South Dakota, Online Sales Tax and the Supreme Court

Unless you’re one of the 800,000-plus residents of South Dakota, it’s unlikely you’ve heard much about Senate Bill 106.

Introduced in the state legislature by a bipartisan group of seven senators and eight representatives last year, S.B. 106 mandates that companies that make more than $100,000 in sales or have more than 200 transactions per calendar year in South Dakota remit sales tax, whether they have a physical presence in the state or not.

In introducing the bill, legislators argued that, first, the state needs the revenue it’s missing from online sales and, second, that the current law of the land, so to speak--Quill Corp. v. North Dakota--needs to be re-evaluated.

Quill is the U.S. Supreme Court ruling from 1992 that prevents states from collecting sales tax from sellers with no physical presence in the state; the overarching argument of internet tax proponents everywhere is that this 25-year-old law is now wildly outdated given how consumers shop today.

S.B. 106 passed both houses with little opposition and South Dakota’s Republican governor, Dennis Daugaard, signed it into law in March 2016.

It wasn’t long after the bill’s passage that three online retailers, Overstock.com Inc., WayFair Inc. and NewEgg Inc., pushed back and the case wound its way through South Dakota’s legal system, landing with the state Supreme Court in short order.

Salt Lake City-based Overstock.com sells a variety of merchandise, including fine jewelry, ranking among the $100 Million Supersellers in the 2016 State of the Majors report and, spoiler alert, in the soon-to-be-published 2017 edition as well.

WayFair, meanwhile, is a Boston-based online seller of furniture and home décor, and City of Industry, California-headquartered NewEgg is an electronics retailer.

In a ruling issued last Wednesday authored by Chief Justice David Gilbertson, the court sided with the e-tailers, stating that: “However persuasive the state’s arguments on the merits of revisiting the issue, Quill has not been overruled. Quill remains the controlling precedent on the issue of Commerce Clause limitations on interstate collection of sales and use taxes.”

Despite the court’s siding with the internet sellers, Chris Fetzer of Haake Fetzer, the firm that lobbies for Jewelers of America on behalf of the industry in Washington, said that the authors of the bill do not view the ruling as a failure.

It is, in fact, exactly what they wanted.

“It was fully expected that it (S.B. 106) would be challenged as illegal. This law was written to be challenged within