Background – South Dakota’s Remote Sales Tax Case

South Dakota recently enacted Senate Bill 106 (“SB 106”), requiring all retailers with annual in-state sales exceeding $100,000, or 200 separate transactions within the state in a year, to collect and remit sales tax, even if the retailer does not have a physical presence in the state. As stated in the “Legislative Findings” of SB 106, the statute was designed to directly challenge the physical presence standard set forth in the 1992 US Supreme Court decision, Quill v. North Dakota, 504 U.S. 298.  In Quill, the US Supreme Court affirmed the physical presence standard, prohibiting states from imposing sales and use tax collection obligations on out-of-state retailers that lack physical presence within the state.  To compel compliance with SB 106, the South Dakota Department of Revenue (the “Department” or “State”) sued four online retailers including Wayfair Inc., Newegg Inc., Overstock.com Inc., and Systemax Inc. South Dakota v. Wayfair, Inc. et al., D.S.D. No. 3-16-CV-03019-RAL (“Wayfair”).  Systemax has since dropped out of the lawsuit and registered with the state to collect sales tax.