News & Events


On June 21, the US Supreme Court issued its decision on the South Dakota v. Wayfair case regarding nexus determination for sales tax. In a 5-4 decision favoring South Dakota, the Court overturned judicial precedent dating back 50 years when it concluded Quill (1992) and National Bellas Hess (1967) to be unsound and incorrect.

The Wayfair decision overturned the physical presence rule for nexus previously established as a requirement for substantial nexus in those prior cases. Instead, the Court concluded that a business does not have to have a physical presence in a state to satisfy the Commerce Clause. The case was remanded back to the South Dakota Supreme Court to evaluate if the provision meets the other tests for constitutionality under Complete Auto.

While this was a landmark case striking down the physical presence requirement, Wayfair is not a blanket approval of every state's economic nexus policy. The South Dakota provisions had several factors specifically cited by the Court as weighing favorable for upholding. These provisions include a sales threshold, not being retroactive, and South Dakota being a party to the Streamlined Sales and Use Tax Agreement (SSUTA) which reduces the complexity of their laws. Currently, close to half of the states have some form of economic nexus policies on their books and there are several more where the legislation has been introduced. In states where those economic nexus policies don't share the same features as South Dakota's, they may not be viewed as constitutional.

As of today, the states are anything but uniform in their view of how the decision impacts their laws. Some of the ways states are reacting to the decision are: 

  • Kentucky, Hawaii, and Vermont believe their statute meets the requirements under the decision and became effective on July 1, 2018.
  • North Dakota has announced their economic legislation became effective on the date of the decision.
  • Louisiana, Minnesota, Mississippi, South Dakota, and Washington have indicated they will provide updates and guidance regarding their legislation, however Minnesota and Louisiana policies also are already in force.
  • Massachusetts has indicated they do not believe their legislation, which considers cookies on a computer to be a physical presence, is impacted by the decision and that it remains in effect.
  • Missouri, which has only click-through and affiliate nexus provisions, declared they would need specific legislation to simplify their laws before they could begin enforcing economic nexus.

Additionally, Georgia (beg. Jan 1, 2019), Oklahoma, Pennsylvania, Rhode Island, and Washington treat economic nexus as an elected alternative to the nexus and reporting rules they have in place so they may not have to follow the requirements of South Dakota's provision since their provision is an election the taxpayer would need to make for it to be enforced.

Finally, any state which tied their effective date to a decision overturning Quill would likely need to wait until South Dakota disposes of the remand on the case before their provisions could go into effect. Similarly, states like Indiana which has pending litigation of their economic nexus statutes would need to resolve their cases through summary judgement and allow an appeal process to conclude before their statutes could take effect.

In the meantime, advisors and taxpayers should work together to consider what impact this ruling will have on their operations. Although the ruling has been publicized as an issue for online retailers and sellers participating in e-commerce, this decision will impact other business operations, including wholesalers and manufacturers who may currently have no sales tax collection responsibility whatsoever. Those businesses also need to consider what steps they should be taking to address the new sales tax environment they find themselves operating in. As discussed, the ability of states to begin enforcing an economic nexus policy varies wildly and though many states have yet to put this law on their books, there are others where the time to become compliant is quite limited.

For more information, please contact one of our state and local tax specialists in one of our many locations