South Dakota Court Rules that State’s Economic Nexus Legislation is Unconstitutional

Effective Date: July 1, 2023

Threshold: Gross revenue of $100,000 in the previous or current calendar year

Measurement Date: Previous or current calendar year

Includable Transactions: Gross sales; Marketplace sales included towards the threshold for individual sellers

When You Need to Register Once You Exceed the Threshold: Next transaction

On March 6, 2017, the South Dakota Sixth Judicial Court ruled that the state’s economic nexus legislation is unconstitutional. The legislation – which became effective May 1, 2016 – requires remote sellers without a physical presence in the state to collect and remit South Dakota sales and use tax on sales in the state if the retailer makes in-state sales exceeding $100,000 or makes 200 or more separate sales transactions in the previous or current calendar year. In the ruling, the state acknowledged that under Quill Corp. v. North Dakota, the State of South Dakota is prohibited from imposing the sales tax collection and remittance obligations. The state agreed that the statute was unconstitutional and agreed with the summary judgement finding.  This was expected as the case progresses towards an appeal to the U.S. Supreme Court in an effort to overturn Quill. For our previous news item, see South Dakota Enacts Economic Nexus Legislation. (South Dakota v. Wayfair, Inc., S.D. Cir. Ct., No. 32 Civ. 16-000092, 3/6/17).

UPDATEOn February 13, 2023, South Dakota Governor Kristi Noem signed Senate Bill 30 into law, which eliminates the 200-transaction threshold from South Dakota’s economic nexus threshold, effective July 1, 2023. Prior to the bill’s enactment, South Dakota’s economic nexus threshold was gross revenue of $100,000 or 200 or more separate transactions in the previous or current calendar year. The economic nexus threshold will now be gross revenue of $100,000 in the previous or current calendar year, effective July 1, 2023. This is potentially good news for smaller remote sellers making sales into South Dakota whose sales don’t exceed $100,000 in a calendar year but whose transaction count exceeds 200.

UPDATE: On August 29, 2017, the South Dakota Supreme Court heard oral arguments over South Dakota’s economic nexus legislation. We will monitor this situation and provide updates as more developments happen (South Dakota v. Wayfair, Inc., S.D., No. 28160, oral arguments 8/29/17).

UPDATE: On September 13, 2017, the South Dakota Supreme Court struck down the state’s economic nexus legislation, concurring with the South Dakota Sixth Judicial Court’s ruling that the legislation conflicts with Quill Corp. v. North Dakota and is unconstitutional. South Dakota Attorney General Marty Jackley has issued a statement confirming that the state will request the U.S. Supreme Court to review the case and reconsider the Quill decision. (South Dakota v. Wayfair, Inc., South Dakota Supreme Court, No. 28160, September 13, 2017)

UPDATE: On October 2, 2017, South Dakota filed a petition for certiorari with the U.S. Supreme Court to take up South Dakota v. Wayfair, Inc. in an effort to overturn Quill Corp. v. North Dakota. We will continue to monitor for updates. (South Dakota, Petitionerv. Wayfair, Inc.,, Inc.,and Newegg, Inc. Respondents. In The Supreme Court of the United States On Petition for a Writ of Certiorari to the Supreme Court of South Dakota)

UPDATE: On January 12, 2018, the U.S. Supreme Court agreed to take up South Dakota v. Wayfair, Inc. We will continue to monitor and provide updates on this very significant case.

UPDATE: On February 26, 2018, South Dakota submitted its petitioner’s brief to the U.S. Supreme Court in South Dakota v. Wayfair, Inc. The brief can be viewed here. We will continue to monitor this case and provide updates as they become available.

UPDATE: On April 17, 2018, the U.S. Supreme Court heard oral arguments in South Dakota v. Wayfair, Inc.  To hear audio of the oral arguments, click here. To read a written transcript of the oral arguments, click here. You can also view our blog post with Diane Yetter’s recap of her visit to Washington D.C. to attend the oral arguments.

