After more than 50 years of limiting the states authority to tax out of state sellers, the U.S. Supreme Court has overturned the longstanding Quill and National Bellas Hess1 decisions, which both established a physical presence requirement to be met. In this decision, the Supreme Court specifically concluded that the Quill and National Bellas Hess decisions were an incorrect interpretation of the commerce clause.

To read the official Supreme Court ruling, click here.

While South Dakota has prevailed in persuading the Supreme Court to overturn the Quill and National Bellas Hess doctrines, the Supreme Court did not opine on the constitutionality of South Dakota's economic nexus standard. Instead, the decision of the South Dakota Supreme Court was vacated and remanded back to South Dakota for further review. South Dakota's current law establishes two criteria that require remote sellers with no physical location in South Dakota to remit sales tax. Specifically, remote sellers are required to collect sales tax on sales of tangible personal property, any products transferred electronically, or services delivered in South Dakota if: (1) the remote seller's annual gross revenue exceeds $100,000 OR (2) the remote seller has 200 or more separate transactions.

Similar to South Dakota, there are over 30 other states that currently have laws taxing internet sales. Eliminating the physical presence requirement can now have a domino effect across the country for taxing e-commerce. States will now need to decide if their goal is to align their law to be consistent with parameters outlined by South Dakota, or test the limits of their authority in taxing transactions of out-of-state sellers. The potential revenue as result of this decision (which is estimated to be $8-$33 billion per year)2 no doubt will serve as a windfall for all the states and a monumental challenge for internet sellers.

Of significant importance is the dissenting opinion related to this landmark 5 - 4 decision, which underscores the need for Congress to step up and act to protect the growing e-commerce business segment of the economy. Congress has battled with the issue of untaxed sales for years. Perhaps this decision will be the impetus for renewed focus and action.

Look for more information and updates as we continue to follow the developments resulting from this landmark decision.


1. National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U.S. 753 and Quill Corp. v. North Dakota, 504 U.S. 298

2. per p. 2 of the Supreme Court decision, citing Sales Taxes Report, at 11-12; Brief for Petitioner 34-35 citing estimates of $23 and $33.4 billion

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