On June 21st, the U.S. Supreme Court issued its highly-anticipated decision in the South Dakota v. Wayfair case. The Court ruled in favor of South Dakota, effectively overturning the physical presence requirement reaffirmed by the Supreme Court in 1992 in Quill Corp v. North Dakota.    

The physical presence requirement prohibited states from requiring out-of-state retailers to collect and remit sales tax if the seller did not have a substantial nexus in the state. Under the prior Quill standard, substantial nexus required some form of physical presence such as property or people in the state. 

In 2016, South Dakota passed a law requiring out-of-state retailers to assess tax on its sales to its resident if sales to South Dakota customers exceeded its annual de minimis thresholds of delivery of more than $100,000 of goods or services or engaging in 200 or more transactions, regardless of whether the retailer had physical presence in the state. After passing the law, South Dakota sued four online retailers for not complying, including Wayfair,, Newegg and Systemax. Wayfair challenged South Dakota by arguing the law was directly at odds with Quill's physical presence rule.

The Court ruled in favor of South Dakota, pointing out that much had changed since the Quill decision in 1992, with a rise in e-commerce giving way to a significant internet-based, interstate marketplace, and the physical presence rule put local, brick-and-mortar retailers at a competitive disadvantage relative to remote sellers. In his majority opinion for the Court, Justice Kennedy, noted that South Dakota's law was "designed to prevent discrimination or undue burdens upon interstate commerce." In addition to the de minimis thresholds noted previously, he also cited that South Dakota is party to a 23-state agreement to streamline sale tax definitions and compliance and that its provisions prevent a retroactive collection obligation.

Many states have current laws on their books that contain sales tax nexus provisions similar to South Dakota's. Now that South Dakota's specific provisions have been blessed by the Court, expect more states to seek legislative and regulatory expansion of their "doing business" laws to align with the South Dakota v. Wayfair decision.

Companies should carefully review their footprint in each state to assess how the new substantial nexus standard will impact their sales tax collection and compliance obligations.

BPM is here to help. Please contact Robert Houston for answers​ to your questions. 


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