South Dakota – How SD Sales Tax Case Could Overturn Quill Decision

Convenience Store Decisions
By CSD Staff
August 29, 2017

With online commerce taking off, policymakers look to end loophole that prevents online retailers from collecting sales tax.

The South Dakota Supreme Court heard oral arguments in a case that could ultimately persuade the United States Supreme Court to revisit Quill Corp v. North Dakota, a 1992 decision that forbade states from requiring retailers without a physical presence to collect sales tax.

In the 25 years since the decision, online commerce has exploded, and many policymakers have called for an end to the “loophole” that has given online sellers a distinct competitive advantage over brick and mortar stores.

“The artificial price advantage created by the United States Supreme Court and enjoyed by online-only sellers for two decades has created a significant market distortion, an inequity that has led to the shuttering of thousands of brick and mortar stores,” said Retail Litigation Center President Deborah White. “The time has come to rectify this bias and restore basic free market competition.”

The case heard today stems from a South Dakota statute passed in 2016 designed to challenge Quill directly. The law, passed overwhelmingly by the Legislature and signed by Governor Dennis Daugaard last spring, requires out-of-state retailers to collect and remit sales tax if they transact more than $100,000 of business in the state or more than 200 sales.

The law was signed roughly one year after U.S. Supreme Court Justice Anthony Kennedy recognized in his concurring opinion in DMA v. Brohl that, “[t]he Internet has caused far-reaching systemic and structural changes in the economy” so that “a business may be present in a State in a meaningful way without that presence being physical in the traditional sense of the word.” Noting the significant economic harms that were befalling state treasuries and local retailers, Justice Kennedy said that “it is unwise [for the US Supreme Court] to delay any longer a reconsideration of the Court’s holding in Quill” and asked the “legal system [to] find an appropriate case for this Court to reexamine Quill.”

State and local governments are as anxious as local retailers for a solution. As online sales have grown exponentially, states have experienced a significant erosion of their sales tax base. While many states have been successful tweaking nexus laws and enacting various sales and use tax compliance measures, no state has come close to fully recovering the revenues lost due to Quill. The combination of fewer storefronts and a deteriorating tax base has meant a slow decline in revenue for the 45 states and the District of Columbia that rely on sales tax revenues to fund state and local government operations. States have sought a solution from Congress for more than a dozen years, but despite multiple bill introductions by supportive members of both parties, these efforts have not led to legislation passing both Chambers of Congress.

“States have done virtually everything they can to solve this problem, but it’s simply not enough,” said White. “Congressional inaction means the only hope for retailers and the states is for the Supreme Court to revisit the Quill decision. This is an appropriate step since the U.S. Supreme Court created this distinction in the first place.”

“We are hopeful that the South Dakota Supreme Court will quickly issue an opinion that explains to the federal court the harm the pre-Internet Quill decision has inflicted on both the states and local retailers,” added White. “With a quick ruling, it’s possible that the U.S. Supreme Court could choose this case to bring resolution to the states and merchant community during its October 2017 term.”


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