SOUTH DAKOTA v. WAYFAIR, INC., ET AL. A win for small businesses, startups and States’ sovereign power

The Supreme Court of the United States ruled on June21, 2018 that “Because the physical presence rule of Quill is unsound and incorrect, Quill Corp. v. North Dakota, 504 U. S. 298, and National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U. S. 753, are overruled.” The Supreme Court ruled that S.Dakota’s statute requiring sellers of “tangible personal property” who do not have a physical presence in the state to remit sales tax according to the same procedures as sellers who do have a physical presence. The S. Dakota  statute limited the obligation to sellers with gross revenue from sales in South Dakota over $100,000, or 200 or more separate transactions, within one year.

The Court stated “Stare decisis can no longer support the Court’s prohibition of a valid exercise of the States’ sovereign power. If it becomes apparent that the Court’s Commerce Clause decisions prohibit the States from exercising their lawful sovereign powers, the Court should be vigilant in correcting the error. It is inconsistent with this Court’s proper role to ask Congress to address a false constitutional premise of this Court’s own creation. The Internet revolution has made Quill’s original error all the more egregious and harmful. The Quill Court did not have before it the present realities of the interstate marketplace, where the Internet’s prevalence and power have changed the dynamics of the national economy. The expansion of e-commerce has also increased the revenue shortfall faced by States seeking to collect their sales and use taxes, leading the South Dakota Legislature to declare an emergency. The argument, moreover, that the physical presence rule is clear and easy to apply is unsound, as attempts to apply the physical presence rule to online retail sales have proved unworkable. Because the physical presence rule as defined by Quill is no longer a clear or easily applicable standard, arguments for reliance based on its clarity are misplaced. Stare decisis may accommodate “legitimate reliance interest[s],” United States v. Ross, 456 U. S. 798, 824, but a business “is in no position to found a constitutional right . . . on the practical opportunities for tax avoidance,” Nelson v. Sears, Roebuck & Co., 312 U. S. 359, 366. Startups and small businesses may benefit from the physical presence rule, but here South Dakota affords small merchants a reasonable degree of protection. Finally, other aspects of the Court’s Commerce Clause doctrine can protect against any undue burden on interstate commerce, taking into consideration the small businesses, startups, or others who engage in commerce across state lines. The potential for such issues to arise in some later case cannot justify retaining an artificial, anachronistic rule that deprives States of vast revenues from major businesses.”

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