Resource Center Alerts


Sales Tax Nexus – Highly Anticipated Decision in Wayfair Case is Announced


In arguably the most important sales tax case in the past twenty five years, the U.S. Supreme Court has announced its highly anticipated decision in South Dakota v. Wayfair, Inc.1 The issue decided was essentially whether the Court’s previous decision in Quill Corp v. North Dakota2 is still valid. In Quill, the Court established a bright line test for defining “substantial nexus” under the Commerce Clause. In order to have “substantial nexus,” it was determined that a seller must have a physical presence within the state before that state would have the jurisdiction to require collection of sales tax from customers within the state.

In 2016, South Dakota enacted a bill3 imposing an economic nexus standard that effectively ignored the physical presence standard upheld in Quill. This bill imposed a sales tax collection requirement on businesses with annual gross revenue of more than $100,000 from sales in South Dakota, or more than 200 transactions annually in the state. This law was challenged by Wayfair, a remote seller with no physical presence within South Dakota, with the case ultimately ending up in the U.S. Supreme Court.

The Decision

The Court’s 5-4 decision in Wayfair ruled in favor of South Dakota. The ruling upheld the State’s requirement that certain retailers, with no physical presence in South Dakota, collect sales taxes from customers and held that South Dakota’s law was not a burden on interstate commerce. In its decision, the Court concluded that South Dakota’s law was not overreaching and pointed to several aspects of the State’s law in supporting its position. As a result of the Wayfair ruling, other states will need to consider whether their laws (or soon to be proposed laws) will fall within the parameters of the Court’s decision.

DHG’s Quick Analysis

  • Other states have enacted economic nexus laws or regulations similar to South Dakota. With South Dakota prevailing, look for these states to increase enforcement of the economic nexus standard. The South Dakota statue sets a minimum threshold of $100,000 in sales or more than 200 separate transactions of tangible property, products transferred electronically, or services delivered within the state annually; however, other states have varying thresholds.
  • With South Dakota prevailing, also look for additional states to enact economic nexus laws in the near future.
  • Not only could the decision in Wayfair create a huge administrative burden for companies that sell directly to end users, it will likely also create an administrative burden and filing obligation for companies that sell to customers that may have valid exemption certificates. A sales tax registration and filing obligation would still be required, even if most or all sales are exempt.
  • Although sales tax is generally thought of in the context of the sale of tangible personal property, it should be noted that many states have enumerated various services that are subject to sales tax. So even if the state(s) in which a service provider is based does not subject its services to sales tax, the Wayfair decision may immediately create nexus in additional states that may subject the same services to sales tax. Service-based businesses that previously were not equipped to collect and remit sales tax may now be required to comply with other states’ compliance rules if they provide remote services to customers in those states.
  • In the Court’s opinion, Justice Kennedy addressed the fact that South Dakota did not require retroactive application of its statute, preventing an undue burden on interstate commerce. This seems to imply that states may not apply the Wayfair decision retroactively. Although taxpayers need to analyze Wayfair’s impact on a prospective basis, other states’ interpretations and applications of this decision should continually be monitored for retroactive application.
  • The Wayfair decision will create additional complexities in the already complex area of drop shipments.
  • Although Wayfair is a sales tax case, more aggressive states may attempt to argue that it opens the door to establishing income and franchise tax nexus. If a business is not otherwise protected by Public Law 86-272, there may be new income and franchise tax nexus issues to consider.

The Court’s decision in Wayfair will have a significant impact on businesses across many industries that sell products or services in multiple states. Not only are brick and mortar and online retail businesses affected by this ruling, but companies in the business of manufacturing, distribution, construction, software, healthcare, professional services and many others will likely also be affected.

We will continue to provide updates and perspective on the impact of this landmark case as the states begin to implement changes. If you have any questions or would like additional information about the decision and how it may affect your business, please contact your tax advisor, or the authors listed below


Giles Sutton, Partner | DHG Tax
901.684.5654 |

Julie Bragg, Senior Manager | DHG Tax
901.259.3584 |

Will Lowe, Senior Manager | DHG Tax
980.729.7416 |

Tommy Varnell, Senior Manager | DHG Tax
404.575.8859 |

1. South Dakota v. Wayfair, Inc., U.S. Supreme Court Case No. 17-494
2. Quill Corp. v. North Dakota, 504 U.S. 298 (1992)
3. 2016 S.D. S.B. 106

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