Impact of landmark sales tax case difficult to calculate five years later

2018 Supreme Court decision affirmed right to collect from ‘remote sellers’

By: - July 21, 2023 3:50 pm
Amazon Public Relations Manager Scott Seroka explains a sorting system during a tour of the company's Sioux Falls fulfilment center on Feb. 16, 2023. (John Hult/South Dakota Searchlight)

Amazon Public Relations Manager Scott Seroka explains a sorting system during a tour of the company’s Sioux Falls fulfilment center on Feb. 16, 2023. The company, which formerly had no physical location in South Dakota but now does, is an example of why the impact of "remote seller" sales tax collections is difficult to pin down. (John Hult/South Dakota Searchlight)

South Dakota has pulled in more than $416 million in sales tax revenue from “remote sellers” since winning a case in the U.S. Supreme Court over the right to collect it.

That figure, however, does not represent the financial impact of South Dakota vs. Wayfair, which five years ago paved the way for states all across the country to force certain online retailers to pay their share of state sales taxes.

Sketch of South Dakota Attorney General Marty Jackley in front of the U.S. Supreme Court in South Dakota v. Wayfair case on April 17, 2018. (Sketch by Al Lien, courtesy of South Dakota Attorney General's office)
Sketch of South Dakota Attorney General Marty Jackley in front of the U.S. Supreme Court in the South Dakota v. Wayfair case on April 17, 2018. (Sketch by Al Lien, courtesy of South Dakota Attorney General’s Office)

The state Department of Revenue is unable to calculate how much of the $416 million figure was a direct result of the Wayfair case.

The reason is tied to what a “remote seller” is, what the Wayfair decision did, and the slippery categories for online sales tax collections, both before and after the case was decided.

Wayfair challenged the notion that for retailers without a “physical presence” in a state – think stores, offices and in-state sales staff – the collection and remittance of sales taxes represents an “undue burden” that unfairly harms constitutionally protected interstate commerce.

Until Wayfair, that notion was the law of the land, as decided in the 1992 case Quill vs. North Dakota. 

In 2016, South Dakota lawmakers purposely passed a law directly at odds with the Quill decision, with the express purpose of challenging it. In its legal briefs, South Dakota argued that it was missing out on between $48 million and $58 million in annual revenue.

In 2018, the state won its case, which was argued by Attorney General Marty Jackley and bolstered by “friend of the court” briefs from a host of states and supportive organizations.

Jackley, who launched an unsuccessful bid for governor in 2018 but has since been re-elected as South Dakota’s attorney general, sent a press release in June commemorating the fifth anniversary of the victory “for states’ rights and fairness for Main Street businesses.” The win was a team effort, he said.

“This case could not have been brought forth without the support of former Gov. Dennis Daugaard, legislators, the South Dakota Retailers Association, education leaders, and others,” Jackley said in the release.


‘Remote seller’ category a moving target

Whether the state has benefitted from the Wayfair windfall to the level its legal briefs suggested is an open question.

In truth, South Dakota had been collecting sales taxes from some “remote sellers” for more than a decade before Jackley stepped before the Supreme Court to assert its right to do so.

Prior to the Wayfair case, some remote sellers had voluntarily remitted sales taxes, either registering directly with the state or with the Streamlined Sales Tax Governing Board, a multi-state nonprofit that works to simplify state-level sales tax collections for online sellers. From January of 2018 to July 2018, the month Wayfair was decided, South Dakota had already pulled in nearly $30 million in remote seller sales tax revenues.

But the number of remote sellers is ever-changing, because of companies like Amazon. The company began to voluntarily remit sales taxes as a remote seller after the 2016 law took effect. It opened a warehouse in Sioux Falls last year, which moved it out of the remote seller category and into the same sales tax category as Walmart, Scheels, Best Buy and other retailers with a physical presence in the state. 

In other words, the number of “remote sellers” registered either with Streamline or directly with the state for taxation purposes is a moving target. 

That, in turn, means that the $416 million in remote seller sales tax revenues collected since Wayfair is not an exact reflection of the case’s fiscal impact. It also means that the $42 million in total remote sales tax growth since January of 2019 is a similarly inexact reflection.

Confusion upends hope of tax relief after Wayfair

That reality hampered the Legislative Research Council’s efforts to determine whether the provisions of a 2016 tax compromise known as the Partridge amendment ought to kick in.

The compromise was inked to secure passage of a sales tax hike meant to boost teacher salaries. It required the state to lower its sales tax rate by .1% for every $20 million in additional remote seller sales tax revenue generated after a victory in the Wayfair case. 

