Skip to content

A Crossroads on Online Sales Taxes: South Dakota v. Wayfair

29 min read

On November 2, 2017, we filed a brief with the U.S. Supreme Court asking them to take the case of South Dakota v. WayfairSouth Dakota v. Wayfair was a 2018 U.S. Supreme Court decision eliminating the requirement that a seller have physical presence in the taxing state to be able to collect and remit sales taxes to that state. It expanded states’ abilities to collect sales taxes from e-commerce and other remote transactions. , Inc., et al, No. 17-494. The case involves South Dakota’s law collecting taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. on Internet sales made to residents within the state. Many states are enacted problematic, complicated, and burdensome laws taxing Internet commerce. Neither Congress nor state courts have stopped these efforts, exposing online retail to a flurry of problematic state tax laws.

South Dakota’s sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. is uniquely well-structured, as it is one of a few states that taxes most all final goods and services, and we believe their law complies with the Dormant Commerce Clause. This case, therefore, represents an opportunity for the Supreme Court to issue much-needed guidance on this issue while reasserting necessary limits on state taxing authority.

On January 12, 2018, the Supreme Court agreed to hear the case. Arguments will be scheduled sometime in spring or summer 2018.

You can download a full PDF copy of our brief at the link at the top of this page.

No. 17-494, South Dakota v. Wayfair, Inc., et al.

Brief of the Tax Foundation as Amicus Curiae in Support of the Petition for Writ of Certiorari

November 2, 2017


The Tax Foundation submits this brief as amicus curiae in support of Petitioner in the above-captioned matter.

The Tax Foundation is a non-partisan, non-profit research organization founded in 1937 to educate taxpayers on tax policy. Based in Washington, D.C., we seek to make information about government finance more accessible to the general public. Our analysis is guided by the principles of sound tax policy: simplicity, neutrality, transparency, and stability.

Because Amicus has testified and written extensively on the issues involved in this case, because this Court’s decision may be looked to as authority by the many state courts considering this issue, and because any decision will significantly impact taxpayers and state tax administration, Amicus has an institutional interest in this Court’s ruling.


We at the Tax Foundation are not a partisan for aggressive or expansive state tax power. Until this case, briefs we have submitted on this issue have always been to urge a ruling against the state. See, e.g., Brief of Tax Foundation as Amici Curiae Supporting Petitioners,, Inc. v. N.Y. Dep’t of Taxation and Fin.,, 134 S.Ct. 682, 2013 WL 5400248 (Sept. 23, 2013); Brief of Tax Foundation as Amicus Curiae Supporting Petitioners, Direct Mtkg v. Brohl, 135 S. Ct. 1124, 2014 WL 6845684 (Sept. 16, 2014). But because it is necessary to resolve an almost universal lack of clarity about the proper scope of state sales taxation of out-of-state internet sellers, we urge this Court to grant certiorari in this case and to rule in favor of South Dakota’s statute.

This Court has ample precedent to draw upon. Before the 1950s, states were heavily restricted in their ability to tax individuals, businesses, and sales involving interstate commerce. See, e.g., Freeman v. Hewit, 329 U.S. 249, 252-53 (1946) (“A State is . . . precluded from taking any action which may fairly be deemed to have the effect of impeding the free flow of trade between States”); Leloup v. Port of Mobile, 127 U.S. 640, 648 (1888) (“No State has the right to lay a tax on interstate commerce in any form.”). In the 1950s, this Court began to ease those restrictions, correctly concluding that involvement in interstate commerce does not completely insulate an individual or business from contributing to providing government services in states where they enjoy the benefits of them. See Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 284-85 (1977) (comparing Ry. Express Agency v. Virginia, 347 U.S. 359 (1954) (Railway Express I) and Ry. Express Agency v. Virginia, 358 U.S. 434 (1959) (Railway Express II)). This Court’s Complete Auto decision gave a comprehensive and workable list of criteria for determining whether a state’s tax law violates constitutional limitations on state tax power: a tax (1) must be “applied to an activity with a substantial nexus with the taxing State,” (2) must be “fairly apportioned,” (3) must “not discriminate against interstate commerce,” and (4) must be “fairly related to the services provided by the State.” Id. at 279. The decision built on a long history of this Court using its dormant commerce clause power to prevent states from taxing or otherwise penalizing activity out-of-state while leaving identical activity in-state untaxed or unpenalized. See, e.g., Joseph Henchman, Why the Quill Physical Presence Rule Shouldn’t Go the Way of Personal Jurisdiction, 46 State Tax Notes 387 (Nov. 5, 2007),

