Recently, the South Dakota Sixth Judicial Circuit Court granted Wayfair’s motion for summary judgment, finding South Dakota’s remote sales tax statute, S.B. 106, unconstitutional under Quill v. North Dakota, 504 U.S. 298 (1992). South Dakota v. Wayfair, Inc., S.D. Cir. Ct., No. 32 Civ. 16-000092 (Mar. 6, 2017) (“Wayfair”). The case appears to be headed directly to the South Dakota Supreme Court, assuming the state appeals. As a brief recap, S.B. 106 requires retailers to collect and remit sales tax if they have annual sales exceeding $100,000 or 200 separate transactions in the state, regardless of physical presence. See our prior coverage The Possible Upshot of South Dakota’s Master Plan to “Kill Quill”. The statute was purposefully designed to directly challenge the Quill physical presence standard. As of our last report on Wayfair, the defendants had the case removed to the U.S. District Court for the District of South Dakota. However, in January, the federal district court granted the state’s motion for remand to the South Dakota Sixth Judicial Circuit Court after determining that it lacked jurisdiction to hear the case. This was a victory for the state as S.B. 106 specifically provides for fast-track litigation through the state court system.
After years of litigation, injunctions, and a U.S. Supreme Court decision, the controversy between Data & Marketing Association (“DMA”) (formerly Direct Marketing Association) and the State of Colorado has come to a conclusion. On February 22, 2017, DMA and the Colorado Department of Revenue (the “Department”) entered into an agreement (the “Settlement Agreement”) resolving the dispute in Direct Mktg. Ass’n v. Colo. Dep’t of Revenue, Colo. Dist. Ct., No. 13-CV-34855, which involved a challenge to the Colorado use tax reporting requirements enacted in 2010. (The Settlement Agreement is available at http://thedma.org/wp-content/uploads/DMA-Colorado-Executed-Settlement-Agreement.pdf.) Under the Settlement Agreement, the Department agrees that compliance with those use tax reporting requirements will not be required until July 1, 2017 and agrees to waive any and all penalties for non-collecting retailers who failed to comply with the use tax reporting requirements prior to July 1, 2017. So on July 1, 2017, a new day of use tax notification and reporting enforcement will dawn in Colorado – and it would not be surprising if other states follow suit.
In Capital One Auto Finance, Inc. v. Department of Revenue, Dkt. No. TC 5197 (Oregon Tax Ct. Dec. 23, 2016), the Oregon Tax Court held that physical presence was unnecessary to establish nexus for corporate excise and corporate income tax purposes. As we reported last month, the Ohio Supreme Court similarly upheld the constitutionality of Ohio’s factor presence (or, economic nexus) standard for purposes of the Ohio Commercial Activity Tax. Crutchfield Corp. v. Testa, Slip Opinion No. 2016-Ohio-7760 (Ohio 2016). (See our previous post, Ohio Supreme Court Physical Presence Not Required for Commercial Activity Tax.)
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.