South Dakota v. Wayfair, Inc.

Decision Date21 June 2018
Docket NumberNo. 17–494.,17–494.
Citation138 S.Ct. 2080,201 L.Ed.2d 403
Parties SOUTH DAKOTA, Petitioner v. WAYFAIR, INC., et al.
CourtU.S. Supreme Court

Marty J. Jackley, Pierre, SD, for Petitioner.

Malcolm L. Stewart, Washington, D.C., for the United States as amicus curiae, by special leave of the Court, supporting the petitioner.

George S. Isaacson, Lewiston, ME, for Respondents.

Marty J. Jackley, Attorney General, Richard M. Williams, Deputy Attorney General, Kirsten E. Jasper, Assistant Attorney General, Andrew L. Fergel, Special Assistant Attorney General & Chief Legal Counsel, Department of Revenue, Pierre, SD, Eric F. Citron, Thomas C. Goldstein, Jeanne Jeong, Erica Oleszczuk Evans, Goldstein & Russell, P.C., Bethesda, MD, for Petitioner.

Lisa Soronen, Executive Director, State and Local Legal Center, Tillman J. Breckenridge, Bailey & Glasser LLP, Washington, DC, Patricia E. Roberts, William & Mary Law, School Appellate and, Supreme Court Clinic, Williamsburg, VA, for Amici Curiae.

Noel J. Francisco, Solicitor General, Chad A. Readler, Acting Assistant Attorney General, Malcolm L. Stewart, Deputy Solicitor General, Hashim M. Mooppan, Deputy Assistant Attorney General, Robert A. Parker, Assistant to the Solicitor General, Mark B. Stern, Nicolas Y. Riley, Attorneys, Department of Justice, Washington, D.C., for the United States.

George S. Isaacson, Martin I. Eisenstein, Matthew P. Schaefer, Brann & Isaacson, Lewiston, ME, for Respondents.

Justice KENNEDY delivered the opinion of the Court.

When a consumer purchases goods or services, the consumer's State often imposes a sales tax. This case requires the Court to determine when an out-of-state seller can be required to collect and remit that tax. All concede that taxing the sales in question here is lawful. The question is whether the out-of-state seller can be held responsible for its payment, and this turns on a proper interpretation of the Commerce Clause, U.S. Const., Art. I, § 8, cl. 3.

In two earlier cases the Court held that an out-of-state seller's liability to collect and remit the tax to the consumer's State depended on whether the seller had a physical presence in that State, but that mere shipment of goods into the consumer's State, following an order from a catalog, did not satisfy the physical presence requirement. National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U.S. 753, 87 S.Ct. 1389, 18 L.Ed.2d 505 (1967) ; Quill Corp. v. North Dakota, 504 U.S. 298, 112 S.Ct. 1904, 119 L.Ed.2d 91 (1992). The Court granted certiorari here to reconsider the scope and validity of the physical presence rule mandated by those cases.


Like most States, South Dakota has a sales tax. It taxes the retail sales of goods and services in the State. S.D. Codified Laws §§ 10–45–2, 10–45–4 (2010 and Supp. 2017). Sellers are generally required to collect and remit this tax to the Department of Revenue. § 10–45–27.3. If for some reason the sales tax is not remitted by the seller, then in-state consumers are separately responsible for paying a use tax at the same rate. See §§ 10–46–2, 10–46–4, 10–46–6. Many States employ this kind of complementary sales and use tax regime.

Under this Court's decisions in Bellas Hess and Quill, South Dakota may not require a business to collect its sales tax if the business lacks a physical presence in the State. Without that physical presence, South Dakota instead must rely on its residents to pay the use tax owed on their purchases from out-of-state sellers. "[T]he impracticability of [this] collection from the multitude of individual purchasers is obvious." National Geographic Soc. v. California Bd. of Equalization, 430 U.S. 551, 555, 97 S.Ct. 1386, 51 L.Ed.2d 631 (1977). And consumer compliance rates are notoriously low. See, e.g., GAO, Report to Congressional Requesters: Sales Taxes, States Could Gain Revenue from Expanded Authority, but Businesses Are Likely to Experience Compliance Costs 5 (GAO–18–114, Nov. 2017) (Sales Taxes Report); California State Bd. of Equalization, Revenue Estimate: Electronic Commerce and Mail Order Sales 7 (2013) (Table 3) (estimating a 4 percent collection rate). It is estimated that Bellas Hess and Quill cause the States to lose between $8 and $33 billion every year. See Sales Taxes Report, at 11–12 (estimating $8 to $13 billion); Brief for Petitioner 34–35 (citing estimates of $23 and $33.9 billion). In South Dakota alone, the Department of Revenue estimates revenue loss at $48 to $58 million annually. App. 24. Particularly because South Dakota has no state income tax, it must put substantial reliance on its sales and use taxes for the revenue necessary to fund essential services. Those taxes account for over 60 percent of its general fund.

