On June 21, 2018, the U.S. Supreme Court issued its decision in the South Dakota v. Wayfair case, which revolved around South Dakota’s economic nexus legislation that was enacted in 2016. In a 5-4 decision, the Supreme 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. He wrote, “First, the physical presence rule is not a necessary interpretation of Complete Auto’s nexus requirement.” He continued, “Second, Quill creates rather than resolves market distortions” and “Third, Quill imposes the sort of arbitrary, formalistic distinction that the Court’s modern Commerce Clause precedents disavow in favor of ‘a sensitive, case-by-case analysis of purposes and effects.’” The Court concluded that “…a business need not have a physical presence in a State to satisfy the demands of due process.”
The Court remanded the case to the South Dakota Supreme Court to evaluate if the provision meets the other tests for constitutionality under Complete Auto Transit. The four-prong test requires substantial nexus with the state, fair apportionment, non-discrimination against interstate commerce, and a fair relationship to the services provided by the state. South Dakota v. Wayfair only addressed the substantial nexus test. The remand will need to address whether there are any other facts that would cause South Dakota’s economic nexus legislation to fail the test for constitutionality. Until the remand is addressed by the South Dakota Supreme Court, South Dakota should not be able to enforce its provisions and the stay of enforcement remains in place. (Opinion of the Court, Supreme Court of the United States, No. 17-494, South Dakota, Petitioner v. Wayfair, Inc., et al. On Writ of Certiorari to the Supreme Court of South Dakota (June 21, 2018))
We’ll continue to monitor developments in this case and keep you updated. For more of our coverage of the South Dakota v. Wayfair case and for other helpful resources, visit our Remote Seller Resources page.