South Dakota v. Wayfair, Inc.
585 U.S. 162
SCOTUS2018Background
- South Dakota enacted S.B. 106 (2016) requiring out-of-state sellers to collect state sales tax if they exceed $100,000 in sales or 200 transactions into the State annually; it applied prospectively and included a safe harbor and Streamlined Sales tax provisions.
- Major online retailers Wayfair, Overstock, and Newegg (no physical presence in SD) met the thresholds but did not collect South Dakota tax; SD sued for declaratory relief and injunction to force collection.
- The South Dakota trial court granted summary judgment for the sellers; the SD Supreme Court affirmed, holding Quill controlled and barred requiring collection absent physical presence.
- The U.S. Supreme Court granted certiorari to reconsider the Quill physical-presence rule under the Commerce Clause.
- The Court held that Quill and National Bellas Hess were wrongly decided and overruled them, concluding modern economic and technological realities undermine the physical-presence nexus rule.
Issues
| Issue | Plaintiff's Argument (South Dakota) | Defendant's Argument (Retailers) | Held |
|---|---|---|---|
| Whether Quill’s physical-presence rule remains correct under the Commerce Clause | Quill is outdated and prevents States from collecting lawful sales taxes from large remote sellers; modern virtual contacts establish sufficient nexus | Quill remains controlling precedent; physical presence is necessary to avoid undue burdens and provide clear, administrable rules | Overruled Quill and Bellas Hess; physical presence is not required; Complete Auto’s ‘‘substantial nexus’’ governs |
| Whether South Dakota’s statutory thresholds create a sufficient nexus | Thresholds target substantial in‑State activity and protect small sellers; satisfy substantial-nexus requirement | Thresholds still violate Quill (per controlling precedent) and could burden interstate commerce | Court held the statute’s thresholds establish sufficient nexus for remand and further Commerce Clause analysis |
| Whether stare decisis precludes overruling Quill | Reliance interests are limited; Quill is unworkable and harmful to States and market fairness | Stare decisis and Congress’s role counsel leaving rule intact; disruption favors legislative solution | Stare decisis rejected here: Court found special justification to overrule given changed realities |
| Whether other Commerce Clause limits remain to protect interstate commerce | Other dormant Commerce Clause doctrines (e.g., Pike balancing, apportionment, nondiscrimination) can address burdens | Eliminating Quill removes clear protection and will impose compliance costs, especially on small sellers | Court: other doctrinal tools can address undue burden/discrimination; remand to consider those issues |
Key Cases Cited
- Quill Corp. v. North Dakota, 504 U.S. 298 (reexamined and overruled) (previously required physical presence for state sales-tax collection)
- National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U.S. 753 (overruled) (original formulation of physical-presence rule)
- Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (adopts four-part test for state taxes: substantial nexus, fair apportionment, nondiscrimination, fair relation to services)
- Miller Brothers Co. v. Maryland, 347 U.S. 340 (due process nexus principles informing taxation jurisprudence)
- Burger King Corp. v. Rudzewicz, 471 U.S. 462 (due process can be satisfied without traditional physical presence)
- National Geographic Soc. v. California Bd. of Equalization, 430 U.S. 551 (discusses practical difficulty of requiring collection from many individual purchasers)