South Dakota v. Wayfair: can states collect sales tax from out-of-state merchants?

David Post at Volokh Conspiracy has written an explanation and defense of the Supreme Court’s holding, in 1992’s Quill v. North Dakota, “that a State may not require out-of-state sellers of goods or services to collect that State’s sales/use tax, unless the out-of-state seller has some ‘physical presence’ in the State – a retail outlet, warehouse, office, or the like” This term’s case of South Dakota v. Wayfair invites the Court to retreat from that holding. The Quill rule is often criticized for privileging online commerce unfairly over brick-and-mortar, but the contrary rule, says Post, would tend to do the reverse by sinking small online retailers under impossible regulatory burdens. A foretaste of those burdens:

South Dakota’s law, however, does not merely require her [an Idaho woman with a web storefront selling crafted iPhone cases] to collect South Dakota’s sales tax; it subjects her to the full range of South Dakota’s tax and regulatory jurisdiction, including the panoply of South Dakota’s licensing, recordkeeping, and registration requirements, and would, among other things, make her subject to periodic audit by the South Dakota Department of Revenue – which, in many States, requires an in-person appearance before the Revenue Board.

And of course if the Court discards the Quill rule and upholds South Dakota’s law, we can expect other jurisdictions to follow suit.

There are more than 6,000 taxing jurisdictions. Post argues that congressional action is needed, rather than a free-for-all of local taxing power.


  • State regulatory authorities also give a lot of home-cooking as well.

  • The other problem–retailers like Amazon will lobby states to impose taxes and other regulatory burdens on these small outlets as a means of restraining competition.

  • Article I, Section 10 of the Constitution says: “No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing it’s inspection Laws: and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States; and all such Laws shall be subject to the Revision and Controul of the Congress.”

    So why are states allowed to have use taxes at all? And once collected, aren’t those funds federal property?

    • Because a sales/use tax is not the same thing as a duty on imports? See Henneford v. Silas Mason Co: “When goods imported in interstate commerce have become part of the common mass of property within the destination, that State may subject them to a property tax, or to a tax upon their use.” As long as you don’t discriminate against out-of-state goods, you can tax property within a state whether it was imported or not.

      There’s also a bunch of debate as to whether Article 1, Section 10 only applies to international commerce as opposed to interstate commerce.

      The issue here is the ability for states to collect sales tax from out-of-state sellers who ship into the state; nobody is arguing sales/use taxes are unconstitutional.

      • “When goods imported in interstate commerce have become part of the common mass of property within the destination, that State may subject them to a property tax, or to a tax upon their use.”

        Yes they can. But the State has no authority coerce a businesses located in another State to collect its taxes for it. I realize it’s quite difficult for a State to collect such taxes from its own residents, but just because it’s inconvenient to follow the law and still collect taxes doesn’t permit the courts to change the law by fiat.

  • Whatever happened to the good old days of a drummer and a truck?

  • In this age of TurboTax, it is not unreasonable for on-line retailers to collect 50 different sales tax rates for consumers in fifty different States. But they should remain exempt from other out-of-State paperwork.

    Apportioning differing local sales tax rates should be the responsibility of each respective State. States might be allowed to specify one additional uniform “with local sales tax” rate, by zip code, for out-of-State vendors..

    • The problem, Mr. Cunningham, is that jurisdiction is an either-or proposition, and there’s no principled way to split the baby.

      Also, you give states a ton of leverage over out-of-state “mom and pop” shops–if the state can make them collect taxes, then they can be subjected to criminal jurisdiction over disputes.

      If you look at the lengths to which California went to go afetr a guy who left the state, this is a bad idea. (Horrible Supreme Court case, by the way.)

    • “it is not unreasonable for on-line retailers to collect 50 different sales tax rates for consumers in fifty different States.”

      There are way more than 50 different sales tax rates. “Zip code” is a poor way to determine taxes; a zip code is not created by the state and does not necessarily identify whether a person lives in a particular city or even a particular county (my old zip code covers parts of 3 counties which, incidentally, each have different sales tax rates.)

      “But they should remain exempt from other out-of-State paperwork.”

      How do you enforce the tax if they’re exempt from the paperwork that goes along with the tax? How do you prove they amounts they paid are correct if you can’t audit the paperwork?

      And what about offline retailers, or businesses that have both online and offline sales? Should Disneyland have to inquire about the residency of its customers and ship money off to whatever state they are from – but only if the tickets are purchased online?

      “In this age of TurboTax”

      Tax software may be able to do quick calculations once it has the information. However, it might not be quite so easy to integrate your customer payment software with your tax software.

      • A much cleaner solution would be for Congress to allow the IRS to handle nationwide sales tax collection on behalf of the states (this could be funded by state user fees, so the feds don’t have to pick up the tab). Every tax jurisdiction gets a unique code, which can be mapped to addresses in the same way as zip codes. A retailer files an extra document with their federal tax filings: $1,200 in purchases for zone 123; $800 in purchases for zone 124, etc…, and the IRS sends the money where it belongs.

        A Florida retailer wouldn’t have to file any paperwork or have any dealings with California’s sales tax authorities. Heck, a California retailer wouldn’t have to either.

  • I agree with most of the commenters that removing the Quill ruling would be overwhelmingly burdensome upon non-state retailers. I liken it back to good ole civil procedure and “minimum contacts.” With a brick-and-mortar store that retailer has purposefully availed itself to that jurisdiction. But an online retailer has no idea where any of his purchasers will be ordering from. Maybe if there was a specific online advertising campaign aimed at South Dakota to drive South Dakota residents to their website, then maybe that would be sufficient.