Skip to main content

The Wayfair decision: What is it, and why South Dakota?

December 19, 2019


Tu-Uyen Tran Senior Writer
The Wayfair decision: What is it, and why South Dakota?

What is it?

South Dakota v. Wayfair is a landmark case decided by the U.S. Supreme Court in June 2018 requiring all but the smallest remote sellers to pay state and local sales taxes.

A remote seller is one who does not have a physical presence in the taxing state, which describes many online retailers such as Wayfair,, and others named in the lawsuit.

In its opinion, the court overturned a precedent that it had set in Quill Corp. v. North Dakota 26 years prior. That earlier decision had made remote sellers exempt from sales tax.

What changed?

The definition of “substantial nexus” changed. For decades, the court maintained that sellers must have a substantial nexus or link to a state to be subject to that state’s taxes. By “substantial” the court meant a physical presence—be it buildings or employees or delivery trucks—which the Quill decision reaffirmed. In the Wayfair decision, the court shifted and said an economic or marketing presence, if large enough, can also establish a substantial nexus.

More broadly, the court recognized that technology has changed. It’s much easier for a company today to establish a virtual presence in a state that is as effective as, in some cases more than, a physical presence.

What’s a “substantial nexus” now?

South Dakota’s sales tax law, which passed muster with the Supreme Court, says that all remote sellers must pay sales taxes unless they do very little business in the state. That means their gross sales in a year must be less than $100,000 in South Dakota, or they must have fewer than 200 transactions. Many other states have arrived at similar thresholds.

Why South Dakota?

In the Quill decision, the U.S. Supreme Court said that Congress has the power to allow states to collect sales taxes from remote sellers. But Congress did not act despite states and brick-and-mortar retailers begging it to do so even as e-commerce grew ever larger.

The states believe they were losing out on a lot of potential revenue. Brick-and-mortar retailers, which paid taxes, believed they were at a disadvantage against online retailers, which did not. After encouragement in 2015 by Justice Anthony Kennedy in another case, many states passed laws designed to challenge Quill. South Dakota’s case just happened to be the one that made it through.

Tu-Uyen Tran
Senior Writer

Tu-Uyen Tran is the senior writer in the Minneapolis Fed’s Public Affairs department. He specializes in deeply reported, data-driven articles. Before joining the Bank in 2018, Tu-Uyen was an editor and reporter in Fargo, Grand Forks, and Seattle.