South Dakota v. Wayfair Decision

Posted June 21, 2018 in Legislative briefs

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Today, the United States Supreme Court (USSC) issued its decision in South Dakota v. Wayfair. Linked here is the decision issued by the USSC.

During its 2016 legislative session, South Dakota enacted a law that provides for the collection of sales taxes from certain remote sellers. Wayfair, Inc., among other online sellers, challenged the authority of South Dakota to require out-of-state retailers to collect and remit sales taxes to the state. This challenge culminated in the USSC opinion issued today in South Dakota v. Wayfair. The favorable decision will positively affect municipal revenues and provide some parity between brick-and-mortar retailers and online retailers.

The State and Local Legal Center’s (SLLC) review of the decision and its impact on state and local governments is linked here for your convenience. The Illinois Municipal League (IML) is a member of the State and Local Legal Center and we actively collaborate on numerous legal issues, including this case.

Prior to this case, states could not require collections from an online retailer unless they had a physical presence (nexus) in the state. The physical presence standard was established by the USSC in National Bellas Hess v. Department of Revenue of the State of Illinois (1967) and reaffirmed in Quill v. North Dakota (1992). In South Dakota v. Wayfair, the USSC overruled Quill and National Bellas Hess, stating that the physical presence standard in Quill was “unsound and incorrect.”

Due to the expansion of Internet sales, the Illinois Municipal League has aggressively advocated for Congress to use its authority to pass either the Remote Transactions Parity Act (RTPA) or the Marketplace Fairness Act (MFA). Both proposals would allow for a destination-based sales tax collection system using the sales tax rate in effect where a buyer lives. Neither proposal has advanced legislatively.

As a part of Illinois’ State Fiscal Year (SFY) 2019 budget implementation (BIMP) bill, the Illinois General Assembly passed the Illinois Marketplace Fairness Act. Starting on October 1, 2018, based on the South Dakota v. Wayfair decision, the state can now require remote sellers who meet certain sales requirements to remit Use Tax to the Illinois Department of Revenue (IDOR) on goods purchased out of state for use or consumption in Illinois. IML has a fact sheet on Use Tax, linked here, to raise awareness of how this decision could affect your municipality.

As always, if you have any questions or comments, please feel welcome to contact me at your convenience. Thanks.