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With Wayfair Decided, Is a Federal Solution Still Needed?

author photo of Sylvia F. Dion

On June 21, 2018, we witnessed history being made when the U.S. Supreme Court issued its opinion in South Dakota v. Wayfair and overturned a 51-year precedent which prior to Wayfair restricted states from imposing their sales tax obligations on out-of-state ("remote") retailers who lacked a physical presence in their state.

There’s been no shortage of reports on this momentous development – that it was narrowly decided (a 5 to 4 decision), that the Supreme Court overturned the physical presence standard (first established in 1967 in National Bellas Hess and re-affirmed in Quill in 1992), and that this decision will (and already has) dramatically changed the sales tax landscape. But just as significant - or even more so - was the Court’s admission that the Quill decision was an “incorrect interpretation of the Commerce Clause” both as first formulated by the Bellas Hess and Quill courts as well as applied today and one which became “further removed from economic reality” each year. Calling Quill flawed on its own terms, the Wayfair Court stated that:

  1. The physical presence rule is not a necessary interpretation of the substantial nexus requirement;
  2. Quill creates, rather than resolves, market distortions; and
  3. Quill imposes the sort of arbitrary, formalistic distinction that the Court’s modern Commerce Clause precedents disavow.

It was for many, the expected outcome. When the Supreme Court granted cert to the Wayfair case in January of this year, I felt certain that high Court would hold in favor of South Dakota and overturn Quill. Justice Kennedy, who wrote the majority opinion on Wayfair, had been very clear in his 2015 opinion in Direct Marketing Association v. Brohl, which dealt with Colorado’s notification and reporting law, that the time had come for the U.S. Supreme Court to reconsider Quill. South Dakota saw this as an invitation to present the Court with a case that challenged Quill and wasted no time enacting its economic nexus law. (Also see my prior post, “Economic Nexus: The ‘New Normal’ or the Demise of Quill?” or this PrietoDion SALT Whitepaper for more on South Dakota’s economic nexus law.)

Despite the many arguments the majority voiced for overturning Quill, Justice Roberts, who authored the dissenting opinion, made a valid point in his dissent. Even if he agreed that the prior Supreme Court decisions (National Bellas Hess and Quill) affirming the physical presence standard were wrongly deciding, the Supreme Court’s majority decision to overturn Quill may have lessened Congress’ motivation to consider the issue. Interestingly, even before reading Justice Robert’s opinion - I wondered the same. Does the Wayfair decision mean the U.S. Congress will be less likely, or more likely, to enact a federal remote seller bill that would place some limits on states power to enact legislation that is even more aggressive than South Dakota’s.

In an effort to further explore what action Congress should take, on July 24th the U.S. House Judiciary Committee held a Congressional hearing to examine the Wayfair decision and its ramifications for consumers and small businesses. Chairman Bob Goodlatte (R-VA), a vocal, proponent of a workable, Congressional solution issued stated prior to the hearing, that “online sales tax is a complicated issue and one which the Supreme Court should have allowed Congress to resolve. The ability to regulate interstate commerce has always been a legislative issue. Our Founders were also clear on the issue of ‘no regulation without representation.’ Unfortunately, the Supreme Court’s recent decision in the Wayfair case violates this founding principle. We are now faced with many unanswered questions.” In an statement issued by Chairman Goodlatte following the Wayfair decision, Goodlatte called the Court's reversal of Quill's physical presence principle "a nightmare for American businesses and small online sellers."  He added that "the dominant issues under debate in this case involved policy, not law. The briefs filed with the Court were filled with discussions of economics, the efficacy of software, trends in the retail industry, and myriad other non-legal questions. Congress is the appropriate institution to resolve these policy questions, not the Supreme Court."   

At the July 24th hearing, testimony by parties on both sides was heard; from those stating that a Congressional solution was still needed to bring uniformity, and from those stating that Congressional action was no longer required now that Wayfair had been decided. (You can hear the entire Judiciary Committee hearing and read each witness’ testimony here.) Whether any Congressional action will come of the hearing, is anyone's guess. The U.S. Congress has been introducing federal remote seller bills almost since Quill was first decided. And two of the proposals currently under consideration, the Marketplace Fairness Act (S. 976) and the Remote Transactions Parity Act (H.R. 2193), have been introduced and re-introduced for the past several years. At this time, none of the four federal remote seller proposals being considered by the U.S. Congress have advanced.   

