Supreme Court Holds Out-of-State Sellers Can be Held Responsible for Sales Tax Without Physical Presence in State

Today’s blog is going to deviate from normal trial issues and discuss yesterday’s decision by the United States Supreme Court in South Dakota v. Wayfair, Inc., 585 U.S. ____(2018) (“Wayfair”). Almost everyone now buys goods or services through the internet. So the Wayfair decision will affect everyone who shops on the internet at such websites as Wayfair, Ebay, and Amazon and will allow States to increase annual revenue by billions of dollars that can then be used for local and state-wide projects and funding.

Before Wayfair, the United States Supreme Court held, in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), that a seller had to have a physical presence in the state to have liability to collect and remit sales tax. Not surprisingly many states were unhappy with this holding because it meant that they were going to be deprived of billions of dollars in sales tax revenue that could be used to fatten up state coffers. Also, brick-and-mortar retailers were unhappy with the Quill opinion because it gave online retailers without a physical presence a cost advantage over the brick-and-mortar businesses.  Recognizing that Quill was hopelessly out-of-date in the e-commerce world we live in where purchases are made online or through a mobile device, the Supreme Court decided to reconsider Quill.

In overruling Quill and holding that it was unsound and incorrect, the United States Supreme Court, relying on the Commerce Clause, held that state taxes will be found to not violate the Commerce Clause so long as they (1) apply to an activity with a substantial nexus with the taxing state, (2) are fairly apportioned, (3) do not discriminate against interstate commerce, and (4) are fairly related to the services the state provides. The Supreme Court also stated that Quill was flawed and incorrect and “further removed from economic reality and results in significant revenue losses to the States.” South Dakota v. Wayfair, Inc., 585 U.S. ____(2018). According to the Supreme Court, Quill’s holding also distorted the market and imposed an arbitrary, formalistic distinction that cut against the Commerce Clause because it imposed different results on economically identical actors for arbitrary reasons. Finally, the Supreme Court acknowledged that modern e-commerce does not align with a test that relies on a physical presence and ignores substantial virtual connections to the State. South Dakota v. Wayfair, Inc., 585 U.S. ____ (2018).

Wayfair is a landmark decision and I wonder if it is the first step to significant changes in state and national legal issues (i.e. scope of personal jurisdiction for one) as a result of e-commerce and a person’s virtual presence in a state without a physical presence. The opinions in this blog are solely the author’s and any comments, replies, or suggestions can be sent to