In 2016, South Dakota confronted the serious inequity Quill imposes by enacting S. 106"An Act to provide for the collection of sales taxes from certain remote sellers, to establish certain Legislative findings, and to declare an emergency." S. 106, 2016 Leg. Assembly, 91st Sess. (S.D. 2016) (S.B. 106). The legislature found that the inability to collect sales tax from remote sellers was "seriously eroding the sales tax base" and "causing revenue losses and imminent harm ... through the loss of critical funding for state and local services." § 8(1). The legislature also declared an emergency: "Whereas, this Act is necessary for the support of the state government and its existing public institutions, an emergency is hereby declared to exist." § 9. Fearing further erosion of the tax base, the legislature expressed its intention to "apply South Dakota's sales and use tax obligations to the limit of federal and state constitutional doctrines" and noted the urgent need for this Court to reconsider its precedents. §§ 8(11), (8).

To that end, the Act requires out-of-state sellers to collect and remit sales tax "as if the seller had a physical presence in the state." § 1. The Act applies only to sellers that, on an annual basis, deliver more than $100,000 of goods or services into the State or engage in 200 or more separate transactions for the delivery of goods or services into the State. Ibid. The Act also forecloses the retroactive application of this requirement and provides means for the Act to be appropriately stayed until the constitutionality of the law has been clearly established. §§ 5, 3, 8(10).

Respondents Wayfair, Inc.,, Inc., and Newegg, Inc., are merchants with no employees or real estate in South Dakota. Wayfair, Inc., is a leading online retailer of home goods and furniture and had net revenues of over $4.7 billion last year., Inc., is one of the top online retailers in the United States, selling a wide variety of products from home goods and furniture to clothing and jewelry; and it had net revenues of over $1.7 billion last year. Newegg, Inc., is a major online retailer of consumer electronics in the United States. Each of these three companies ships its goods directly to purchasers throughout the United States, including South Dakota. Each easily meets the minimum sales or transactions requirement of the Act, but none collects South Dakota sales tax. 2017 S.D. 56, ¶¶ 10–11, 901 N.W.2d 754, 759–760.

Pursuant to the Act's provisions for expeditious judicial review, South Dakota filed a declaratory judgment action against respondents in state court, seeking a declaration that the requirements of the Act are valid and applicable to respondents and an injunction requiring respondents to register for licenses to collect and remit sales tax. App. 11, 30. Respondents moved for summary judgment, arguing that the Act is unconstitutional. 901 N.W.2d, at 759–760. South Dakota conceded that the Act cannot survive under Bellas Hess and Quill but asserted the importance, indeed the necessity, of asking this Court to review those earlier decisions in light of current economic realities. 901 N.W.2d, at 760 ; see also S.B. 106, § 8. The trial court granted summary judgment to respondents. App. to Pet. for Cert. 17a.

The South Dakota Supreme Court affirmed. It stated: "However persuasive the State's arguments on the merits of revisiting the issue, Quill has not been overruled [and] remains the controlling precedent on the issue of Commerce Clause limitations on interstate collection of sales and use taxes." 901 N.W.2d, at 761. This Court granted certiorari. 583 U.S. ––––, 138 S.Ct. 735, 199 L.Ed.2d 602 (2018).


The Constitution grants Congress the power "[t]o regulate Commerce ... among the several States." Art. I, § 8, cl. 3. The Commerce Clause "reflect[s] a central concern of the Framers that was an immediate reason for calling the Constitutional Convention: the conviction that in order to succeed, the new Union would have to avoid the tendencies toward economic Balkanization that had plagued relations among the Colonies and later among the States under the Articles of Confederation." Hughes v. Oklahoma, 441 U.S. 322, 325–326, 99 S.Ct. 1727, 60 L.Ed.2d 250 (1979). Although the Commerce Clause is written as an affirmative grant of authority to Congress, this Court has long held that in some instances it imposes limitations on the States absent congressional action. Of course, when Congress exercises its power to regulate commerce by enacting legislation, the legislation controls. Southern Pacific Co. v. Arizona ex rel. Sullivan,

325 U.S. 761, 769, 65 S.Ct. 1515, 89 L.Ed. 1915 (1945). But this Court has observed that "in general Congress has left it to the courts to formulate the rules" to preserve "the free flow of interstate commerce." Id., at 770, 65 S.Ct. 1515.

To understand the issue presented in this case, it is instructive first to survey the general development of this Court's Commerce Clause principles and then to review the application of those principles to state taxes.


