South Dakota v. Wayfair
South Dakota v. Wayfair was a 2018 United States Supreme Court decision which permitted states to collect sales tax on purchases by in-state residents from out-of-state sellers, regardless of whether or not the company from whom the purchase was made had a presence in the state (a "nexus", as prior law called it). The decision overturned a long precedent of cases involving sales tax on non-resident purchases.
Background
The original 1992 case on this subject, Quill Corp. v. North Dakota, ruled that unless the out-of-state company had a presence in the state (e.g. a warehouse, headquarters, or some other physical presence), it could not be forced to collect sales tax for the state based on the Negative Commerce Clause. However, the decision was made at the time when e-commerce did not exist in any real form; retail interstate commerce existed mainly in physical catalog sales.
By 2010 the growth of e-commerce had become such that the Quill decision was becoming outdated. The Court undertook another e-commerce tax case, Direct Marketing Ass'n v. Brohl, involving a Colorado law requiring out-of-state vendors to provide information on in-state purchases. That case ultimately was resolved by negotiation between the parties, but not until the Supreme Court ruled in favor of Colorado. Notably, Justice Kennedy in a concurring opinion expressed concern on the "tenuous nature" of Quill, and the "serious, continuing injustice faced by Colorado and many other States" of being able to collect sales taxes only from brick-and-mortar stores. He offered: "it is unwise to delay any longer a reconsideration of the Court's holding in Quill".
Based on this concurrence, South Dakota elected to pass legislation which would once and for all determine if Quill was still valid precedent. Senate Bill 106, passed in March 2016, established various safeguards for vendors, and required only those with sales of over US$100,000 or with more than 200 different transactions shipped to addresses in the state to collect taxes. Furthermore, the law applied prospectively only (not retroactively), and further included provisions whereby it would not take effect until a final court ruling on its constitutionality. The state then sent out notices to four of the largest out-of-state vendors that the state believed would exceed the sales threshold and were not already collecting sales taxes: Wayfair, Overstock.com, Newegg, and Systemax. Of these, Systemax did not challenge the state; the other three did based on Quill. Not unsurprisingly the state courts ruled against the state on the basis of Quill. The state then asked the Supreme Court to once and for all abrogate the physical presence requirement, based mainly on the harm to "brick and mortar" stores who had to collect sales tax while online stores did not.
Decision of the Supreme Court
The Court agreed to hear the case and ruled 5-4 that that the physical-presence rule of Quill was "unsound and incorrect" and overruled it (along with parts of another prior case), remanding the matter back to the South Dakota Supreme Court.
Subsequently, many states have amended their sales tax laws to allow sales taxes on e-commerce purchases (often, the law exempts small sellers, concentrating only on the larger ones such as Amazon).
