It’s official: South Dakota to tax remote sales starting November 1, 2018
South Dakota led the assault on the long-standing rule preventing states from taxing sales by businesses with no physical presence in the state. The battle took it to the Supreme Court of the United States, where the physical presence rule was overruled in South Dakota v. Wayfair, Inc. (June 21, 2018). Yesterday, South Dakota lawmakers cleared the path to taxing remote sales into the state with the enactment of Senate Bill 1. It takes effect November 1, 2018.
To recap: The 2016 law that triggered South Dakota v. Wayfair, Inc. (SB 106) bases a sales tax collection obligation on economic activity in the state (economic nexus) rather than physical presence. It requires remote sellers with no physical presence in South Dakota to collect and remit South Dakota sales tax if, in the current or previous calendar year, they:
- Have more than $100,000 in gross revenue from sales into South Dakota; or
- Made sales for delivery into South Dakota in 200 or more separate transactions.
Despite its victory at the U.S. Supreme Court, the state hasn't been able enforce its law because it was placed under an injunction. The case was remanded to state court for further proceedings not inconsistent with the court’s ruling, and this will take time.
Eager to reap the benefits of the 2016 law, Governor Dennis Daugaard called a special session of the legislature and introduced a measure to end the injunction. As he explained prior to the start of the session, “Justice Kennedy overturned the physical presence rule and praised South Dakota, yet under the injunction we are the one state that is still barred for enforcing collection and remittance, and this isn’t right. If we don’t enact this bill today, the three Wayfair litigants could hold out — and prevent us from enforcing our law — for months.”
The bill was swiftly approved during the September 12 special session. “This has been more than 50 years in the making,” said Gov. Daugaard. “We have finally succeeded in leveling the playing field for all who do business in our state — and we have paved the way for any other state that wishes to pursue tax uniformity.”
Economic nexus starts November 1, 2018
SB 1 dissolves the injunction preventing the state from enforcing the 2016 economic nexus law. Businesses with no physical presence that meet the economic nexus thresholds will be required to collect or remit tax on their South Dakota sales starting November 1, 2018.
However, the injunction remains in place for Newegg Inc., Overstock.com, Inc., and Wayfair, Inc., the three respondents in South Dakota v. Wayfair, Inc., until the case is resolved in court. According to Andy Gerlach of the South Dakota Department of Revenue, “When [the] lawsuit ends, they will be required to remit from that date forward” (hat tip to Bloomberg BNA).
Marketplace sales taxed starting March 1, 2019
SB 2 requires certain marketplace providers to obtain a South Dakota sales tax license and remit sales tax on all sales they facilitate into the state. According to the South Dakota Department of Revenue, 97 percent of U.S. consumers shop on online marketplaces, and the 42 largest marketplaces collectively sold $473 billion in the United States in 2017.
Like the economic nexus law, SB 2 applies only to remote marketplace providers that meet one or both of the following thresholds:
- $100,000 or more in sales to South Dakota customers, or
- 200 or more transactions into the state
It takes effect March 1, 2019.
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