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South Dakota v. Wayfair: E-commerce Now Fair Game for State Sales Taxes

Last term, on June 21, 2018, the Supreme Court decided South Dakota v. Wayfair, the first sales tax jurisdiction case heard by the Court in 25 years.1 The Court’s decision in Wayfair has significant implications for online retailers, as well as for the future of stare decisis.2

Background

Wayfair overruled two prior Supreme Court decisions which guided state sales tax policies. First, the court in National Bellas Hess, Inc. v. Department of Revenue,3 held that, pursuant to the “dormant” Commerce Clause, states could not compel certain out-of-state sellers to collect and remit sales taxes if they lacked the minimum contacts required by the Due Process and Commerce Clauses of the U.S. Constitution. The Court established a “bright-line, physical-presence requirement.”4

In the second case, Quill Corp. v. North Dakota,5, the Court affirmed its holding from Bellas Hess on stare decisis grounds. Though Justice Kennedy had joined the Quill majority, by 2015 his views had changed. In a different case, Kennedy wrote separately to note the immense effect of the internet on the economy, and essentially invited a test case to reexamine theBellas Hess and Quill holdings.6

The emergence of e-commerce prompted South Dakota, which has no state income tax and therefore relies heavily on a sales tax, to enact a 2016 statute that imposed an “economic presence test” on out-of-state sellers and also subjected them to sales tax liability if they met certain thresholds.7 The state subsequently filed several lawsuits against out-of-state internet retailers, including Wayfair. The South Dakota Supreme Court agreed with the retailers that Quill remained the controlling precedent.8

Discussion of Wayfair

The U.S. Supreme Court vacated and remanded the case. The opinion was joined by Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito, and Neil Gorsuch. Chief Justice John Roberts wrote a dissent that was joined by Justices Stephen Breyer, Sonia Sotomayor, and Elena Kagan.

Writing for the majority, Justice Kennedy acknowledged that Quill was wrongly decided, and stated that “the Internet revolution has made [Quill’s] earlier error all the more egregious and harmful.”9 The Court then justified its departure from the principle of stare decisis, reasoning that the doctrine only accommodates “legitimate reliance interests,” and that although the ultimate authority over interstate commerce rests with Congress, “it is inconsistent with the Court’s proper role to ask Congress to address a false constitutional premise of this Court’s own creation.”10

Chief Justice Roberts, dissenting, “agree[d] that Bellas Hess was wrongly decided, for many of the reasons given by the Court,” but disputed the application of stare decisis.11 He argued that the decision whether or how to reverse Quill should be left to Congress, since a “heightened form of stare decisis”is called for where “Congress . . . can, if it wishes, override this Court’s decisions with contrary legislation.”12 Citing Justice Scalia’s emphasis on the ‘special force’ of stare decisis in the context of the dormant Commerce Clause, the Chief Justice concluded that Quill had invited Congress to act; and by “suddenly changing the ground rules, the Court may have waylaid Congress’s consideration of the issue.”13

Impact

At the time of the Wayfair decision, 31 states had laws in place that taxed internet sales. As a result of the ruling, South Dakota can require internet retailers to collect sales tax on purchases by South Dakota customers, despite a lack of physical presence in the state. The impact of this change could be especially pronounced in states like South Dakota, which do not have a state income tax. In fact, the Government Accountability Office in South Dakota estimated that the decision could increase state and local tax revenue by $13 billion.14 The decision also provides a framework for other states to enact or alter similar laws.15


  1. Dennis Jansen, South Dakota v. Wayfair – Insights and Analysis, Salt Shaker (2018), https://www.stateandlocaltax.com/in-the-news/south-dakota-v-wayfair-insights-analysis/#page=1 (last visited Apr 19, 2019). 

  2. Stare Decisis for Constitutional Default Rules — Dormant Commerce Clause — South Dakota v. Wayfair, Inc., 132 Harv. L. Rev. 277 (2019). 

  3. 386 U.S. 753 (1967). 

  4. Id

  5. 504 U.S. 298 (1992). 

  6. Direct Mktg. Ass’n v. Brohl, 135 S. Ct. 1124, 1129, 191 L. Ed. 2d 97 (2015). 

  7. Mark Walsh, Opinion analysis: Court expands states’ ability to require internet retailers to collect sales tax, SCOTUSblog (Jun. 21, 2018, 4:15 PM), https://www.scotusblog.com/2018/06/opinion-analysis-court-expands-states-ability-to-require-internet-retailers-to-collect-sales-tax/. 

  8. Id. 

  9. South Dakota v. Wayfair, Inc., 138 S. Ct. 2080, 2097 (2018). 

  10. Wayfair, 138 S. Ct. at 2096–97. 

  11. Wayfair, 138 S. Ct. at 2101 (Roberts, C.J., dissenting). 

  12. Wayfair, 138 S. Ct. at 2101-2102 (Roberts, C.J., dissenting). 

  13. Wayfair, 138 S. Ct. at 2102–03 (Roberts, C.J., dissenting). 

  14. Jeff Mengoli, The Impact of The Supreme Court’s Ruling in South Dakota v Wayfair The BigCommerce Blog (2019), https://www.bigcommerce.com/blog/south-dakota-v-wayfair/#background (last visited Apr 19, 2019). 

  15. Id. 

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