This Court will soon be asked over and over and over to consider challenges to a variety of state laws expanding state sales tax authority over interstate commerce. Eighteen states have adopted New York-style click-through nexus sales tax laws, which expand physical presence beyond what this Court described as “the furthest extension” of nexus. Seven states have adopted Colorado-style reporting sales tax laws, which raise First Amendment issues. Three states have adopted economic nexus sales tax laws, which ignore physical presence completely. States may soon consider Massachusetts-style “cookie taxes,” which expand state sales tax jurisdiction to all sellers everywhere. At least three states have concluded that physical presence is inapplicable for business taxes, undermining the spirit of the Quill decision. While legislation has been introduced in Congress, legislators will not act until this Court does.

The South Dakota law in question gives this Court the best opportunity to resolve this area of law, upholding state action while defining the limits of state tax power. The South Dakota law should be upheld as constitutional because (1) the state taxes nearly all other goods and services under its sales tax except internet-based transactions, demonstrating no discriminatory intent or purpose; (2) the state has minimized the costs of sales tax collection to the extent practicable, by adhering to interstate standards of sales tax administration, maximizing statewide sales tax uniformity, and adopting a de minimis threshold likely to exclude interstate activity where state burdens exceed state benefits; (3) the state law bars retroactive collection; and (4) the state law limits the scope of its tax liability to taxpayers present in the state (residents who purchase goods and services online), keeping with the spirit of physical presence as the basis of taxation.




This Court expressly endorsed the proposition that a state has the power to exercise its taxing authority against an out-of-state vendor if the vendor has a “physical presence” within the state in National Bellas Hess, Inc. v. Dep’t of Revenue of Illinois, 386 U.S. 753 (1967), and reaffirmed its applicability twenty-five years later in Quill Corp. v. North Dakota, 504 U.S. 298 (1992). While this Court has acknowledged that an “attributional nexus” standard is the “furthest extension” of nexus, Quill Corp., 504 U.S. at 306, citing Scripto, Inc. v. Carson, 362 U.S. 207 (1960); Tyler Pipe Indus. v. Dep’t of Revenue of Washington, 482 U.S. 232, 250 (1987), many states have interpreted this as a floor rather than the ceiling. As a result, many states have enacted legislation that expands nexus beyond Quill, including New York-style click-through nexus, Colorado-style reporting and notification, and Massachusetts-style cookie nexus. Further, several states and courts have declined to apply the physical presence standard to business and individual income taxes.

A. Eighteen States Have Adopted New York-Style Click-Through Nexus Sales Tax Laws, Which Expand Physical Presence Beyond What This Court Described as Its Furthest Extent.

In 2008, New York was the first state to adopt a “click-through” nexus statute. See N. Y. Tax Law § 1101(b)(8)(vi). This statute expanded the definition of nexus to include (as a rebuttable presumption) any out-of-state seller who “enters into an agreement with a resident of [the state of New York] under which the resident . . . directly or indirectly refers potential customers . . . to seller” and such sales exceeds $10,000 per year. Id. This statute was upheld in, Inc. v. New York State Dep’t of Taxation & Fin., 987 N.E.2d 621 (N.Y. 2013), finding that contracts with in-state non-employees who refer customers for compensation constitutes substantial nexus. Id. at 626 (“Active in-state solicitation that produces a significant amount of revenue qualifies as more than a ‘slightest presence’ . . .”).

