Online Sales Tax Case That Brought South Dakota to the U.S. Supreme Court Reaches Settlement

October 31, 2018 – The sales tax lawsuit that brought South Dakota all the way to the U.S. Supreme Court has been settled, Gov. Dennis Daugaard’s office said Wednesday.

South Dakota v. Wayfair pitted the state against three major online retailers who challenged South Dakota’s sales tax on e-retailers. In June, the U.S. Supreme Court voted 5-4 in favor of the state, overturning earlier precedent.

The settlement Wednesday resolves all remaining issues not addressed by the court and will allow the state to collect sales tax from Wayfair, Overstock and Newegg — the three businesses involved in the lawsuit — starting Jan. 1, 2019.

Other online retailers will be required to collect sales tax starting Thursday.

“I look forward to the state’s full enforcement of its remote seller law,” Daugaard said in a press release Wednesday.

How did the lawsuit get to the U.S. Supreme Court?

In 2016, Daugaard signed a law that required large online vendors without a physical presence in the state to collect and remit sales tax.

That law came after decades of discussions between South Dakota lawmakers and those in other states looking for a simple sales tax model that made it easy for businesses outside state borders to pay sales tax. The hope was for Congress to adopt a model nationwide, but that didn’t happen.

So South Dakota, which relies more heavily on sales tax revenues than most states, chose to act after Supreme Court Justice Anthony Kennedy signaled his willingness to address the issue.

The sales tax law took effect in May 2016. Since then, more than 100 online retailers, including online retail giant Amazon, have agreed to remit the tax since the law took effect. But a few holdouts, Wayfair, Overstock and Newegg, refused and decided to take the state to court.

Their lawsuit made it to the Supreme Court, who ruled in favor of South Dakota in June.

What has happened since the ruling?

Daugaard called a special session for state lawmakers in September. During that one-day session, legislators approved a bill to require large-scale retailers without a physical presence in the state to collect state sales tax.

That law is set to take effect Nov. 1, but because of the ongoing litigation, South Dakota was prevented from collecting sales tax from the three retailers involved in the Wayfair lawsuit.

Wednesday’s settlement brings an end to the injunction preventing the state from collecting sales tax from Wayfair, Overstock and Newegg. Those three retailers will comply with South Dakota’s online sales tax law starting Jan. 1.

“Today’s settlement agreement is the final step in bringing sales tax fairness to our main street businesses across South Dakota by creating a level playing field with out-of-state retailers,” said Attorney General Marty Jackley.

By Megan Raposa, Sioux Falls Argus Leader
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