South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018)\ FACT SUMMARY South Dakota, like many states, taxes the retail sales of goods and services in the state. Sellers are required to collect and remit the tax to the state, but if they do not, then in-state consumers are responsible for paying a use tax at the same rate. Under National Bellas Hess, Inc. v. Department of Revenue of Illinois and Quill Corp. v. North Dakota, South Dakota may not require a business that has no physical presence in the state to collect its sales tax. Consumer compliance rates are notoriously low, however, and it is estimated that Bellas Hess and Quill cause South Dakota to lose between 

$48

and

$58

million annually. Concerned about the erosion of its sales tax base and corresponding loss of critical funding for state and local services, the South Dakota legislature enacted a law requiring out-of-state sellers to collect and remit sales tax "as if the seller had a physical presence in the State." The Act covers only sellers that, on an annual basis, deliver more than

$100,000

 of goods or services into the state or engage in 200 or more separate transactions for the delivery of goods or services into the state. Respondents, top online retailers with no employees or real estate in South Dakota, each meet the Act's minimum sales or transactions requirement but do not collect the state's sales tax. South Dakota filed suit in state court, seeking a declaration that the Act's requirements are valid and applicable to respondents and an injunction requiring respondents to register for licenses to collect and remit the sales tax. Respondents sought summary judgment arguing that the Act is unconstitutional. The trial court granted their motion. The state supreme court affirmed on the ground that Quill is controlling precedent. Respondents appealed to the U.S. Supreme Court.\ SYNOPSIS OF DECISION AND OPINION The U.S. Supreme Court reversed the decision of the state supreme court and ruled in favor of South Dakota. The Court held that the previous precedent using the "physical presence" rule created in Quill was no longer workable due to the advances in the cyberspace marketplace. The Court pointed out that the physical presence rule has long been criticized\ as giving out-of-state sellers an advantage. Each year, it becomes further removed from economic reality and results in significant revenue losses to the states. These critiques underscore that the rule, both as first formulated and as applied today, is an outdated interpretation of the Commerce Clause.\ WORDS OF THE COURT: Precedent "The Quill Court itself acknowledged that the physical presence rule is artificial at its edges. That was an understatement when Quill was decided; and when the day-to-day functions of marketing and distribution in the modern economy are considered, it is all the more evident that the physical presence rule is artificial in its entirety. Modern e-commerce does not align analytically with a test that relies on the sort of physical presence defined in Quill. In a footnote, Quill rejected the argument that title to a few floppy diskettes present in a State was sufficient to constitute a [physical presence]. But it is not clear why a single employee or a single house should create a [physical presence] while 'physical' aspects of pervasive modern technology should not. For example, a company with a website accessible in South Dakota may be said to have a physical presence in the State via the customers' computers. A website may leave cookies saved to the customers' hard drives, or customers may download the company's app onto their phones. Or a company may lease data storage that is permanently, or even occasionally, located in South Dakota. What may have seemed like a clear, bright-line tes[t] when Quill was written now threatens to compound the arbitrary consequences that should have been apparent from the outset. The dramatic technological and social changes of our increasingly interconnected economy mean that buyers are closer to most major retailers than ever before-regardless of how close or far the nearest storefront. Between targeted advertising and instant access to most consumers via any internet-enabled device, a business may be present in a State in a meaningful way without that presence being physical in the traditional sense of the term. A virtual showroom can show far more inventory, in far more detail, and with greater opportunities for\ (continued)\ Legal Foundations\ 13\ \ consumer and seller interaction than might be possible for local stores. Yet the continuous and pervasive virtual presence of retailers today is, under Quill, simply irrelevant. This Court should not maintain a rule that ignores these substantial virtual connections to the State. ...\ Although we approach the reconsideration of our decisions with the utmost caution, stare 

consumer and seller interaction than might be pos- sible for local stores. Yet the continuous and per- vasive virtual presence of retailers today is, under Quill, simply irrelevant. This Court should not maintain a rule that ignores these substantial virtual connections to the State.... Although we approach the reconsideration of our decisions with the utmost caution, stare decisis is not an inexorable command. Here, stare decisis can no longer support the Court's prohibition of a valid exercise of the States' sovereign power. these reasons, the Court concludes that the physi- cal presence rule of Quill is unsound and incorrect. For The Court's decisions in Quill Corp. v. North Dakota and National Bellas Hess, Inc. v. Depart- ment of Revenue of Ill. should be, and now are, overruled." Case Questions 1. What was the "physical presence" test? 2. Why did the Court overrule Quill and National Bellas Hess? 3. Focus on Critical Thinking: What other areas of the law might be affected by technology in the future?