Following in New York’s footsteps, several other states have enacted similar statutes. See generally, Bloomberg BNA, State Tax Snapshot: A Dozen States Say Click-Through Nexus Applies, Despite Absence of Legal Authority,

  • Arkansas in 2011 adopted a statute with the rebuttable presumption and a $10,000 threshold. See Code § 26-52-117(d)-(e).
  • California in 2012 adopted a statute with the rebuttable presumption, a $10,000 threshold, and a further requirement that the out-of-state seller have national sales of at least $1 million. See Rev. & Tax § 6203(b)(5).
  • Connecticut in 2011 adopted a statute with a $2,000 threshold and no rebuttability. See Gen. Stat. § 12-407(a)(12)(L).
  • Georgia in 2012 adopted a statute with the rebuttable presumption and a higher $50,000 threshold. See Code § 48-8-2(8)(M).
  • Illinois in 2011 adopted a statute with a $10,000 threshold and no rebuttability. See35 Comp. Stat. 105/2 & 110/2. See Performance Marketing Ass’n, Inc. v. Homan, 998 N.E. 2d. 54 (Ill. 2013) (holding the statute was preempted by federal law and violated the commerce clause of the United States Constitution).
  • Kansas in 2013 adopted a statute with the rebuttable presumption and a $10,000 threshold. See Stat. § 79-3702(h)(2)(C).
  • Louisiana in 2016 adopted a statute with the rebuttable presumption and a $10,000 threshold. See 2016 La. H.B. 30, 1st Extra Sess.
  • Maine in 2013 adopted a statute with the rebuttable presumption and a $10,000 threshold. SeeMe. Rev. Stat. tit. 36, § 1754-B(1-A)(C).
  • Michigan in 2015 adopted a statute with the rebuttable presumption and a $10,000 threshold. See Comp. Laws § 205.52(b)(3).
  • Minnesota in 2013 adopted a statute with the rebuttable presumption and a $10,000 threshold. See Stat. § 297A.66(4a).
  • Nevada in 2015 adopted a statute with the rebuttable presumption and a $10,000 threshold. See 2015 Nev. A.B. 380.
  • New Jersey in 2014 adopted a statute with the rebuttable presumption and a $10,000 threshold. SeeJ.S.A 54:32B-2(i)(1).
  • North Carolina in 2009 adopted an identical statute, with the rebuttable presumption language and the $10,000 threshold. SeeC. Gen. Stat. § 105.164.8(b)(3).
  • Rhode Island in 2009 adopted a statute with the rebuttable presumption language and a lower $5,000 threshold. SeeI. Gen. Laws § 44-18-15(a)(2).
  • Tennessee in 2015 adopted a statute with the rebuttable presumption and a $10,000 threshold. See 2015 Tenn. H.B. 644.
  • Texas in 2011 adopted a statute expanding the definition of “retailer” to include any out-of-state seller who “derives receipts” from sales in the state and any out-of-state seller who delivers items to customers in the state. See Tax Code § 151.107(a). The statute has no minimum threshold and no rebuttability.
  • Vermont in 2011 adopted a statute with the rebuttable presumption and a $10,000 threshold, with a further requirement that it not take effect until similar legislation passes 15 other states. See Stat. tit. 32, § 9783(b)-(c).
  • Washington in 2015 adopted a statute with the rebuttable presumption and a $10,000 threshold. Wash. Rev. Code § 82.08.0521(1).

These statutes create physical presence when a retailer uses an independent contractor even if those contractors do not engage in maintaining an in-state market or a substantial flow of goods. While these statutes provide for an ability to rebut the presumption that solicitation occurred, rebutting such presumption would inherently be futile, as it is hard to prove what has been done by individuals on the internet. As a result, due to the global nature of the internet, these click-through laws apply more broadly and encompass not only retailers who target sales within a given state, but also retailers who may not actually produce a sale in the given state.

B. Seven States Have Adopted Colorado-Style Reporting Sales Tax Laws, Which Raise First Amendment Issues.

In 2010, Colorado enacted a statute requiring non-collecting retailers to: (1) provide Colorado purchasers a “transactional notice” at the time of purchase, informing them that the purchase may be subject to Colorado’s use tax; (2) provide an “annual purchase summary” with the dates, amounts, and categories of purchases of all Colorado purchasers with purchases over $500; and (3) file with the Colorado Department of Revenue an annual report listing their customers’ names, addresses, and total purchases. Colo. Rev. Stat. § 39-21-112(3.5). The transactional notice and annual consumer report informs Colorado purchasers that they are required to pay taxes, while the annual retailer report assists Colorado in determining the tax liability. In Direct Marketing Ass’n v. Brohl, 814 F.3d 1129 (10th Cir. 2016), the Tenth Circuit upheld the Colorado statute after concluding that Quill’s holding applied to sales and use tax collection and not to the imposition of regulatory requirements.

