South Dakota Supreme Court Hears Oral Argument In Commerce Clause Challenge

On August 30, 2017, the South Dakota Supreme Court heard oral argument in the State of South Dakota’s appeal from the entry of summary judgment by the Hughes County Circuit Court in favor of retailers Wayfair Inc., Overstock.com, Inc. and Newegg, Inc. The Circuit Court in March 2017 invalidated the South Dakota economic nexus statute as unconstitutional pursuant to the long-standing physical presence test of “substantial nexus” that applies under the Commerce Clause, as reaffirmed by the United States Supreme Court in 1992 in Quill Corp. v. North Dakota. While admitting that the statute does not pass muster under Quill, the State is hoping to use the litigation as a vehicle for overturning that long–standing precedent.

Arguing for the retailers, Senior Partner George Isaacson noted that no State had ever adopted a law admitting that its requirements were unconstitutional, and then proceeded to demand compliance with state tax laws under threat of litigation. Isaacson explained how the South Dakota law would open the door to the imposition of burdensome tax collection and reporting obligations on remote sellers, including sellers making only a few thousand dollars in sales into the state, based on the statute’s minimal requirement of only 200 transactions with South Dakota customers. He urged the South Dakota Supreme Court to affirm the decision below—as both parties have requested—without taking up the State’s invitation to choose sides in a complex policy debate best resolved by Congress, which is currently considering several bills that would address the issue of sales tax nexus.

The oral argument can be heard here. A press report can be read here.