Update to South Dakota Remote Seller Nexus Law

This alert is an update to a state tax alert titled South Dakota Enacts Sales and Use Tax Law (Physical Presence is Not Required) from April 4, 2016.

The legal battle has begun as a result of South Dakota’s new sales tax reporting requirements that were signed by the Governor on March 22, 2016 (the “Remote Seller Law”).  The Remote Seller Law, effective May 1, 2016, requires out-of-state online retailers that sell a minimum of $100,000 or complete at least 200 separate sales transactions annually within South Dakota to register with the state and collect and remit sales tax.

South Dakota is suing four internet retailers to force them to comply with the Remote Seller Law. South Dakota’s legal battle with online retailers could end up in the U.S. Supreme Court because the Remote Seller Law appears to conflict with the Court’s 1992 ruling in Quill Corp. v. North Dakota, which declared that states can impose sales tax obligations solely on companies with a physical presence in a state.

Under the Remote Seller Law, South Dakota cannot enforce the law’s collection obligation against a remote seller during the litigation process. If South Dakota prevails in the litigation, including all appeals (even to the U.S Supreme Court), then the state will enforce the Remote Seller Law, requiring such taxpayer to collect and remit the state sales tax on a going-forward basis.

In conclusion, if you meet the requirements under the Remote Seller Law, DO NOT, at this time, register with the South Dakota Department of Revenue, because due to the litigation (i.e., injunction), South Dakota will not enforce the Remote Seller Law during the litigation process. However, you must monitor the litigation regarding this issue.

If you have registered with the South Dakota Department of Revenue, close your account with them. Once your account has been closed, DO NOT collect South Dakota sales tax on sales to South Dakota customers.  

Please note that the litigation between South Dakota and the remote sellers will be prolonged and will likely reach the U.S. Supreme Court.

For questions about this regulation or other state and local tax matters, please contact us.