While the DMA case was presented to this Court on the sole issue of jurisdiction, this Court recognized the potential significance of a ruling upholding the Colorado reporting statute. During oral arguments, Justice Scalia stated: “This is certainly a very important case because I have no doubt that if we come out agreeing with [Colorado’s State Counsel], every one of the states is going to pass a law like this.” Case No. 12-1032, Transcript of oral argument (Dec. 8, 2014) (“Tr”) at 24:25-34. Justice Alito echoed this conclusion, stating: “If the Colorado law is upheld, as a small internet business, I will have to submit potentially 50 different forms to all of these States reporting that somebody in South Carolina purchased something from me that cost $23.99. . .. [T]hat’s where this all could lead, couldn’t it?” Tr. 32:14-21. Critics contend that the reporting requirements are deliberately cumbersome so as to compel collection.

Six states have enacted similar notice and reporting statutes:

  • Alabama in 2017 adopted legislation authorizing the Alabama Department of Revenue (DOR) to require non-collecting remote sellers to report Alabama sales to the DOR and notify Alabama customers of their use tax obligations. See Code § 40-2-11.
  • Kentucky in 2013 enacted a statute requiring remote sellers with more than $100,000 in gross sales to Kentucky residents and businesses to provide notice that purchasers must report and pay use tax to the Kentucky Department of Revenue. See Rev. Stat. § 139.450.
  • Louisiana in 2016 enacted a statute including all of the provisions contained in the Colorado one. See Stat §47.309.1.
  • Oklahoma in 2016 enacted legislation requiring non-collecting out-of-state sellers to provide each customer with a statement of all sales made to them during the preceding calendar year by February 1. Stat. tit. 68, § 1406.1.
  • Vermont in 2017 enacted legislation requiring non-collecting retailers who make at least $100,000 in sales to Vermont buyers, or have 200 or more individual sales transactions with Vermont buyers, to send use tax notifications to buyers and to the Vermont Department of Revenue. Stat. tit. 32, § 9712.
  • Washington in 2017 enacted legislation requiring “marketplace facilitators” to either (1) register to collect and remit Washington sales tax or (2) comply with Washington’s newly-established notice and reporting regime. See Rev. Code § 82-08-052.

These statutes also raise privacy concerns relating to the requirement to notify state officials about what each customer purchases online. A North Carolina revenue ruling similar to the Colorado statute was struck down on these grounds. See LLC v. Lay, 758 F. Supp. 2d 1154 (W.D. Wash. 2010). The ACLU joined with to challenge this, noting the danger of unnecessarily requiring disclosure of purchases such as the movie Lolita or the book How to Leave Your Husband, or even the name of the website as some websites sell embarrassing things. The court held that the First Amendment forbids state tax collectors from knowing what taxpayers are buying. Id. at 1170 (“Citizens are entitled to receive information and ideas through books, films and other expressive materials anonymously.”).

C. Three States Have Adopted Economic Nexus Sales Tax Provisions Which Ignore Physical Presence Completely.

In 2015, Alabama enacted Reg. 810-6-2.90.03, requiring an out-of-state seller to collect and remit sales tax if the vendor has more than $250,000 in Alabama sales and are engaged in an enumerated list of activities. Ala. Admin. Code r. 810-6-2.90.03

In 2017, Tennessee enacted a similar rule, with a $500,000 level of sales, but suspended enforcement pending court challenges. See Tenn. Comp. R. & Regs. 1320-05-01-.129.

In 2016, Vermont enacted a statute requiring collection by sellers with at least $100,000 in annual sales or 200 individual transactions in Vermont, to take effect on the first quarter after this Court overturns Quill. See Vt. Stat. tit. 32, § 9701(9)(F).

D. States May Soon Consider Massachusetts-Style Cookie Taxes, Which Expand State Sales Tax Jurisdiction to All Sellers Everywhere.

On September 22, 2017, Massachusetts proposed Reg. 830. 830 Mass. Code Regs. 64H.1.7, which would have required vendors with more than $500,000 in sales into Massachusetts from internet transactions and 100 or more transactional sales into the state during the previous twelve months to collect and remit sales and use tax if the vendor: (1) has established a physical presence through property interests in and/or the use of in-state software (making “apps” available to be downloaded by in-state residents) and ancillary data (placing “cookies” on in-state residents’ web browsers), (2) has contracts and/or relationships with content distribution networks, or (3) uses marketplace facilitators and/or delivery companies. Massachusetts subsequently withdrew the regulation but has begun the process of reissuing it. Discussion among state tax administrators suggests other states may consider adopting similar app and cookie nexus provisions.