UPDATE: On June 21, 2018, the U.S. Supreme Court issued its decision in South Dakota v. Wayfair. In a 5-4 decision, the Court ruled in favor of South Dakota and overruled Quill Corp. v. North Dakota and National Bellas Hess, Inc. v. Department of Revenue of Ill. The Court concluded that “the physical presence rule of Quill is unsound and incorrect.” Writing for the majority, Justice Kennedy delivered the opinion of the Court. In the opinion, Justice Kennedy wrote that “Modern e-commerce does not align analytically with a test that relies on the sort of physical presence defined in Quill.” Regarding the physical presence rule, he wrote, “Each year, it becomes further removed from economic reality and results in significant revenue losses to the States. These critiques underscore that the rule, both as first formulated and as applied today, is an incorrect interpretation of the Commerce Clause.” He also wrote, “In effect, Quill has come to serve as a judicially created tax shelter for businesses that decide to limit their physical presence and still sell their goods and services to a State’s consumers…” Although the decision found in favor of South Dakota, it was also remanded to the South Dakota Supreme Court to evaluate if the provision meets the other tests for constitutionality.  Due to this, we are evaluating when the decision will be effective in South Dakota as well as other states that have legislation tied to the decision. Keep an eye on our blog, where we will be exploring the decision in an in-depth blog post. You can also listen to our Day 1 Analysis of the decision.

UPDATE: The state has released a bulletin that they are evaluating the effective date – we will update as they release information.

UPDATE: The South Dakota Department of Revenue’s Remote Sellers web page states, “Part of the Supreme Court’s decision was that they vacated the South Dakota Supreme Court decision and remanded it back to the state. This means the injunction is still in place and the South Dakota Department of Revenue is currently unable to enforce the Economic Nexus set by SDCL ch. 10-64. It is expected the injunction will soon be lifted, requiring sellers meeting the thresholds of sales into South Dakota to register for tax collection. Please watch this webpage for updates as they are available.”

UPDATE: The South Dakota DOR has issued an update stating that it projects the future steps in the South Dakota v. Wayfair litigation to be as follows:

  • Late July: The U.S. Supreme Court returns the case to the South Dakota Supreme Court.
  • Late July to early August: The South Dakota Supreme Court sends the case to the Circuit Court.
  • August to September: The Circuit Court may dissolve the injunction and/or conduct further proceedings.

Based on these projections, the South Dakota DOR stated that it does not have a specific date when it may begin to implement the 2016 economic nexus legislation. We’ll continue to monitor and provide updates.

UPDATE: South Dakota Gov. Dennis Daugaard has called a special legislative session to consider legislation that would expedite implementation of the ruling in South Dakota v. Wayfair, Inc. and allow the state to enforce the obligation of remote sellers to collect and remit sales tax. The legislative session will be held September 12. Draft legislation is currently being prepared by the South Dakota Department of Revenue, in consultation with the Attorney General’s office, and will be made available for review prior to the special session.

UPDATE: On August 9, the South Dakota Supreme Court sent the South Dakota v. Wayfair case back to the State Circuit Court. The Circuit Court may now conduct further legal proceedings and/or dissolve the injunction it previously put in place.

UPDATE: Following a special legislative session on September 12, 2018, South Dakota Gov. Dennis Daugaard signed into law a measure that dissolves and lifts the injunction against the collection of sales tax on remote sales. The measure, Senate Bill 1, is effective November 1, 2018 and allows the state to begin collecting tax from remote sellers who meet the state’s economic nexus threshold. This was necessary as until the courts resolve the remand from the Supreme Court, the state couldn’t start enforcement against any seller. This legislative change removes the stay except for the parties to the case. The governor also signed Senate Bill 2, which requires marketplace providers to obtain a sales tax license and collect and remit sales tax on behalf of sellers using their platforms. No marketplace provider is required to collect or remit sales tax under this Act on any sale made before March 1, 2019.

UPDATE: Governor Dennis Daugaard and Attorney General Marty Jackley announced on October 31, 2018 that South Dakota has entered a settlement agreement with the three retailers it sued: Wayfair, Overstock, and Newegg. The settlement agreement concludes all remaining issues not addressed by the United States Supreme Court after the South Dakota v. Wayfair case was remanded to the South Dakota State Circuit Court in June of 2018. The settlement removes the injunction that prevented South Dakota from requiring the defendants to comply with the remote seller law. Under the terms of the settlement, Wayfair, Overstock and Newegg comply with the law beginning Jan. 1, 2019. For more information, read Gov. Daugaard’s Office’s press release.

Posted on September 12, 2018