Supreme Court approves internet sales taxes

Today the Court released its 24 page opinion in South Dakota v Wayfair, Inc., (6/21/18). While monumental in a way, I believe everyone saw it coming, and realized the nightmare produced by companies who don’t pay sales taxes. Here is my short iPhone-typed synopsis.

Issue: are online retailers required to pay state Sales tax despite no physical presence in the purchaser’s state? (Is South Dakota’s tax on out of state internet retailers constitutional?)

Background: SD cannot require out of state businesses to collect and remit sales tax to the state, leaving buyers responsible for paying the tax, which they don’t. Let’s be honest, who self reports taxes that are based on the honor system?

This resulted in about $48-58 million in lost revenue. South Dakota passed a law requiring companies to remit sales tax if they

– had $100,000 in total sales that are delivered to SD

-or companies with 200+ transactions into SD

41 states, 2 territories, and DC joined with South Dakota in this case.

Old Rule: 2 previous cases, Quill Corp. v ND, 504 US 298, and Nat’l Bellas Hess, inc. v Ill Dept of Rev., 386 US 753, created the physical presence test.

Analysis: Far reaching and systemic changes to the modern market economy made it clear that the physical contacts test in Quill need to be altered, as Quill and Bellas Hess are unsound and incorrect.

Use the Complete Auto Transit v Brady, 430 US 274 (1977) test:

1- does the tax apply to an activity with a substantial nexus to the taxing state?

Courts answer: to be taxed by SD, the seller must have engaged in a quantity of business that the seller availed itself of the privileges of doing business in SD. Q1 is satisfied.

Questions 2-4 of the Complete Auto test are not examined in this case.


This case is interesting as the Court abandoned and modified its commerce clause precedent to conform with present market realities. That is major news. Also interesting is that the result comports with common sense.

What we don’t know is the bottom limit of the Court’s interpretation of the Complete Auto standard: how much business can be conducted without having to remit taxes to another state?

A majority of the court seems to question Commerce Clause interpretation, which is a great thing.

There is an interesting split amongst the center-right faction, in that Justice Roberts does not favor challenging stare decisis, or the dormant commerce clause.

Majority: Kennedy authored. Thomas, Gorsuch, Alito, and Ginsburg joined.

Concurrence: Thomas. Regrets not joining Justice Whites dissent in Bellas Hess, and states the court’s negative Commerce Clause jurisprudence cannot be justified by reason.

Concurrence: Gorsuch: the precedent over turned today has given tax breaks to online businesses, in what is a court ordered, and discriminatory, tax shelter. Pleased to see the court correct the mistake. Questions constitutionality of the Court’s history of dormant commerce clause rulings. Hints that the doctrine of stare decisis needs to be looked at.

Dissent: Roberts, Breyer, Sotomayor, Kagan: do not get rid of the physical presence test, and let Congress act on this. Resistance to the Court overturning precedence. Worship stare decisis. Contend that the states don’t suffer much harm because amazon voluntarily remits taxes (one company not party in this case). Somewhat Valid concern over 10,000+ tax jurisdictions and how to manage internet sales there.

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