Under this “cookie nexus” standard, Massachusetts would have the power to tax any online store on the planet if a Massachusetts resident accesses the vendor’s website or downloads its app. These “cookie” nexus provisions likely also violate the Internet Tax Freedom Act (ITFA), which prohibits “multiple or discriminatory taxes on electronic commerce.” 47 U.S.C. § 151. Advertising in a state has historically not created nexus, or even personal jurisdiction, and the Massachusetts provision creates obligations solely for the online equivalent of advertising, cookies and apps. Absent judicial review, many states may follow Massachusetts’s lead.

E. Three States Have Concluded that Physical Presence is Inapplicable for Business Taxes, Undermining the Spirit of the Quill Decision.

Ohio, Washington, and West Virginia have enacted laws, and courts in those states have upheld them, which impose business taxes without regard to physical presence.

In 2005, Ohio enacted a “factor presence” law which imposed a tax on any business with at least $500,000 of Ohio gross receipts. Ohio Rev. Code § 5751.01(I). The Ohio Supreme Court concluded that physical presence is a sufficient condition but not a necessary condition when constitutionally imposing business privilege taxes. See Crutchfield Corp. v. Testa. No. 2015-0386 (Ohio 2016), 2016 WL 6775765.

Washington imposes a business and occupancy (B&O) tax on the privilege of “engaging in business activities”, measured by gross receipts. See Wash. Rev. Code § 82.04.220. Washington courts have frequently upheld the application of the tax against businesses with minimal or no physical presence in the state. See, e.g., Avnet, Inc. v. Dep’t of Revenue, 384 P.3d 571 (Wash. 2016) (applying B&O tax to sales made by an out-of-state company to another out-of-state company if delivery to the ultimate customer is in Washington); Steven Klein, Inc. v. Dep’t of Revenue, 357 P.3d 59 (Wash. 2015) (“Washington’s B&O tax system is extremely broad.”); Simpson Inv. Co. v. Dep’t of Revenue, 3 P.3d 741 (Wash. 2000) (applying B&O tax to receipt of dividends exempt from B&O taxation); Budget Rent-A-Car of Wash.-Or., Inc. v. Dep’t of Revenue, 500 P.2d 764 (Wash. 1972) (applying B&O tax to casual sales); Time Oil Co. v. State, 483 P.2d 628, 630 (Wash. 1971) (“[I]t is obvious that the legislature intended to impose the business and occupation tax upon virtually all business activities carried on within the state.”).

In 2005, West Virginia ordered payment of its corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. by credit card companies with customers, but no employees or property, in the state. The West Virginia Supreme Court found this sufficient for substantial nexus for the tax. See Tax Comm’r v. MBNA America Bank, 640 S.E.2d 226 (W. Va. 2006). A dissenting judge characterized the decision as “finding tax liability for an out-of-state corporation with no presence, tangible or intangible, in West Virginia on income realized out-of-state by that corporation from accounts kept out-of-state.” Id. at 236 (Benjamin, J., dissenting).

States increasingly apply business taxes to out-of-state businesses without an in-state physical presence, dragging out-of-state sellers into their taxing regime based on as little as one transaction. See Bloomberg BNA, Survey of State Tax Departments (2017 ed.) (listing various scenarios in which states conclude nexus has been established by non-physically-present businesses); The Role of Congress in State Taxation: Hearing Before the U.S. House of Representatives Committee on the Judiciary (testimony of Joseph Henchman), (“Does shipping in a returnable container versus a common carrier create nexus? Does placing an internet browser cookie on someone’s computer create nexus in that someone’s state? Does downloading an app in a hub airport while waiting between two interstate flights create nexus in the state of that hub airport? Once established, how long does nexus last? It is not just that we have different answers for different states, but also that many states supply vague or indeterminate non-answers to many of these questions.”).

