States have the authority to make internet retailers collect sales tax even if the retailer has no physical presence in the state, according to the U.S. Supreme Court ruling in South Dakota v. Wayfair.
The court overturned the 1992 Quill Corporation v. North Dakota ruling, which barred states from requiring businesses to collect sales tax unless they had a connection to the state. Since then, online sales have grown, and states have been losing out on millions of dollars annually.
The new ruling came about because South Dakota has no income tax, and sales tax revenue makes up about 60 percent of the state’s funds each year. The loss of online sales tax was substantial. In 2016, they enacted a law to counteract the loss of this revenue.
South Dakota’s legislature knew the new law would be unconstitutional unless Quill was overturned. The state filed a declaratory judgement action in state court against Wayfair Inc., Overstock.com and Newegg Inc., none of which had employees or property in South Dakota.
There are many details involving South Dakota and the courts leading up to the South Dakota v. Wayfair ruling.
Congress could decide to move forward with legislation on this issue to provide a national standard for online sales and use tax collection.