In a major battle between States and online retailers, the Supreme Court today had the final say and ruled in South Dakota v. Wayfair that states can now compel retailers to collect sales taxes even if the online retailers don’t have a physical presence in the state.  This close 5-4 Court decision overturned a 1992 Supreme Court precedent and will likely cause online retailers to pay billions more in taxes each year.

South Dakota enacted legislation that required out-of-state sellers to collect and remit sales tax if it delivered more than $100,000 of goods or services into South Dakota or engaged in 200 or more separate transactions for the delivery of goods of services into that state. Large online retailers like Amazon already collect sales taxes, however, smaller websites like Overstock and Wayfair, that don’t have widespread operations to collect and remit taxes in each state, and many smaller online retailers alike will be hit the most from today’s decision.

Today’s Supreme Court opinion ruled that the 1992 case of Quill Corp v. North Dakota was flawed in establishing that states could only collect sales taxes from entities with a “physical presence” in the state. The Court further found that the interpretation of the “physical presence rule” in Quill  is currently incorrectly applied under the Commerce Clause. In 2018, shoppers want to be able to shop from home and buy whatever they need from wherever with the push of a button. With this ever-changing buyer’s market, the physical presence rule has become far removed from today’s economic reality. As a result, States are suffering from significant revenue losses each year.

The full Supreme Court decision of South Dakota v. Wayfair, Inc can be found here.

More information regarding the effect of this decision can be found here.

An in-depth explanation of the Commerce Clause can be found here.