![]() (2) They also animate Commerce Clause precedents addressing the validity of state taxes, which will be sustained so long as they (1) apply to an activity with a substantial nexus with the taxing State, (2) are fairly apportioned, (3) do not discriminate against interstate commerce, and (4) are fairly related to the services the State provides. ![]() These principles guide the courts in adjudicating challenges to state laws under the Commerce Clause. (1) Two primary principles mark the boundaries of a State’s authority to regulate interstate commerce: State regulations may not discriminate against interstate commerce and States may not impose undue burdens on interstate commerce. (a) An understanding of this Court’s Commerce Clause principles and their application to state taxes is instructive here. Held: Because the physical presence rule of Quill is unsound and incorrect, Quill Corp. The State Supreme Court affirmed on the ground that Quill is controlling precedent. Respondents sought summary judgment, arguing that the Act is unconstitutional. 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, 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. ![]() 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. 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. 298, South Dakota may not require a business that has no physical presence in the State to collect its sales tax. 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. South Dakota, like many States, taxes the retail sales of goods and services in the State. Any remaining Commerce Clause concerns may be addressed on remand. Without the physical presence test, the first inquiry is whether the tax applies to an activity with a substantial nexus with the taxing state. The Commerce Clause requires “a sensitive, case-by-case analysis of purposes and effects,” to protect against any undue burden on interstate commerce, taking into consideration the small businesses, startups, or others who engage in commerce across state lines. A business need not have a physical presence in a state to satisfy the demands of due process. ![]() That rule gave out-of-state sellers an advantage and each year becomes further removed from economic reality and results in significant revenue losses to the states. The Supreme Court vacated, overruling the physical presence rule established by its decisions in Quill (1992), and National Bellas Hess (1967). State courts found the Act unconstitutional. South Dakota enacted a law requiring out-of-state sellers to collect and remit sales tax, covering only sellers that annually 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. Consumer compliance rates are low it is estimated that South Dakota lost $48-$58 million annually. Under earlier Supreme Court decisions, states could not require a business that had no physical presence in the state to collect its sales tax. Sellers are required to collect and remit the tax if they do not in-state consumers are responsible for paying a use tax at the same rate. Many states tax the retail sales of goods and services in the state. ![]()
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