From early in its history, a central function of this Court has been to adjudicate disputes that require interpretation of the Commerce Clause in...

To continue reading

Request your trial
156 cases
  • Antietam Battlefield Koa v. Hogan
    • United States
    • U.S. District Court — District of Maryland
    • May 20, 2020
    ...interstate commerce; and second, States may not impose undue burdens on interstate commerce." S. Dakota v. Wayfair, Inc. , ––– U.S. ––––, 138 S. Ct. 2080, 2091, 201 L.Ed.2d 403 (2018).34 "To determine whether a law violates this so-called ‘dormant’ aspect of the Commerce Clause, we first as......
  • Widdison v. State
    • United States
    • Utah Supreme Court
    • April 29, 2021
    ...activity had a "substantial nexus" with the state in question, id. at 311, 112 S.Ct. 1904. The Court finally acknowledged in South Dakota v. Wayfair, Inc. that Quill was "flawed on its own terms" and that "the physical presence rule, both as first formulated and as applied today, is an inco......
  • Meyer v. Walthall
    • United States
    • U.S. District Court — Southern District of Indiana
    • March 25, 2021
    ...a government's provision of information and services via websites is encompassed by Title II. Cf. South Dakota v. Wayfair, Inc. , ––– U.S. ––––, 138 S. Ct. 2080, 2097, 201 L.Ed.2d 403 (2018) (noting the "far-reaching systemic and structural changes in the economy and many other societal dim......
  • Just Puppies, Inc. v. Frosh
    • United States
    • U.S. District Court — District of Maryland
    • September 17, 2021
    ...Retailers Assoc. v. Thomas , ––– U.S. ––––, 139 S. Ct. 2449, 2459, 204 L.Ed.2d 801 (2019) ; see South Dakota v. Wayfair, Inc. , ––– U.S. ––––, 138 S. Ct. 2080, 2090-91, 201 L.Ed.2d 403 (2018) ; Oregon Waste Sys., Inc. v. Dep't of Envtl. Quality of State of Oregon , 511 U.S. 93, 99, 114 S.Ct......
  • Request a trial to view additional results
2 firm's commentaries
  • Congress Hears From Small Businesses About Problems Caused By Wayfair
    • United States
    • Mondaq United States
    • June 24, 2022
    ...testimony on the impact on small businesses and remote sales of the U.S. Supreme Court's decision in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080, 201 L. Ed. 2d 403 In Wayfair, the U.S. Supreme Court ruled that a business's physical presence in a state (or lack thereof) wasn't determinati......
  • Louisiana Tax Developments – The 2023 Regular Legislative Session
    • United States
    • LexBlog United States
    • July 11, 2023
    ...almost negligible tax liability, would nonetheless never reach zero. [3] La. R.S. 47:297.14. [4] South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018). [5] Halstead Bead, Inc. v. Richard, 5th Cir., No. 22-30373. [6] [7] A rate change includes a new tax, a ch......
48 books & journal articles
    • United States
    • May 1, 2021
    ...(2019); Janus v. Am. Fed'n of State, Cnty. & Mun. Emps., Council 31, 138 S. Ct. 2448, 2486 (2018); South Dakota v. Wayfair, Inc., 138 S. Ct. 2080, 2101 (2018) (Roberts, C.J., dissenting); Michigan v. Bay Mills Indian Cmty., 572 U.S. 782, 798 (2014); Alleyne v. United States, 570 U.S. 99......
    • United States
    • Ave Maria Law Review No. 18, January 2020
    • January 1, 2020
    ...U.S. 164, 173 (1989)); Janus v. Am. Fed'n of State, Cty., & Mun. Emps., Council 31, 138 S. Ct. 2448 (2018); South Dakota v. Wayfair, 138 S. Ct. 2080 (2018); Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (2014) (Roberts, C.J., majority opinion); Citizens United v. FEC, 558 U.......
  • Qualified Immunity and Federalism
    • United States
    • Georgetown Law Journal No. 109-2, December 2020
    • December 1, 2020
    ...[ SE48-T3VD] (reviewing Schwartz, supra note 9). 326. Id. 327. See, e.g., South Dakota v. Wayfair, Inc., 138 S. Ct. 2080, 2097 (2018) (overruling constitutional precedent, which is easier to overrule than statutory precedent, in large part because the decision’s “systemic” ......
    • United States
    • October 1, 2020
    ...or easily applicable standard, so arguments for reliance based on its clarity are misplaced.'" (quoting South Dakota v. Wayfair, Inc., 138 S. Ct. 2080, 2098 (104.) See id. at 2484-85 (discussing multiple cases that the opinion argued should have placed public unions on notice of the Court's......
  • Request a trial to view additional results
3 provisions

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT