U.S. Supreme Court Rules That States May Impose Sales Tax Collection Obligations on Sellers Who Lack an In-State Physical Presence

June 22, 2018

On June 21, 2018, the U.S. Supreme Court ruled in South Dakota v. Wayfair, Inc.1 that a state can impose sales tax collection obligations on a seller without any physical presence in the taxing state, so long as the seller has sufficient connections with the state. In so ruling, the Court overturned Quill Corp. v. North Dakota,2 a 1992 Court decision holding that the Commerce Clause prohibited states from taxing sellers that did not have any physical presence in the taxing state.

The Court's decision in Wayfair permits states to impose sales tax collection and remission obligations on remote sellers and online retailers that have substantial nexus with the state, i.e., when the seller "avails itself of the substantial privilege of carrying on business" in the state.3 Under the South Dakota law at issue in Wayfair, a seller that delivers more than $100,000 of goods or services into the state or engages in 200 or more separate transactions for the delivery of goods and services into the state on an annual basis was required to collect and remit South Dakota sales tax.4 While the Court ruled that this requirement was sufficient to establish substantial nexus with South Dakota, it left open the possibility that the South Dakota law could be challenged as being unconstitutional on other grounds.

In upholding the South Dakota law, the Court looked favorably upon certain features of South Dakota's tax system that appeared to be designed to prevent discrimination against or any unconstitutional burden on interstate commerce. Such features included a safe harbor for sellers who transact only limited business in South Dakota and no retroactive obligation to remit sales tax.5 Furthermore, the Court observed that South Dakota had adopted the Streamlined Sales and Use Tax Agreement, which has been joined by more than 20 other states and "standardizes taxes to reduce administrative and compliance costs" for sellers.6

In light of the Court's decision in Wayfair, remote sellers and online retailers should be aware that state and local governments are likely to enforce existing legislation and regulations requiring the collection of sales tax on e-commerce or remote transactions, or to implement new legislation doing so. Remote sellers and online retailers should review their sales tax obligations and compliance procedures with their tax advisors.

For further information, please contact Greg Broome (, 415-947-2139); Eileen Marshall (, 202-973-8884); Myra Sutanto Shen (, 650-565-3815); Jonathan Zhu (, 650-849-3388); or any member of the tax practice at Wilson Sonsini Goodrich & Rosati.

Joe Mandry and Devin Heckman contributed to the preparation of this WSGR Alert.

1 South Dakota v. Wayfair, Inc., No. 17-494, slip op. (June 21, 2018).
2 Quill Corp. v. North Dakota, 504 U.S. 298 (1992).
3 Wayfair at 22 (quoting Polar Tankers, Inc., v. City of Valdez, 557 U.S. 1 (2009)).
4 Id. at 22-23.
5 Id. at 23.
6 Id.