South Dakota State Court Rules “Economic Presence” Nexus Law Unconstitutional, Enjoins Enforcement

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South Dakota State Court Rules “Economic Presence” Nexus Law Unconstitutional, Enjoins Enforcement


On March 6, 2017, the South Dakota Circuit Court for the Sixth Judicial Circuit ruled that the state’s “economic presence” nexus law (SDCL 10-64-1 et seq.) is unconstitutional. The Court entered an Order Granting Defendants’ Motion for Summary Judgment on the complaint filed by the State of South Dakota against Internet retailers Wayfair Inc., Overstock.com, Inc. and Newegg Inc., and directed the judgment be entered in favor of the retailers. Brann & Isaacson partners George Isaacson, Matthew Schaefer, and Martin Eisenstein represent the retailers in the suit. The Court found that the South Dakota law is contrary to the physical presence requirement for state sales and use taxes reaffirmed by the Supreme Court in Quill Corp v. North Dakota, 504 U.S. 298 (1992). The Court concluded that the statute:

“by requiring remittance of sales tax by sellers who ‘do[] not have a physical presence in the state,’ fails as a matter of law to satisfy the physical presence requirement that remains applicable to state sales and use taxes under Quill and its application of the Commerce Clause (U.S. Const., Art. I, s. 8, cl. 3).”

Order, ¶ 4. As a result of the Court’s ruling, the provisions of the South Dakota law that require a retailer with no physical presence in the state to remit South Dakota sales tax if, in the prior or current calendar year, the retailer had more than $100,000 in South Dakota sales or at least 200 transactions with South Dakota customers, are unlawful and unenforceable. The Court further ordered that the State is enjoined from enforcing the statute against the Defendants and any retailer that has not affirmatively consented or otherwise agreed to report the sales tax on a voluntary basis (as provided in SDCL 10-64-4). The ruling thus prevents the State from implementing a statute that seeks improperly to expand state taxing jurisdiction in clear violation of controlling Supreme Court precedent.

The South Dakota Court’s ruling may be influential with regard to invalidating similar unconstitutional laws adopted in other states (AL, TN, WY), as well as deterring legislation proposed during the 2017 session in a number of additional states.

Readers can see a copy of the Court’s Order here.

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