Today, the South Dakota Supreme Court heard oral argument in South Dakota v. Wayfair, Inc. The case involves a South Dakota law enacted in 2016 that imposes an economic nexus standard to determine whether out-of-state retailers are required to collect and remit sales tax on sales made to South Dakota purchasers. This case is the first one challenging a so-called “kill-Quill” statute to reach the highest court in a state. At oral argument, South Dakota conceded that the law is unconstitutional under the standard set forth by the U.S. Supreme Court in Quill Corp. v. North Dakota, and requested the court to issue a decision ruling in favor of the retailers, while at the same time urging the United States Supreme Court to review the decision.
In Quill Corp. v. North Dakota, the United States Supreme Court reaffirmed that a state can only impose a sales and use tax collection obligation on a vendor physically present in the state.1 Since the Court decided Quill in 1992, states have lamented the restrictions that the decision placed on their ability to collect sales and use tax on sales by out-of-state retailers. These complaints have only grown louder with the rise of online retailing. In 2010, Colorado passed a use tax reporting regime that imposed reporting obligations (as opposed to tax collection obligations) on out-of-state retailers. Colorado’s law was challenged by the Direct Marketing Association (“DMA”), and that challenge ultimately reached the United States Supreme Court on jurisdictional grounds. Although the merits of the case were not before the Court, Justice Kennedy penned a concurring opinion urging the “legal system” to “find an appropriate case for this Court to reexamine Quill and Bellas Hess.”2