Prior to and after the decision was announced, I was asked about my thoughts on Wayfair. I noted in this "Reflections On The Supreme Court's Reflections On Sales Tax" article by Peter Reilly, a contributor at, my concern if the physical presence standard was reversed - that the flood gates would open and many more states would see this as an opportunity to enact South Dakota styled laws – focusing solely on revenue and transaction thresholds to assert sales tax nexus. Many states have already enacted economic nexus laws that are virtually identical to South Dakota’s, asserting nexus based on sales of more than $100,000 or 200 or more separate transactions. No other activity need be present. While the $100,000 is a fairly significant revenue threshold – I’m most concerned about the “or 200 or more separate transactions” as this means many smaller online retailers could be impacted by these laws. I was convinced then and even more so now, that many smaller online retailers may find themselves with new registration, collection and remittance duties. 

Indeed, this is exactly what has occurred. Many states have followed South Dakota’s lead and have adopted economic nexus. As of August 1st, more than 25 states have adopted economic nexus. While some states have adopted economic nexus through legislation, others have done so by updating their existing regulations or drafting new economic nexus regulations, and yet others are simply adopting economic nexus through administrative policy.  

If you're wondering which states have adopted economic nexus, we've created a special blog post that includes an Economic Nexus Chart that lists every state that has adopted economic nexus, the economic thresholds (sales and/or transactions in each state), the law's effective date (many of these laws are effective already or will be effective by the end of 2018), as well as links to the different state websites, press releases, FAQs and other state resources where helpful information can be found. (The Economic Nexus chart can be found at this blog post: “States Follow South Dakota: A By-State Guide on Economic Nexus”) This is an extremely helpful resource that we plan to continue to update as new states adopt economic nexus. 

But here's another point, in creating the Economic Nexus chart, I reviewed every bill, regulation and administrative policy document explaining the various states' economic nexus provision and can confirm that there is indeed a real lack of uniformity. For instance, some states base their economic revenue threshold on taxable sales, others mention retail sales, others mention gross sales and other explicitly state that both taxable and exempt sales are to be considered in determining if the sales threshold has been exceeded. The revenue dollar amount also varies by state. While many states have adopted the same "more than $100,000 in sales" used in South Dakota, the revenue threshold in some states is as low as $10,000 and in others, as high as $500,000.  Also, in some states, a remote seller must meet both the revenue AND transactions thresholds, while in other states, meeting either the sales OR transactions threshold will trigger nexus. Which brings us back to the question of whether a Federal solution is needed. In his opening statement at the July 24th hearing, Chairman Goodlatte highlighted that "retailers should not be getting different answers from different states."  With the states reacting at warp speed and the more and more states adopting economic nexus on an almost daily basis, a Congressional solution might just be welcome.   


I'll be continuing this discussion on Economic Nexus and the rapidly changing sales tax landscape.  As noted above, we've published a helpful Economic Nexus chart at our blog post, “States Follow South Dakota: A By-State Guide on Economic Nexus.” But there is so much more happening. Several states have also enacted "marketplace facilitator" laws which require the marketplace to collect, report and remit on behalf of its third-party sellers. Several states have enacted laws which include a several different types of provisions (sort of "catch-all" approach).  I'll be blogging on these other types of provisions and developments too.

And if you're a foreign seller, I've written a post published in the U.S. Sales Tax for Foreign Sellers blog that specifically address the questions and concerns foreign sellers may have. (Please see our "Wayfair & Economic Nexus for Foreign Sellers: Key Sales Tax Questions")  The post is written in an FAQ format and contains helpful guidance not only for foreign sellers, but U.S. sellers as well.

And finally, if you have questions or wish to post a comment, please feel free to do so below. And if you’re uncertain as to how economic nexus impacts your business, or would like to discuss your situation further, please feel free to contact me via the link in my Author's Box below, via the "Consultation Request" box below, or via my firm's webpage here at

About the Author: Sylvia Dion is the Founder and Managing Partner of PrietoDion Consulting Partners LLC, a SALT advisory firm which provides SALT services to businesses in the U.S. and throughout Europe, Canada, Latin American and Australia. Since 2011 Sylvia has served as a contributor to the SalesTaxSupport blogs and currently blogs on Internet Sales Tax, U.S. Sales Tax for Foreign Sellers, and Massachusetts Sales Tax. Sylvia has written articles for State Tax Notes, Bloomberg BNA and other premier tax journals. You can follow Sylvia on twitter and on Google+ and can contact Sylvia via e-mail at

Comments or questions may be submitted by using the on-page "Comment" feature, subject to disclaimer at bottom of page. Other contact options (and Consultation Requests) are also available on Sylvia's associated Firm Profile page.

Other recent “Internet Tax / E-Commerce” posts by Sylvia F. Dion, CPA:

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