South Dakota v. Wayfair, Inc.

In 2016, South Dakota enacted a law requiring out-of-state sellers exceeding certain sales thresholds to collect and remit sales tax, directly challenging the physical presence rule established in Quill Corp. v. North Dakota (1992). Online retailers Wayfair, Overstock, and Newegg sued, arguing the law violated the Commerce Clause. The case reached the U.S. Supreme Court, which on June 21, 2018, ruled 5-4 to overturn Quill. The majority held that the physical presence rule was obsolete and unsound in the modern e-commerce era. The Court upheld South Dakota's law, affirming that states can impose sales tax collection duties on remote sellers based solely on economic nexus. This decision fundamentally altered the interstate taxation framework.

In a 5-4 decision, the U.S. Supreme Court overruled Quill, holding that the physical presence rule is an incorrect interpretation of the Commerce Clause. The Court ruled in favor of South Dakota, allowing the state's economic nexus law to take effect and enabling states to require remote sellers to collect sales tax.

Whether the physical presence rule from Quill Corp. v. North Dakota should be abrogated, and whether the Commerce Clause permits states to require out-of-state sellers with no physical presence to collect and remit sales tax.

The ruling allowed states to capture billions of dollars in previously uncollected tax revenue from online sales, leveled the competitive playing field between brick-and-mortar and e-commerce businesses, and prompted widespread adoption of economic nexus laws across the United States. It marked a transformative shift in state taxation authority in the digital age.