But the amendment only mentioned revenue growth specifically from “remote sellers,” calculated after such sellers were “obligated” to remit taxes.

Prior to Wayfair and the fall 2018 special legislative session that cleared a path for tax collections, remote sellers had no such obligation, putting any growth in voluntary tax remittances outside the bounds of the Partridge amendment. That same 2018 special session saw the creation of a taxable category of business called a “marketplace provider,” that acts as a go-between for sellers and buyers.

“Marketplace providers” like eBay are taxed like remote sellers, but state law’s definition of such businesses does not include the term “remote seller,” putting tax revenues from companies like eBay outside the bounds of the $20 million growth calculations.

The LRC concluded in its November 2019 report on the matter that the intermingling of retailer categories and a lack of guidance on which agency should make the call on revenue growth stood in the way of analysts’ ability to offer an authoritative judgment on whether remote seller revenues were high enough to trigger tax relief.

The Patridge amendment “is silent regarding who makes the determination of whether each increment of $20 million is reached for purposes of triggering the required reduction in sales tax rates,” the report reads.

The Partridge amendment was struck from the law by the 2023 legislature, which passed a bill to lower the state sales tax rate from 4.5% to 4.2%. Gov. Noem signed that bill, and the lower rate took effect at the start of this month.

Growth in registrants, sales tax revenues 

While the remote seller tax figures themselves aren’t definitive, some of the players involved in bringing the case to the Supreme Court point to a handful of figures they say offer proof of its value to state budgets.

Deb Peters was a Senate leader in 2016 and the prime sponsor of the bill that would lead to the Wayfair case. She began to work with the Streamlined Sales Tax Governing Board in the mid-2000s to help make sure the state’s tax laws fit within the nonprofit’s framework. 

Peters acknowledged the difficulty in pinning down Wayfair’s effect on state coffers, but suggested that overall sales tax growth could offer a hint.

In 2015, the year before lawmakers opted to force the remote seller sales tax issue, overall sales tax growth stood at 3.53%. Collections dropped for the two years that followed, then jumped to 6.01% in 2018. Growth hit a high of 13.66% in 2021.

“I would argue that a majority of that growth is tied to South Dakota vs. Wayfair,” Peters said.

Peters also pointed out that Wayfair was a culmination of years of effort in South Dakota and elsewhere, and that a handful of other states passed or considered legislation similar to South Dakota’s to force the issue at the Supreme Court level. 

Those national efforts to realign sales tax expectations for online retailers in light of consumers’ changing shopping habits, she said, likely pushed retailers to work with the Streamlined group to collect and remit taxes or to register with the state.

“The writing was on the wall,” Peters said.

Craig Johnson, meanwhile, offered a few other numbers as proof of impact. Johnson is director of the Streamlined Sales Tax Governing Board, and he said the impact is evident in the number of companies registered through his organization.

Before Wayfair, Johnson’s group had 4,000 companies registered to remit sales taxes to the 24 states who are members of the compact. Today, the number is “pushing 25,000,” Johnson said.

That figure includes 9,750 remote sellers registered to do business in South Dakota through Johnson’s organization. Another 11,504 remote sellers are registered directly with the state, according to the Department of Revenue. Spokeswoman Kendra Baucom said the number of registrants in prior years was not available.


Johnson also pointed to a nationwide growth in remote seller tax collections through Streamline. Before Wayfair, he said, the group funneled between $400 million and $500 million each year to states from remote sellers. 

“Now they’re bringing in more than $2 billion a year,” Johnson said.

A South Dakota Searchlight records request on remote sellers sent to the South Dakota Department of Revenue revealed a trend of growth, but the growth wasn’t quite as dramatic. 

The figures show a jump from $58.4 million in 2018, the last year with voluntary remittal for remote sellers, to $90.8 million in 2022. 

Cities, meanwhile, pulled in $37.6 million in 2022 sales tax revenue from remote sellers. In 2018, the number was $26.8 million.

Johnson and Peters each mentioned one other complicating factor for sales tax collections: the COVID-19 pandemic. With shoppers staying home for much of 2020 and much of 2021, Johnson said, states might have seen severe losses without remote seller revenue.

For states like South Dakota that lack an income tax and rely solely on sales tax money, the impact could have been dramatic.

“Had Attorney General Jackley not been successful, I’m not sure where those states would have come down with the COVID pandemic,” Johnson said.

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John Hult
John Hult

John is the senior reporter for South Dakota Searchlight. He has more than 15 years experience covering criminal justice, the environment and public affairs in South Dakota, including more than a decade at the Sioux Falls Argus Leader.