The attorney general for South Dakota filed a petition to have the Supreme Court review a ruling that prevents the state from forcing e-retailers to collect and remit sales tax unless they have a physical presence in the state.

The state of South Dakota wants the U.S. Supreme Court to get involved in the state’s battle to require larger e-retailers to collect sales tax from state residents and remit them to South Dakota. If the high court accepts the case, its decision could determine whether online retailers can be required to collect sales tax nationwide.

The state on Monday petitioned the U.S. Supreme Court to review a decision by the South Dakota Supreme Court in the state’s case against online retailers Wayfair Inc., No. 16 in the Internet Retailer 2017 Top 500; Newegg Inc. (No. 21); and Inc. (No. 30). The South Dakota Supreme Court decision let stand a lower court ruling preventing the state from enforcing a law that openly challenges the prevailing Supreme Court ruling that absolves retailers from having to collect sales tax in states where they have no physical presence.

The South Dakota law would require e-retailers that do more than 200 transactions with South Dakota residents or do more than $100,000 in sales but lack a physical presence in the state to collect sales tax on those sales and then pay the state.

South Dakota officials want the case against Wayfair, Overstock and Newegg to advance to the U.S. Supreme Court in order for the Court to reconsider its 1992 decision in Quill Corp. v. North Dakota. In that decision, the U.S. Supreme Court ruled that catalog retailer Quill did not have to collect a sales tax in North Dakota because it had no physical presence there.

Marty Jackley, the attorney general for South Dakota, says he wants the U.S Supreme Court to hear the case because he views the state court’s decision as unfair to businesses that have bricks-and-mortar locations in South Dakota.


“Federal law currently shields out-of-state businesses from remitting the same taxes as South Dakota businesses,” he said. “Today the state asks the U.S. Supreme Court level to the playing field.”

Newegg and Overstock did not return requests for comment, and a Wayfair spokesman declined to comment.

The fact that South Dakota is aiming to take its case to the Supreme Court even for a simple review could be interpreted as a signal to Congress that it needs to act quickly if it wants a say in the law on online sales tax, says Steve Kranz, a tax lawyer and partner with Chicago-based law firm McDermott, Will & Emery.

“The filing of this petition should be seen in Congress as setting a potential deadline for a congressional legislated solution,” he says. “The states, in response to Congress’s failure to act, have taken the issue to the courts and are moving it forward to see if they can get an answer from the courts that they like—taking it out of Congress’s purview.”

Congress for years has discussed the online sales tax issue without getting any legislation through both houses. In July, Congress discussed a bill that would limit states’ ability to enforce sales tax collection laws on online retailers that do not have a physical presence in the state.  But there has been no action on the bill, H.R. 2887, since July, according to Congress’s website.


There is no guarantee that South Dakota’s petition to take the case to the U.S. Supreme Court will be granted. November 2 was the initial deadline for interested parties to file friend of the court briefs, but that deadline has since been extended to December 7.

Richard Cram, director of the Multistate Tax Commission National Nexus Program, has his doubts about the case advancing.

“States are hopeful that the Supreme Court will take the case, but the odds are always against the Court granting a petition for certiorari,” he says via email, stressing that he was speaking for himself and not the Multistate Tax Commission. The petition for certiorari is a request for a higher court to review the decision of a lower court.

Kranz disagrees.

“I think there’s a very good chance the court will grant a cert,” he says. “[Supreme Court] Justice [Anthony] Kennedy invited litigation by the states, the states responded and South Dakota is just one of the states that’s in litigation.”


Kranz and Cram agree that states seeking to enforce sales tax collection laws on online retailers have a friend in the U.S. Supreme Court in newly appointed justice Neil Gorsuch.

Kranz cited Gorsuch’s writing of a concurring opinion in a ruling in the U.S. Court of Appeals for the Tenth Circuit in the case of Direct Marketing Association v. Brohl. That suit sought to block a Colorado law which was passed in 2010 but hasn’t ever been enforced that would require online retailers that sell in the state to turn over Colorado customers’ personal and purchase information for sales tax collection purposes.

“There was language in the 10th circuit DMA decision that he wrote describing the protections of the Commerce Clause eroding over time that seemed to indicate that he’s thinking about this in a way that it may be time to revisit Quill,” Kranz says.

The Commerce Clause is a provision in the U.S. Constitution giving the federal government jurisdiction over interstate commerce and is the basis for the Quill decision that online retailers have relied on to resist collecting tax on web orders.