As a result, states are creating the scenario that the Commerce Clause sought to avoid: the voice for sound tax policy, for levying taxes only from those in-state businesses and residents who benefit from provided services, is overridden by those seeking to use the state tax code to benefit in-state people and businesses. Cf. James Madison, The Federalist No. 42 (“[T]he mild voice of reason, pleading the cause of an enlarged and permanent interest, is but too often drowned before public bodies as well as individuals, by the clamours of impatient avidity for immediate and immoderate gain.”). This Court’s guidance is needed before the states subject interstate commerce to death by a thousand cuts.


Although many internet sales taxAn internet sales tax is a sales and use tax collected and remitted on remote sales, many done online. In 2018, the U.S. Supreme Court ruled that states could impose such obligations on sellers lacking physical presence in the state, vastly expanding the reach of these collection and remittance requirements. laws will be appealed to this Court in the coming years, South Dakota’s law is the best vehicle for this Court to consider the issue, because (1) the state taxes nearly all other goods and services under its sales tax except internet-based transactions, demonstrating no discriminatory intent or purpose; (2) the state has minimized the costs of sales tax collection to the extent practicable, by adhering to interstate standards of sales tax administration, maximizing statewide sales tax uniformity, and adopting a generous de minimis threshold; (3) barring retroactive collection; and (4) limiting the scope of its tax liability to taxpayers present in the state (residents who purchase goods and services online), keeping with the spirit of physical presence as the basis of taxation.

A. South Dakota is One of Three States That Tax Nearly All Services Under Its Sales Tax, Demonstrating the Statute Has No Discriminatory Intent or Purpose.

Unlike other states that decry the erosion of their sales tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. while exempting goods and services that total over half their economy, South Dakota taxes it all. Internet sales are the only thing South Dakota does not tax, because they cannot under federal law.

Public finance and economic theory says sales taxes should apply to all final sales of goods and services, and no business inputs. Partly due to historic accident and partly due to policy efforts to exempt some goods, the median state sales tax base covers only 23 percent of final personal income. When states began to levy a sales tax in the 1930s, the tax applied to tangible personal property, items such as clothing, home appliances, and furniture, among other taxable goods. This made the tax relatively easy to administer. It also produced sufficient revenue, as the economy largely consisted of manufacturing and tangible goods. Over time, however, the U.S. economy has changed from a manufacturing-based economy to a service-based economy. Americans are purchasing more services than goods as a percentage of their consumption. In the first quarter of 2017, services accounted for approximately 68 percent of personal consumption expenditures in the United States. See, e.g., Nicole Kaeding, Sales Tax Base BroadeningBase broadening is the expansion of the amount of economic activity subject to tax, usually by eliminating exemptions, exclusions, deductions, credits, and other preferences. Narrow tax bases are non-neutral, favoring one product or industry over another, and can undermine revenue stability. : Right-Sizing a State Sales Tax, Tax Foundation (Oct. 2017),

Despite the transformation in the economy, states have responded slowly to updating their sales tax bases. The narrow tax bases undermine neutrality, favoring one product or industry over another. While many states decry the forced exclusion of internet sales from their tax bases, they make little effort to address their decision to exclude other goods and services.

South Dakota has chosen not to discriminatorily tax its in-state consumption, instead broadly taxing nearly all categories of transactions under its sales and use tax: South Dakota taxes groceries (taxed in full by only 7 states of the 45 plus the District of Columbia with the tax), clothing (taxed in full by 39 states), non-prescription drugs (taxed by 35 states), personal services such as dry cleaning and haircuts (taxed in full by only 4 states), real estate transactions (taxed by only 3 states), legal transactions (taxed by only 3 states), accounting services (taxed by only 3 states), and even lobbying services (taxed by only 6 states). See Jared Walczak, Scott Drenkard, & Joseph Bishop-Henchman, 2018 State Business Tax Climate Index, Tax Foundation (Oct. 2017), at 70-72 (complete list by type of transaction and by state), South Dakota also relies heavily on its sales tax: in FY 2014, sales tax collections made up 40 percent of South Dakota’s state and local revenue, the third highest of any state (behind Washington and Tennessee). See Tax Foundation, Facts & Figures 2017: How Does Your State Compare? (table 8), South Dakota has no state individual income or corporate income tax; sales and property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. es are essentially their only taxes and make up three-quarters of total South Dakota state and local tax revenue. See id.

