This summer, the United States Supreme Court will decide whether to reverse its 26-year-old precedent in a case that could drastically change the way states apply sales tax to online and remote sales transactions.

In the 1992 case Quill Corp. v. North Dakota, the U.S. Supreme Court ruled that the Commerce Clause of the United States Constitution prohibits states from requiring an out-of-state retailer to collect and remit sales tax if the retailer does not have a physical presence within the state. The Court reasoned that imposing such compliance obligations on retailers unconstitutionally burdens interstate commerce. The result of Quill’s physical presence rule is that retailers, especially online retailers and other remote sellers, do not have sales tax nexus in states where they are not physically present.

In 2016, South Dakota enacted an economic nexus standard, which directly contradicts Quill’s physical presence rule. The South Dakota statute requires that all retailers with either $100,000 in gross revenue or 200 or more transactions per year must collect and remit sales tax. After the state tried to enforce its expansive nexus standard, online retailers Wayfair,, and Newegg challenged the law in court. The South Dakota State Supreme Court sided with the retailers and found the economic nexus statute unconstitutional under Quill. South Dakota appealed to the U.S. Supreme Court, which agreed to hear the case.

In South Dakota v. Wayfair, the U.S. Supreme Court will consider whether to reverse Quill’s physical presence rule for sales and use tax nexus. The state argues that the physical presence rule arbitrarily creates competitive advantages for online retailers, and is no longer appropriate in light of recent technological advancements and the economic realities of internet retailing. The retailers counter that reversing Quill would subject them to the burdens of complying with the sales tax collection and filing rules of every state and local taxing jurisdictions in which they make sales. Additionally, they argue that it would disregard their reliance on settled precedent. Oral arguments for the case took place on April 17, 2018. The Court is expected to release its decision sometime this summer.

A decision in favor of South Dakota will significantly impact remote sellers of tangible personal property and taxable services who are currently taking no-nexus positions pursuant to Quill. As the Court considers its ruling in Wayfair, there are some practical considerations and steps that retailers should take to prepare:

  • Proactively develop a strategy to respond to the Court’s decision and to a multistate sales/use tax nexus landscape that will continue to change regardless of the holding in Wayfair;
  • Reassess current multistate filing and nexus positions;
  • Perform systems readiness assessments to prepare for likely tax collection and filing obligations in additional states; and
  • Consider prior period exposures and mitigation opportunities in preparation for increased enforcement activity.

GBQ will provide additional updates on the Wayfair case as events warrant. Additionally, GBQ SALT professionals are available to assist taxpayers in understanding nexus developments and their impact on specific circumstances and business activities.



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