## Facts

- South Dakota enacted S.B. 106 (2016), requiring out-of-state sellers to collect and remit sales tax if, in a year, they delivered more than $100,000 of goods or services into the state or engaged in 200 or more in-state delivery transactions.
- Wayfair, Overstock, and Newegg sold into South Dakota but had no in-state physical presence.
- South Dakota brought a declaratory-judgment action seeking confirmation that the retailers had a duty to collect and remit tax under S.B. 106.
- The retailers sought summary judgment, arguing that existing Supreme Court precedent barred collection duties absent physical presence.
- The state trial court granted summary judgment to the retailers and enjoined enforcement; the South Dakota Supreme Court affirmed based on Quill and Bellas Hess.
- The U.S. Supreme Court granted certiorari to decide whether the physical-presence rule should remain controlling under the Dormant Commerce Clause.

## Issues

1. Whether the Dormant Commerce Clause requires a seller’s physical presence in a state before the state may compel the seller to collect and remit sales tax.
2. Whether South Dakota’s economic-threshold statute establishes a “substantial nexus” sufficient to satisfy the first prong of the Complete Auto test.

## Decision

- In a 5–4 decision, the Court overruled Quill and Bellas Hess to the extent they imposed a physical-presence requirement for sales-tax collection obligations.
- The Court held that physical presence is not necessary to establish substantial nexus under the Commerce Clause.
- The Court concluded that South Dakota’s thresholds (>$100,000 in sales or ≥200 transactions annually) were sufficient to establish substantial nexus for covered sellers.
- The Court vacated the judgment and remanded for further proceedings consistent with the abandonment of the physical-presence rule and application of Complete Auto.

## Legal Principles

- The constitutionality of state taxes affecting interstate commerce is evaluated under Complete Auto Transit, Inc. v. Brady, requiring (1) substantial nexus, (2) fair apportionment, (3) nondiscrimination, and (4) a fair relation to services provided by the state.
- Substantial nexus does not depend on physical presence; substantial economic and transactional contacts with the taxing state can satisfy the nexus requirement.
- A state may impose tax-collection duties on remote sellers when the law targets sellers doing significant business in the state and is structured to reduce burdens on interstate commerce (including prospective application and administrative simplification measures).
- Stare decisis does not mandate retention of a judicially created constitutional rule that has proven poorly reasoned and unworkable in changed economic conditions.

## Conclusion

The Court rejected the Dormant Commerce Clause’s physical-presence prerequisite for sales-tax collection, holding that substantial nexus may be shown through economic and transactional connections; it vacated and remanded after determining South Dakota’s economic-nexus thresholds were sufficient under the Complete Auto framework.


South Dakota v. Wayfair, Inc., 585 U.S. 162 (2018)