These policy choices by South Dakota demonstrate a lack of discriminatory intent or purpose with the law challenged in this case. While many states correctly describe the forced exclusion of internet sales from their sales tax bases as inconsistent with public finance and economic theory, and sound tax policy, they do little to address billions of dollars of exclusions of goods and services provided primarily by in-state businesses. A hallmark of discrimination under the Commerce Clause is a state taxing or otherwise penalizing activity out-of-state while leaving identical activity in-state untaxed or unpenalized. South Dakota, along with New Mexico and Hawaii, leaves virtually no in-state activity outside its sales tax base. For a clearer consideration of the extent of state tax powers, this Court should decide this statute from South Dakota rather than laws passed in other states that may be less pure in their lack of discriminatory intent or purpose.

B. South Dakota is One of 23 States with Simplified Sales Tax Collection That Imposes Minimal Burden on Collecting Businesses.

South Dakota is one of 23 states to be a full member of the Streamlined Sales Tax and Use Agreement (SSUTA), a multistate effort to adopt simplified administration and remittances, establish uniform definitions of items subject to tax, and require uniformity between state and local sales tax bases. SSUTA was started in large part to what was perceived as this Court’s challenge in Quill: to achieve simpler and more uniform state sales taxes whose imposition would not be an impermissible burden on interstate commerce. For this reason, SSUTA has been less successful than it could be, due to the non-participation by large states such as California, Florida, Illinois, New York, and Texas. Some states refuse to join so as to maintain idiosyncratic sales tax practices, such as Maryland’s “rounding rule” requiring vendors to round remainders of 4 and above up, rather than the more common practice of only rounding up remainders of 5 and above; Chicago, Illinois’s decision to tax sales of bottled water, soda, non-soda drinks, restaurant meals, candy, and groceries all at different tax rates; and Wisconsin’s differential tax treatment of different types of ice cream cakes. See, e.g., Avalara, How Does Avatax Handle Rounding in Maryland?,; City of Chicago, Tax List,; Wisconsin Department of Revenue, Sales of Ice Cream Cakes and Similar Items, (giving 10 examples of ice cream cakes, 6 taxable and 4 non-taxable).

It is hard to overstate the hard work and hard decisions that go into being a member of SSUTA. While many states have opted not to undertake this work, and consequently declined to address the issues raised by the Court in Quill, South Dakota and its fellow SSUTA members have. While more work can be done by SSUTA, South Dakota’s participation in it shows a desire to minimize the interstate tax burden of its sales tax administration and collection mechanisms.

South Dakota has adopted this simplified system with respect to its local sales tax jurisdictions. South Dakota permits its municipalities to levy sales taxes, but only by adhering to the state base of transactions and only at uniform rates (either 1 or 2 percent, or 4.5 percent for Indian tribes). See South Dakota Dep’t of Revenue, Municipal Tax Information Bulletin (Jul. 2017), While most countries have one unified consumption taxA consumption tax is typically levied on the purchase of goods or services and is paid directly or indirectly by the consumer in the form of retail sales taxes, excise taxes, tariffs, value-added taxes (VAT), or an income tax where all savings is tax-deductible. for the entire country or for each major region or province, sales taxes in the United States are very decentralized. 38 states authorize local sales taxes with their own rates, and Arizona, Colorado, and Louisiana even permit local sales taxes to have a different base of taxable transactions than the state sales tax. See Jared Walczak & Scott Drenkard, State and Local Sales Tax Rates, Midyear 2017, Tax Foundation (Jul. 2017),

Nationally there are a total of 10,708 jurisdictions in the United States that impose a sales tax, as of June 30, 2017, ranging by state on the high end from 1,277 in Missouri, 1,153 in Texas, 908 in Iowa, and 800 in Alabama, to just one each in the states of Connecticut, Indiana, Kentucky, Maine, Maryland, Massachusetts, and Michigan. Email from Tricia Schafer-Petrecz, Pub. Relations & Soc. Media Lead, Vertex, Inc., to Joseph Henchman, Exec. Vice President, Tax Foundation. Far from getting fewer, the number of sales tax jurisdictions grows each year, and is up from about 6,000 at the time of the Quill decision. South Dakota’s decision to require adherence to the state sales tax base, and to establish uniform local tax rates, minimizes sales tax compliance burdens on businesses.

