Under a 1992 U.S. Supreme Court decision, Quill Corp v. North Dakota, out-of-state sellers are not required to collect or remit sales tax on purchases unless they have nexus – a physical presence – in the state the purchase is delivered to or received in. At the time the Quill ruling was issued, it primarily impacted catalog sales, since internet marketing was years away.
In 2016, South Dakota lawmakers passed Senate Bill (SB) 106, requiring out-of-state retailers to collect and remit tax on purchases shipped to customers in the state. The South Dakota Retailers Association was instrumental in the passage of SB 106. With an increasing amount of sales occurring online and going untaxed, the organization says it’s long past time for a change in how the tax is handled.
Following the passage of SB 106, the state filed a lawsuit against several online giants, and the new state law was placed on hold pending the outcome of the case. The lawsuit has been working its way through the system, and oral arguments were held before the South Dakota Supreme Court in August. As the state anticipated and hoped, the state Supreme Court ruled against the state on SB 106, paving the way for the case to potentially be heard by the U.S. Supreme Court.
“Our South Dakota retailers aren’t afraid of competition, but we believe it ought to be fair competition,” said South Dakota Retailers Association Board President Gary Cammack of Cammack Ranch Supply in Union Center. “We hope the U.S. Supreme Court will agree to hear this case. It’s a vital issue for the businesses up and down the Main Street of every town in our state.”
Cammack explained that the association first went on the record in 1937 saying tax should apply to purchases shipped from out-of-state to customers in South Dakota.
“Eighty years later, we’re getting closer to getting the situation taken care of once and for all,” he said. “We hope the Supreme Court is willing to tackle this important issue.”
SB 106 applies only to businesses whose sales in the state exceed $100,000 annually, or that make 200 or more separate transactions in the state in a year.
“Our State Legislature, the administration, the municipalities and business community have worked hard to streamline our state’s tax system to make it easier for the out-of-state companies to collect and remit tax on purchases,” Cammack noted. “And it is a tax that’s owed, one way or another. If the out-of-state companies don’t charge and remit it, then legally, customers are obligated to pay use tax on the purchase. It’s far less cumbersome to have the sellers charge the tax upfront.”
The state of South Dakota and municipalities lose an estimated $50 million annually in sales tax revenue due to these untaxed sales.
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