Insights: Article

South Dakota Sales Tax Case Could Affect Multistate Businesses

A ruling in a recent South Dakota court case will likely prove beneficial to taxpayers.

By Laura Srsich

April 04, 2017

A ruling in a recent South Dakota court case will likely prove beneficial to taxpayers. The State of South Dakota v. Wayfair, Inc., Overstock.com, Inc., and NewEgg, Inc. case (SD v Wayfair, Inc.) challenged the physical presence requirement of Quill Corp. v. North Dakota, which prohibited requiring out-of-state retailers to collect sales taxes on behalf of a state without some minimum connection with that state.

About Quill
Quill Corporation, an out-of-state office supply company that sold products to North Dakota customers, was not collecting sales tax on such sales. North Dakota audited Quill and assessed sales tax. Quill appealed to the United States Supreme Court claiming they were not required to collect sales tax since they did not have a presence in North Dakota. The U.S. Supreme Court agreed with Quill that North Dakota cannot impose a sales tax requirement on an out-of-state retailer who does not have a substantial presence in the state. Substantial presence is defined as physical presence.

South Dakota Sales Tax
South Dakota law requires sales tax to be collected on sales made in the state under one of the following circumstances:

  • In the previous or current calendar year, the seller had more than $100,000 of gross revenue from sales
  • In the previous or current calendar year, the seller engaged in 200 or more separate South Dakota sales transactions

The South Dakota trial court held in the SD v. Wayfair, Inc. case that South Dakota may NOT impose sales tax collection and remittance obligations on sellers who do not have an in-state presence in accordance with Quill requirements. To have an in-state presence, according to the Quill decision, a business must be physically present in a state, with either a physical location, a warehouse or employees. Only then could the business be required to collect sales and use tax on behalf of the state.

Businesses without a physical location, a warehouse or employees in South Dakota, but making sales in the state, do not need to collect and remit sales tax. The case has been appealed to the South Dakota Supreme Court. If the South Dakota Supreme Court decides not to hear the case, the state could appeal to the United States Supreme Court. Time will tell, but, it's a hot topic with big impact on business.  

Outlook of Quill and South Dakota Rulings
Other states that are in the process of passing (or have passed) similar laws to South Dakota include Arkansas, Indiana, Michigan, New Mexico, South Carolina, Washington and Wyoming. If the South Dakota law is found constitutional, they will be prepared to collect sales tax given the above provisions of more than $100,000 of gross revenue and more than 200 separate sales transactions.

Impact on Your Business
If your business operates in multiple states, without having a physical presence in those states, you could be impacted by the decision of the South Dakota case. Either way, there are considerations and steps to take before registering with a state and collecting and remitting sales tax. A nexus study, used to analyze your business activities and presence in a state to determine if sales or income tax should be filed, may need to be considered.

Latest Insights

September 18, 2018
Article
As the largest tax reform legislation in the past 30 years becomes reality, it is important to stay up-to-date on planning opportunities and how reform may impact you and your business. Our Tax Reform: Practical Insights examples aim to break down…
September 18, 2018
Tool
Get ahead of tax season with the Eide Bailly Tax Planning Guide. A supplemental strategy guide to help guide year-end and make the tax laws work for you.
September 18, 2018
Article
The SCOTUS Wayfair decision has prompted a new focus on state and local tax compliance. The decision to register, report, and comply is important.
September 17, 2018
Article
When an IRS Letter 226J is received, it is important to respond timely and with accurate information to eliminate, abate or reduce IRS calculated penalties
September 17, 2018
Firm News
Tom Goekeler, partner at Eide Bailly LLP, has been named chief practice officer of the South Central region, which currently covers our Oklahoma and Texas offices.
September 17, 2018
Article
The recent US Supreme Court decision that overturned Quill in the South Dakota v Wayfair case has many states making or considering law changes related to sales tax compliance for out-of-state sellers.
September 12, 2018
Article
The Tax Cuts and Jobs Act, signed December 22, 2017, significantly impacted inbound tax planning. Non-U.S. taxpayers doing business in the U.S. will need to consider the new tax laws.
September 12, 2018
Article
Applications have made a huge impact on our lives, allowing us to keep track of the complexities of our day-to-day and save for our futures. But it’s important to understand where we are laying our trust.
September 12, 2018
Article
The following steps outline key considerations for businesses as they work to comply with the new sales and use tax rules.