Reed Smith Client Alerts

On June 21, 2018, the U.S. Supreme Court issued its decision in South Dakota v. Wayfair, Inc., in which it held that physical presence is not required in order to require a remote seller to collect sales tax. The decision explicitly overrules the Court’s long-standing precedent in Quill v. North Dakota and National Bellas Hess, Inc. v. Department of Revenue, which provided that physical presence was required to create sales tax nexus.

While the Court’s decision found that the physical presence standard was unsound and incorrect, it did not set a threshold for sales tax nexus generally and declined to specify what restrictions the dormant Commerce Clause imposes on state sales tax collection obligations. These questions of law are likely to spark significant controversy and litigation across the country. Reed Smith plans to address these questions in an upcoming webinar.



In 1967’s Bellas Hess decision, the Supreme Court first held that in order for a state to require a remote seller to collect sales tax on its behalf, the remote seller must have physical presence in that state. Bellas Hess found that both due process and the dormant Commerce Clause required this physical presence.1

In 1992’s Quill decision, the Court was called upon to revisit the wisdom of the physical presence rule. While the Court decided to uphold Bellas Hess’ physical presence rule, it modified the reasoning: it held that only the dormant Commerce Clause, and not due process, requires a physical presence. This modification was not merely semantic. Congress has the power to modify judicial interpretations arising under the dormant Commerce Clause, but cannot deprive a person of their rights under the Due Process Clause. In essence, in Quill, the Court empowered Congress to decide whether physical presence would continue to be required for sales tax nexus.