South Dakota’s “Kill Quill” law mandates that out-of-state merchants must pay sales tax when they serve South Dakota customers. South Dakota enacted this law as an invitation for lawmaking by judges because Congress had not seen fit to award states these new tax powers.
Citing the Commerce Clause of the US constitution, the US Supreme Court in North Dakota v. Quill (1992) held that tax collectors cannot force out-of-state businesses to pay sales tax. The Supreme Court saw that forcing businesses with no physical presence in a state to collect and remit sales taxes was an unreasonable burden on interstate commerce.
South Dakota’s SB 106 was designed by lawyers to petition the US Supreme Court to reverse its prior decision in Quill. After SB 106 was enacted in 2016, NetChoice and the American Catalog Mailers Association sued the state. At the same time, South Dakota sued several large online retailers. A state court blocked enforcement of the law pending further review of the constitutional question.
While the South Dakota state Supreme Court agreed that the state’s law was unconstitutional, the US Supreme Court is reconsidering this decision and is likely to issue a ruling by June.
Hopefully for America’s small businesses who sell online, the US Supreme Court won’t reverse physical presence standard that has held since the days of Montgomery-Ward catalogs. A reversal of Quill would create chaos for every business who sells online. Overnight, any retailer with a website store would be subject to tax audits from 46 states and could be held liable for retroactive taxes on sales made years ago – a cost many small businesses wouldn’t be able to afford.
If Quill falls, every business in America would have to track tax rates for over 12,000 different local tax jurisdictions and apply rules and file returns in 46 states. This would be like forcing a brick and mortar store in Montana to follow and file on New York’s tax rules just because a New Yorker bought something at the store.
Similar laws and regulations have been adopted in other states too – and NetChoice has filed lawsuits in Indiana, Tennessee, and Wyoming. And this year, New Mexico and Hawaii advanced legislation to challenge Quill.
South Dakota’s Kill Quill bill is #1 on iAWFUL not only because it discriminates against businesses who sell online, but also because it could upend decades of legal precedent that protects retailers from being subject to every sales tax regime in the country.
In its review of South Dakota’s law, the U.S. Supreme Court could overturn Quill and lead to sales tax chaos for any business who goes online to serve its customers.