C. South Dakota’s Statute Includes a Minimum Sales Threshold and a Ban on Retroactive Collection, Both Essential to Preventing Excessive Burden to Interstate Commerce.

South Dakota’s statute minimizes its burden on interstate commerce through establishment of a minimum dollar threshold (of $100,000 in sales). S.D. S.B. 106, §1. This de minimis threshold has the effect of excluding those sellers with incidental or purposefully directed sales into the state and where establishing collection mechanisms might outstrip the business’s incremental revenue from selling into South Dakota. The inclusion of this provision demonstrates the state’s thoughtfulness in preventing unnecessary burdens on interstate commerce associated with its tax collection. If similar provisions were adopted by other states, in proportion to their population or total economy relative to South Dakota’s (for example, New York has 22.8 times the population of South Dakota, so its comparable de minimis threshold would be $2.28 million; Massachusetts, with 7.9 times the population of South Dakota, would have a comparable threshold of $787,000), state burdens would be limited to be borne primarily by those enjoying state benefits, comporting with the benefit principle of sound tax policy.

South Dakota’s statute also has a provision barring retroactive collection. S.B. 106 §5. While this Court has not definitively spoken on the extent of permissible retroactive state tax collection under the Due Process Clause, compare United States v. Carlton, 512 U.S. 26, 30 (1994) (upholding retroactive tax laws when “supported by a legitimate legislative purpose furthered by rational means”) with id. at 38 (O’Connor, J., concurring) (“A period of retroactivity longer than the year preceding the legislative session would raise, in my view, serious constitutional questions.”) and Chevron Oil Co. v. Huson, 404 U.S. 97 (1971) (setting out a three-part test on retroactive interpretation of law), numerous precedents, public sentiment, and the principles of sound tax policy look upon retroactive tax collection with disfavor. See, e.g., Eastern Enterprises v. Apfel, 524 U.S. 498, 547 (1998) (Kennedy, J., concurring in the judgment and dissenting in part) (“If retroactive laws change the legal consequences of transactions long closed, the change can destroy the reasonable certainty and security which are the very objects of property ownership.”); id. at 558 (Breyer, J., dissenting) (“[A]n unfair retroactive assessment of liability upsets settled expectations, and it thereby undermines a basic objective of law itself.”); General Motors Corp. v. Romein, 503 U.S. 181, 192 (1992) (“Retroactive legislation . . . can deprive citizens of legitimate expectations”); Joseph Henchman & Kavya Rajasekar, The Bounds of Retroactive State Taxes, Tax Foundation (Feb. 2017),; Paul H. Frankel & Amy L. Nogid, The Manifest Justice to the Manifest Injustice Doctrine: The Time Has Come to Invoke the Ex Post Facto Clause to Bar Retroactive Tax Increases, Legal Updates & News, Dec. 2008, Indeed, at least one scholar thinks this Court ruled as it did in Quill in part because at oral argument in the case, the state’s counsel committed to pursuing retroactive tax collection in response to a question from Justice O’Connor. See, e.g., Billy Hamilton, “Remembrance of Things Not So Past: The Story Behind the Quill Decision,” 59 State Tax Notes 807 (Mar. 14, 2011),

South Dakota’s decision to exempt de minimis sales and bar retroactive collection in its statute upholds taxpayer expectations for past transactions and ensures validity under this Court’s Due Process Clause. It is more evidence of South Dakota’s determination to craft a well-written statute that can be considered and upheld by this Court.


For the foregoing reasons, Amicus respectfully requests that this Court grant the petition for certiorari.

Respectfully submitted,

Joseph D. Henchman*

*Counsel of Record

Tax Foundation

1325 G Street N.W., Suite 950

Washington, DC 20005

(202) 464-6200

Counsel for Amicus Curiae

November 2, 2017

[1] Pursuant to Supreme Court Rule 37.6, counsel for Amicus represents that it authored this brief in its entirety and that none of the parties or their counsel, nor any other person or entity other than Amicus or its counsel, made a monetary contribution intended to fund the preparation or submission of this brief. Pursuant to Rule 37.2(a), counsel for Amicus represents that all parties were provided notice of Amicus’s intention to file this brief on October 6, 2017. Letters from the parties consenting to the filing of the brief are filed with the Clerk of the Court.