South Dakota v. Wayfair, Inc.

Definition

South Dakota v. Wayfair, Inc. is a landmark Supreme Court case decided in 2018 that ruled states can require online retailers to collect sales tax even if they do not have a physical presence in the state. This decision overturned the previous standard established by Quill Corp. v. North Dakota and reflects evolving judicial philosophies concerning state taxation and commerce.

5 Must Know Facts For Your Next Test

1. The South Dakota v. Wayfair decision was based on the changing landscape of e-commerce, where online sales have drastically increased over time.
2. The ruling allows states to implement laws requiring online retailers with no physical presence to collect sales taxes, leveling the playing field for local businesses.
3. The case highlighted the challenges of outdated precedents in the context of modern commerce and state revenue needs.
4. South Dakota's law required online sellers to collect sales tax if their sales exceeded $100,000 or involved more than 200 transactions in the state.
5. The Supreme Court's decision was a 5-4 ruling, showing a divided court on issues related to state rights and commerce.

Review Questions

• How did South Dakota v. Wayfair, Inc. alter the legal framework regarding state sales tax collection from online retailers?
  • The ruling in South Dakota v. Wayfair, Inc. changed the legal framework by eliminating the physical presence requirement previously established by Quill Corp. v. North Dakota. Now, states can mandate that online retailers collect sales taxes based on their sales volume in that state rather than their physical presence. This shift allows for increased state revenue and acknowledges the significant growth of e-commerce.
• Evaluate the impact of this case on small businesses versus large online retailers in terms of competitive advantage.
  • The South Dakota v. Wayfair decision impacts small businesses positively by allowing them to compete more fairly against large online retailers that previously had an advantage due to not having to collect sales tax. With all retailers required to collect tax regardless of their physical presence, small businesses can benefit from an even playing field, which could enhance local economies and encourage consumer spending at local shops.
• Assess how South Dakota v. Wayfair, Inc. reflects changes in judicial philosophies regarding federalism and states' rights.
  • The case illustrates a shift in judicial philosophies towards greater recognition of states' rights in regulating commerce within their borders. By upholding South Dakota's law, the Supreme Court acknowledged that states must have the authority to adapt their taxation systems in response to economic changes brought about by e-commerce. This ruling represents a departure from a strict interpretation of the Commerce Clause towards a more flexible understanding that empowers states to act in their own interests while still considering federal commerce policies.

Related terms

Quill Corp. v. North Dakota: A 1992 Supreme Court decision that established the physical presence standard for states to impose sales tax obligations on out-of-state sellers.

Commerce Clause:

A provision in the U.S. Constitution that grants Congress the power to regulate commerce among the states, impacting how states can tax businesses.

E-commerce: Buying and selling goods or services over the internet, which has grown significantly and influenced tax law and regulations.