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New South Dakota sales tax rule for out-of-state retailers

During the 2016 South Dakota legislative session, Senate Bill 106 was passed and was signed into law by the Governor. This law became effective May 1, 2016.

This new law requires out-of-state sellers of (a) tangible personal property, (b) products transferred electronically, or (c) services for delivery into South Dakota who normally would not be required to collect and remit South Dakota sales taxes due to not having a physical presence in South Dakota, to collect and remit South Dakota sales tax on such sales if, in the previous calendar year, or so far in the current calendar year:

  1. The seller’s gross revenue from sales into South Dakota exceeded $100,000, or
  2. The seller made sales for delivery into South Dakota in 200 or more separate transactions.

Historically, these types of online or mail-order sellers (think Ebay, Amazon, Overstock, Lands End, etc.) have not been required to collect sales tax from customers physically located in a state in which the seller does not have a “physical presence” (i.e., a physical retail, distribution, or manufacturing location). This “physical presence” standard was a result of a landmark U.S. Supreme Court Case decided in 1992 – Quill Corp. v. North Dakota – in which the Supreme Court upheld the physical presence standard for sales taxes.

The language of this new South Dakota law includes wording that suspends the imposition of the law once the State of South Dakota files a lawsuit against an out-of-state seller who meets the qualifications set forth above and who is not collecting and remitting South Dakota sales taxes from South Dakota customers. The law is suspended until such time that, ultimately, the U.S. Supreme Court reverses its decision in Quill Corp. v. North Dakota.

Well, it didn’t take long for the State of South Dakota to file a lawsuit against an out-of-state seller. On Thursday, April 28 (even before the law became effective), the State of South Dakota filed lawsuits against 4 large online retailers seeking to force them to comply with the new South Dakota law.  The 4 online retailers who were sued were:

  • Newegg, Inc.
  • Overstock.com, Inc.
  • Systemax, Inc.
  • Wayfair, LLC

As a result of the State of South Dakota filing these lawsuits, the new South Dakota law is suspended and the South Dakota Department of Revenue cannot force any out-of-state retailer to comply with the new law until such time the new law is held to be constitutional, ultimately by the U.S. Supreme Court.

Clark Kraemer

Clark Kraemer

CPA, Partner at Ketel Thorstenson, LLP
An Aberdeen, South Dakota native and devoted baseball fanatic, Clark joined Ketel Thorstenson, LLP in November of 2005 after being the director of tax service for RSM McGladrey in Rapid City, South Dakota.
Clark Kraemer

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