United States

South Dakota: State Circuit Court Rules in Favor of Internet Retailers in Economic Nexus Dispute

Mar 13, 2017
From KPMG TaxWatch

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On March 6, 2017, a state trial court judge ruled in favor of three Internet retailers in a case challenging the constitutionality of the state’s economic nexus sales tax standard. Specifically, the court granted the retailer-defendants’ motion for summary judgment, which means the litigation will next advance to the South Dakota Supreme Court. Recall, South Dakota Senate Bill 106 (2106), which became effective May 1, 2016, requires sellers with over $100,000 of gross revenue from sales of tangible personal property, products delivered electronically, or sales of services into South Dakota, or sellers engaging in two hundred or more separate South Dakota sales transactions, to collect and remit state and local sales and use tax. The economic nexus law directly contradicts the physical presence rule articulated in Quill.

After some back and forth over whether the case should be in federal or state court, the case was remanded back to state circuit court on January 17, 2017.  In its rather short March 6 order, the court noted that, under Quill, the state is prohibited from imposing sales tax collection and remittance requirements on the defendant retailers. Furthermore, the judge noted that he was bound to follow U.S. Supreme Court precedent, even when “changing times and events clearly suggest a different outcome.” “It is simply not the role of a state circuit court to disregard a ruling from the United States Supreme Court.” The court ordered that the parties will bear their own costs. The Department of Revenue is enjoined from enforcing the collection requirements against other retailers unless and until there is a ruling in its favor. On March 1, 2017, similar legislation (House Bill 19) was signed into law in Wyoming and similar bills are pending in several other states. Please stay tuned to TWIST for future updates.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.