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South Dakota v. Wayfair

 

South Dakota v. Wayfair was a landmark Supreme Court case addressing issue of sales tax collection from out-of-state sellers. The state of South Dakota brought the case, which argued that it was losing considerable amounts of revenue due to its inability to require sales tax collection from out-of-state sellers. The Supreme Court ultimately ruled in favor of South Dakota, allowing states to require out-of-state sellers to collect and remit sales tax, even if the seller does not have a physical presence in the state.
 
The ruling in South Dakota v. Wayfair overturned the physical presence rule established in the 1992 Supreme Court case Quill Corp v. North Dakota. In Quill, the Court had ruled that states could only require sales tax collection from businesses with a physical presence in the state, such as a brick-and-mortar store. This meant that e-commerce businesses that often did not have a physical presence in a state were not required to collect and remit sales taxes to customers in that state.
 
The rise of e-commerce and the increasing amount of online sales led to may states losing significant revenue due to their inability to require sales tax collection from out-of-state sellers. In response, in 2016, South Dakota passed a law requiring out-of-state sellers to collect and remit sales tax if they made more than $100,000 in sales or 200 transactions in the state. However, the law was challenged in court by several e-commerce business, and the case eventually made its way to the Supreme Court.
 
In its ruling, the Supreme Court found that the physical presence rule established in Quill was “unsound and incorrect.” The Court found that the internet has changed how people shop and has substantially increased online sales. The Court also found the brick-and-mortar businesses at a disadvantage as they were required to collect and remit sales taxes, while many e-commerce businesses were not.
 
The Court also established a new standard for determining when a state can require out-of-state sellers to collect and remit sales taxes. The Court found that a state can require sales tax collection form out-of-state sellers as long as it has a “substantial nexus” with the seller and its sales. This means a state mush have a significant connection to the seller and its sales before it can require the seller to collect and remit sales taxes.
 
The Wayfair decision has major implications for e-commerce businesses. It could result in more states requiring these businesses to collect and remit sales tax on their sales to customers in the state. The decision is likely to considerably impact the revenue of states, as it will allow them to collect more sales taxes from online sales.
 
It is worth noting that the decision will also negatively impact small businesses as they must comply with the sales tax laws of multiple states. This could lead to additional compliance costs and administrative burdens for small businesses. To ease these burdens, some states have already passed laws to help small businesses, but this will be an ongoing process.
 
In conclusion, South Dakota v. Wayfair was an important Supreme Court case dealing with sales tax collection from out-of-state sellers. The Courts ruling in favor of South Dakota overturned the physical presence rule established in Quill and allows states to require sales tax collection from out-of-state sellers, as long as the state has a “substantial nexus” with the seller and its sales. This has significant implications for e-commerce businesses and could result in more states requiring these businesses to collect.
 

 

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