The U.S. Supreme Court has recently decided on the standard to require out-of-state sellers to collect sales and use taxes. In South Dakota v. Wayfair, Inc.,[1] the Court ruled that states can compel out-of-state sellers to collect sales and use taxes from consumers, even if sellers do not have a physical presence in the state. This ruling changes more than 25 years of precedence, established by a prior ruling in Quill Corp. v. North Dakota. [2]

Generally, due to states’ taxing power, states impose sales use taxes on consumer, but sellers bear the obligation to collect these taxes. However, states’ taxing power is limited by constitutional requirements that results in a barrier to states’ goal to impose the task of collecting sales and use taxes on internet retailers. The Supreme Court has laid out the constitutional standards in Quill[3] requiring a “substantial nexus” between the out-of-state retailer and the taxing state. Specifically, the Court stated that the substantial nexus exists when a seller has some physical presence in the taxing state.[4] For many years, the substantial nexus standard was satisfied with the seller’s “physical presence” that is by the establishment of an office, warehouse, or staff within the state. Therefore, this standard created an opportunity for out-of-state or remote seller for planning around the collection of sales and use tax, generally by limiting their physical presence in the state and engaging in e-commerce or online retail. As a result, sales and use tax went uncollected and couldn’t be collected on a large and growing percentage of retail sales conducted through the internet.

The aftermath of Quill resulted in innumerable efforts of states to change the standards set in Quill.  The inability to collect taxes meant loss of revenue to the states, since sales taxes are the second largest category of states’ tax revenue.[5]  Specifically, South Dakota enacted a statute requiring internet sellers with no physical presence in the state to collect and remit sales tax. [6] Next, South Dakota brought action against some internet sellers with no physical presence in the state, seeking declaration that these sellers had to comply with the enacted statute. The issue was decided in favor of the states in South Dakota v. Wayfair, Inc.[7]

In Wayfair, the Supreme Court reaffirms the need for substantial nexus but rules that “nexus is established when the taxpayer or collector ‘avails itself of the substantial privilege of carrying on business’ in that jurisdiction.” [8] Under this new standard, no physical presence is required, and the doors are opened for states passing local legislation to compel the collection of sales and use tax laws. In fact, many states had already passed local legislation requiring remote sellers to collect sales and use taxes. Many of these states recently announced the enforcement of these laws and the issuance of guidance. For instance, North Dakota’s tax commissioner issued a release announcing that remote sellers are required to register and begin collecting state sales and use tax beginning October 1. 2018, [9] However, the law includes an exception for small sellers.[10]


[1] S. Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018).

[2] Quill Corp. v. North Dakota, 504 U.S. 298 (1992) (overruled by S. Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018)).

[3] Quill Corp., 504 U.S. at 317–18.

[4] Id.

[5] Quarterly Summary of State & Local Government Tax Revenue for First Quarter 2018, United States Census Bureau, 2 (June 19, 2018),

[6] S.D. Codified Laws § 10-45-2 (2016)

[7] S. Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018).

[8] Wayfair, 138 S. Ct. at 2099, citing Polar Tankers, Inc. v. City of Valdez, 557 U. S. 1, 11 (2009).

[9] Remote Seller Sales Tax, Nd Tax North Dakota (June 21, 2018),

[10] Id. (Indicating that the collection of sales tax requirement does not apply to sellers with taxable sales shipped to North Dakota that does not exceeds $100,000 or when sales do not exceed 200 separate transactions).