Sales Tax in a Brave New World: A Brief Look at South Dakota v. Wayfair, Inc.

Sales Tax in a Brave New World: A Brief Look at South Dakota v. Wayfair, Inc.

Blog Post | 107 KY. L. J. ONLINE | June 24, 2018

Bethany Davenport[1]

The case that any student of state and local tax knows is that of Quill Corp. v. North Dakota.[2] In Quill, the Supreme Court ruled that North Dakota lacked the authority to require a mail-order business to collect and remit a use tax from its purchasers who were residents of North Dakota.[3] This holding was based on the fact that the business did not have employees or a physical presence in North Dakota.[4]  A use tax “is a sales tax on purchases made outside one’s state of residence for taxable items that will be used, stored or consumed in one’s state of residence and on which no tax was collected in the state of purchase.”[5]  The sales tax in question with any out-of-state seller is going to be a use tax.

The ruling in Quill built on the Court’s interpretation of the dormant commerce clause and a reliance on Congress’s power to regulate commerce.[6] The physical presence test was intended as a limit on a “state[’s] burden[ ] on interstate commerce.”[7]

Since the 1992 decision in Quill, states have not had the authority to require business without a physical presence to collect and remit a use tax for purchases where the consumer is a resident of that state. Quill arguably became archaic in 1995, when commercial use restrictions on the internet were lifted and the internet as we know it today began to emerge.[8] According to the National Conference of State Legislatures, states lost approximately $23 billion annually because of their inability to tax these online transactions.[9]

Then, South Dakota v. Wayfair, Inc.[10] happened. On June 21, 2018 the Supreme Court in a 5-4 vote ruled to overturn Quill.[11] Justice Kennedy, who concurred in Quill,[12] wrote the opinion of the Court.[13] The Wayfair holding shifts the burden of taxation from the consumer to the seller in online transactions.[14] States can now require sellers to collect and remit use taxes, even if they do not have a physical presence in that state.[15]

States have the authority to tax sales.[16] The collection of the use tax on online transactions before Wayfair relied on consumers to self-report their out-of-state purchases.[17] The number of consumers self-reporting was “notoriously low.”[18] Although some online retailers used to advertise these transactions as tax-free transactions, this was never the case.[19] The states just lacked the capability and resources to track these purchases when it came to individual consumers.

Amazon voluntarily started collecting and remitting use taxes in 2017 for states in which it did not have a physical presence.[20] The dissent in Wayfair touched on voluntary collection and remittance by citing a Government Accountability Office reporting that 80% of taxes that could be remitted to states are already voluntarily done so.[21] This is likely from large retailers voluntarily tracking sales tax laws. Something to consider is that South Dakota changed its law on sales tax collection in 2016.[22] Amazon started collecting sales tax from every state regardless of its physical presence in 2017.[23] Large retailers have likely been paying attention to a changing opinion on how sales and use taxes should be collected.

The decision in Wayfair was expected, but overturning decades of stare decisis is still shocking. The Court is putting the ball in Congress’s court to either supersede this decision or to place laws into place that will help administer the headache that will be caused by this change. The headache will likely be felt the sharpest by small online retailers who do not have the manpower to juggle the different rules and regulations for the over 10,000 taxing jurisdiction in the United States.[24]  How these competing jurisdictions reconcile with an ever-connected commerce stream will be important for our national economy

There have been several resolutions dealing with sales tax in the past decade that have not been taken on by Congress. This includes RTPA which would have required a simplification of sales tax laws[25] and calls to nationalize the Streamlined Sales and Use Tax Agreement.[26]

Although the Wayfair decision does put an end to the “paradox of condemning interstate discrimination in the national economy” while the Supreme Court upholds it,[27] there are still many flaws with the functionality of state sales tax.


[1] Editor-in-Chief, Kentucky Law Journal. University of Kentucky College of Law, J.D. expected May 2019.

[2] 504 U.S. 298 (1992).

[3] Id. at 317–18.

[4] Id.

[5] Amy Fontinelle, Use Tax, Investopedia, (last visited, June 22, 2018).

[6] Quill, 504 U.S. at 313.

[7] Id.

[8] A Brief History of NSF and the Internet, National Science Foundation, (Aug. 13, 2003),

[9] Ezra Klien, The long shadow of Quill Corp. v. North Dakota, The Washington Post, (July 9, 2012),

[10] South Dakota v. Wayfair, Inc, No. 17-494, 2018 U.S. LEXIS 3835 (June 21, 2018).

[11] See generally, id.

[12] Quill, 504 U.S. at 319.

[13] Wayfair, 2018 U.S. LEXIS 3835, at *9.

[14] Cf. id. at *30–*31.

[15] No. 17-494, 2018 U.S. LEXIS 3835, at *39 (June 21, 2018).

[16] Id. at *21.

[17] Id. at *10.

[18] Id.

[19] See Marguerite Reardon, Confused about online sales taxes? You’re not alone, CNET, (Dec. 4, 2013, 12:00 AM),

[20] Chris Isidore, Amazon to start collecting state sales taxes everywhere, CNN (Mar. 29, 2017, 2:59 PM),

[21] South Dakota v. Wayfair, Inc, No. 17-494, 2018 U.S. LEXIS 3835, at *48–*49 (June 21, 2018).

[22] Id. at *11.

[23] Isidore, supra note 19.

[24] Wayfair, 2018 U.S. LEXIS 3835, at *51.

[25] Joseph Bishop-Henchman, Previewing SCOTUS South Dakota v. Wayfair Online Sales Tax Case, The Tax Foundation, (April 10, 2018),

[26] See 12 S. 336, 113th Cong. (2014); 13 H.R. 684, 113th Cong. (2014). The Streamline Sales Tax and Use Agreement aims to simplify state sales and use taxes to increase tax collection by reducing the burden of tax compliance. About Us, Streamlined Sales Tax Governing Board, Inc., (last visited June 23, 2018).

[27] South Dakota v. Wayfair, Inc, No. 17-494, 2018 U.S. LEXIS 3835, at *43 (June 21, 2018).