09 March 2017 South Dakota circuit court rules state's economic nexus law for sales and use tax is unconstitutional On March 6, 2017, a South Dakota Circuit Court (court) held that the state's recently adopted economic nexus standard for sales and use tax is unconstitutional, in light of the US Supreme Court's 1992 ruling in Quill,1 which formalized the physical presence requirement. South Dakota v. Wayfair Inc., Overstock.com, Inc. and Newegg Inc., No. 32CIV16-000092 (S.D. Cir. Ct., 6th Cir., March 6, 2017). In 2016, South Dakota enacted SB 106, which required a remote seller selling tangible personal property, electronically transferred products or taxable services (collectively, goods) for delivery into South Dakota to register, collect and remit South Dakota sales taxes on those sales as if the seller had a physical presence in the state. This requirement applied only if, in the previous calendar year, the seller either: 1) has over $100,000 in gross revenue from delivery of these goods into South Dakota, or 2) sold these goods for delivery into South Dakota in 200 or more separate transactions. Lawsuits were filed challenging this new law. On appeal, the state acknowledged that it "is prohibited from imposing sales tax collection and remittance obligations" on the defendants, which are both remote retailers without a physical presence in the state, and that the court is required to rule in favor of defendants based on Quill. The court agreed, stating it is "duty bound to follow applicable precedent of the United State Supreme Court … This is true even when changing time and events clearly suggest a different outcome." The court also noted that it is not its role to disregard such precedent. Provisions of SB 106 include appeal process and procedures that direct the courts to act as expeditiously as possible in regard to taxpayer challenges and provide further that an appeal of a circuit court ruling must be made directly to the South Dakota Supreme Court. Should the South Dakota Supreme Court rule on the court's decision before the end of the year, an expected appeal to the US Supreme Court could be filed in the October 2017 term. A similar challenge to Alabama's economic nexus regulation is currently before that state's Tax Appeals Tribunal, and is not expected to be heard until later in 2017. A challenge to Tennessee's economic nexus regulation was filed in February 2017.
Document ID: 2017-0441 | |||||||||
