It’s over: South Dakota settles Wayfair lawsuit

It’s over. Wayfair Inc., Overstock.com, Inc., and Newegg, Inc., three ecommerce businesses that went to court with South Dakota over its remote seller sales tax law, have settled with the state. They’ve agreed to collect and remit South Dakota sales tax starting January 1, 2019.

Like all states, South Dakota used to be prohibited from taxing sales by businesses with no physical presence in the state, or remote sellers. In 2016, South Dakota challenged this restriction with the enactment of Senate Bill 106, which requires certain remote sellers to collect and remit sales tax as if they have a physical presence in the state. Under SB 106, substantial economic activity in the state (economic nexus), not physical presence, triggers a sales tax obligation.

South Dakota created SB 106 to challenge the physical presence rule, which the Supreme Court of the United States had upheld in Quill Corp. v. North Dakota (1992). Before it even took effect, Newegg Inc., Overstock.com, Inc., and Wayfair, Inc. refused to comply with the law because it was unconstitutional, and the state sued. The case eventually was heard by the Supreme Court of the United States, which ruled in favor of South Dakota on June 21, 2018.

South Dakota’s victory allows other states to tax remote sales, and almost 30 states have opted to do so already. South Dakota itself will require many remote sellers to collect and remit sales tax starting November 1, 2018 — but not Newegg, Overstock, or Wayfair. Although the Supreme Court overruled Quill’s physical presence rule in its decision in South Dakota v. Wayfair, Inc., it remanded the case to state courts for further proceedings consistent with its ruling; Newegg, Overstock, and Wayfair could not be required to collect until the case was resolved.

The case has now been settled.

In announcing the settlement, South Dakota Governor Dennis Daugaard said he looked forward “to the state’s full enforcement of its remote seller law.” Attorney General Marty Jackley agreed: “Today’s settlement agreement is the final step in bringing sales tax fairness to our main street businesses across South Dakota by creating a level playing field with out-of-state retailers.”

A separate challenge to South Dakota’s economic nexus law by the American Catalog Mailers Association and NetChoice has also been settled. That case was on hold pending resolution of South Dakota v. Wayfair, Inc., and it has now been dismissed.

New remote seller sales tax laws are sweeping the nation now that states have the authority to tax remote sales. Like South Dakota SB 106, most base a sales tax collection obligation on economic activity in the state, or economic nexus. Learn more about state economic nexus laws and their potential impact on your business.