South Dakota v.
Wayfair, Inc. 

United States Supreme Court Case


The Issue

Should states be allowed to require out-of-state sellers to collect sales tax on the state’s behalf, and thus subject the out-of-state seller to the respective state’s law, rules and police powers?

South Dakota passed a law in 2017 with the intent to collect South Dakota sales tax on any taxable item purchased outside the state if the buyer takes possession of the purchased item within the border of South Dakota. This includes items purchased in person at brick-and-mortar stores or auctions, as well as online at sites like,, or online auctions.

This law has been challenged and arguments will be heard by the United States Supreme Court in April of 2018 with a ruling expected in June of 2018.


Current Law

Currently, a business must have a physical presence in a state for that state to require said business to collect sales tax. This is based on a ruling by the Supreme Court in Quill Corp. v. North Dakota.


Proposed Law

South Dakota passed Senate Bill 106 in March 2017 with the intent of collecting sales tax from out-of-state vendors. The law established various safeguards for vendors, and only required those with sales of over US$100,000 or with more than 200 different transactions to residents in the state to collect taxes. However, approximately 25 other states have similar pending legislation and 35 states filed a brief in support of South Dakota with the Supreme Court.


How Does This Impact Me?

If Quill is abrogated (overturned) by the Supreme Court, South Dakota and those other states with pending or similar legislation would be allowed to collect sales tax from out-of-state vendors.  

Each time you sold an item to a buyer located in a different state, you’d need to determine the applicable sales tax, collect, and then remit the tax to the buyer’s local taxing jurisdiction. To do so, you will be required to hold a sales tax license in each state in which buyers purchase items from you, and in most cases a corresponding business license. By doing so, you will be subject to that jurisdictions regulations and police powers.


The Bottom Line

As of March 2014, there are 9,998 tax jurisdictions in the United States. As an auction professional, you would be responsible for:

  1. Identifying from which tax jurisdiction each buyer is located
  2. Collecting the appropriate sale tax
  3. Mailing appropriate sales tax back to the identified tax jurisdiction


South Dakota’s Argument

South Dakota and those petitioners in favor of overturning Quill cite the negative impact the current policy has on the ability for states to collect sales tax due the state. This is largely attributed to consumers failing to file and pay use tax as required. Additionally, numerous briefs have been filed in support of overturning Quill that argue the negative impact online sales have on rural economies and traditional brick-and-mortar stores.

Among the factors South Dakota cite for overturning Quill, the state said:

  1. States, local brick-and-mortar stores, and interstate commerce were being harmed by the decision from Quill. The state pointed to a 2012 study from National Conference of State Legislatures, performed through the University of Tennessee, that estimated that states lost US$23 billion in potential revenue from collecting of sales taxes from out-of-state vendors, with the losses only worsening with further increase in the use of online sales.
  2. The state argued that the inability to collect sales taxes harms their ability to manage their government resources without raising other taxes, and in states wholly dependent on sales taxes for revenue (i.e. where there is no income tax) the effect becomes more pronounced.
  3. The state further stated that brick-and-mortar stores are discriminated against by Quill since online stores can offer the same products at lower effective prices, and doing interstate commerce for other venues is discouraged due to Quill.
  4. The "physical presence" aspect of the decision in Quill was flawed. The nature of the Internet makes a state's economic nexus, a term defined in Complete Auto Transit to describe taxable activities of interest to the state, much broader than it was in 1992. The state argued that while there may have been a burden for out-of-state vendors to determine the appropriate state and apply the correct sales tax in 1992, that in 2017 these processes are readily available and no longer a burden on vendors.


Auction Industry Argument

The South Dakota law imposes an undue burden on the auction industry. Auction companies routinely offer items for sale simultaneously live and online, and sell to buyers from a multitude of locations in-state, out-of-state, and out-of-country. The South Dakota law looks to define the nexus (or most important part of the transaction) as the location the buyer takes possession of the item, and require the auctioneer to collect the sales tax for the jurisdiction in which the buyer takes possession.

We argue that the nexus of the transaction is not the location of the buyer, but rather the location of the asset being sold. In most cases, the auctioneer is licensed by state and/or local government to conduct the auction, and in all cases governed by state statutes and many times local ordinances. Yet, South Dakota argues, despite this, the nexus of the transaction is the location of the buyer, and thus creates an undue burden on the auction industry to be licensed and regulated by multiple jurisdictions and taxing authorities.

Possible Solutions

One solution is to maintain status quo. Given the current revenue climate for many states and their lack of funding, sales tax collection will continue to be an issue until resolved.

One is to allow this case to run its course, and then succumb to the argument that software solutions exist to enable retailers to manage the nearly 10,000 sales tax jurisdictions and tax implications. This software is costly, and will likely force many auction companies out of business. In fact, the National Auctioneers Association consists of just over 3,500 auctioneers. Of the membership, just over 70% belong to companies of 4 or less employees. The burden on these small companies will likely be unbearable. We further argue that just as software exists for the collection of sales tax, even less burdensome is the ability for traditional "brick and mortar" locations to offer an online storefront.

Taking this one step further, the sale of used goods is taxed in many cases differently than new goods. For example, in Minnesota when a business closes and sells substantially all of the assets of a trade or business they are granted a one-time sales tax exemption. And, some auction sales are not taxed (if occasional) and some are (if regular). More info here.

A viable solution is to define the nexus of the transaction as the location in which the goods are sold and remove the sales tax exemption of out-of-state buyers. If a buyer purchases goods located in Minnesota, they should be subject to the same laws, regulations and sales tax authorities as the buyer making that purchase at a brick-and-mortar location in Minnesota. In doing so, both online retailers and brick-and-mortar retailers within a jurisdiction would be on an equal playing field, and neither would be unduly burdened by requirements of non-local jurisdictions.