South Dakota Takes NCSL Challenge, Enacts Sales Tax Nexus Law

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In February, we discussed how the National Conference of State Legislatures (NCSL) circulated a letter to all the states encouraging them to enact laws to challenge the physical-presence standard for sales tax nexus articulated in Quill v. North Dakota. On March 22, South Dakota heeded the NCLS’s call when Gov. Dennis Daugaard signed SB 106.

SB 106 imposes a sales tax collection obligation on out-of-state sellers “as if the seller had physical presence in the state,” provided that the seller meets one of two conditions: (1) the seller’s gross revenue from taxable products or services delivered into South Dakota exceeds $100,000; or (2) the seller sells taxable products or services for delivery into South Dakota in 200 or more separate transactions. The collection obligation attaches if a seller exceeds either of the thresholds in the current calendar year or the prior calendar year.

SB 106 makes clear that South Dakota intends to challenge Quill. Section 8 of the bill enacts a number of legislative findings, including the following: “As Justice Kennedy recently recognized in his concurrence to Direct Marketing Association v. Brohl, the Supreme Court of the United States should reconsider its doctrine that prevents states from requiring remote sellers to collect sales tax. . . .”

In addition, SB 106 creates procedures designed to expedite a legal challenge to its provisions. The state may bring a declaratory judgment action against any seller the state believes is subject to the bill’s provisions. Such an action creates an automatic injunction against enforcing the collection obligation while the case is resolved, and the case must be heard “as expeditiously as possible” by a court. Appeals go directly to the South Dakota Supreme Court, which must also hear the case expeditiously.

We will be watching to see how swiftly SB 106 creates a challenge to Quill. Though South Dakota is sure to act quickly, a viable legal challenge will require taxpayer who refuses to concede to South Dakota’s jurisdiction. We think one will come along sooner rather than later.

Maybe it’s you.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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