South Dakota special session on sales tax starts September 12

Update 9.13.2018: SB 1 and SB 2 were approved. Economic nexus takes effect in South Dakota on Novmeber 1, 2018. The state will require marketplace providers to tax their third-party sales in the state starting March 1, 2019.

Update 9.4.2018: Gov. Daugaard has introduced two remote sales tax bills for consideration during the upcoming special session. Senate Bill 1 would lift the injunction preventing the state from enforcing SB 106 and require remote sellers meeting the $100,000 in sales/200 transaction threshold to collect and remit South Dakota sales tax starting November 1, 2018. Senate Bill 2 would require marketplace providers to remit sales tax on behalf of their third-party sellers.

While one state after another announces the effective date of its new remote sales tax law, South Dakota stands by silent. It can’t yet enforce the law that made all the others possible.

In 2016, South Dakota enacted SB 106, imposing a sales tax collection obligation on businesses that have no physical presence in South Dakota but did a certain amount of business in the state ($100,000 in gross sales or 200 separate transactions in the current or previous calendar year). The law was a direct challenge to the long-standing physical presence rule that a state can only tax sales by businesses with a physical presence in the state.

The law triggered the inevitable lawsuit, and to the surprise of many, the Supreme Court of the United States agreed to hear South Dakota v. Wayfair, Inc. When it found the physical presence rule to be “unsound and incorrect,” it rocked the sales tax world.

In repealing the physical presence rule, the court removed the barrier preventing states from taxing remote sales. Yet it wasn’t its job to affirm South Dakota’s law. Instead, it sent it back to state courts for “further proceedings not inconsistent with this opinion.” In the meantime, the law remains under an injunction.

On August 9, the South Dakota Supreme Court issued an Order of Reversal and Dispositive Remand. The case is now in the hands of the Circuit Court.

Yet South Dakota is getting impatient. Thus, Governor Dennis Daugaard has called a special legislative session to “consider legislation that would expedite implementation of the recent U.S. Supreme Court ruling in South Dakota v. Wayfair, Inc. and allow the state to enforce the obligation of remote sellers to collect and remit sales tax.” It will start September 12, 2018.

The governor would like to start enforcing South Dakota’s economic nexus law on October 1, 2018: “South Dakota led the fight for tax fairness, which culminated with our historic win before the U.S. Supreme Court in June. Thanks to that victory, other states are implementing tax changes as soon as Oct. 1, and I will be proposing legislation to allow South Dakota to join them.” In a tweet announcing the special session, he added, “We led the fight and we should be among the states to benefit.”

The South Dakota Department of Revenue is currently working on draft legislation that could make it easier for the courts to remove the injunction. It may also require online marketplaces such as Amazon and eBay to collect and remit tax on behalf of their third-party sellers. Several other states, including Pennsylvania and Washington, have imposed a similar collection requirement on marketplaces.

Learn more about South Dakota v. Wayfair, Inc., and how it affects retailers.