Abstract
The passage of time and changing circumstances have rendered the physical-presence requirement articulated in National Bellas Hess, Inc. v. Department of Revenue, 386 U.S. 753, 758 (1967), and Quill Corporation v. North Dakota, 504 U.S. 298, 324-15 (1992), a harmful anachronism. Standard tools of economic analysis that the Court considered in Comptroller of the Treasury v. Wynne reveal that South Dakota’s sales and use tax regime,3 as amended by S.B. 106, promotes neutral treatment of in-state and interstate commerce. By contrast, the bright-line physical-presence requirement set forth in Bellas Hess and Quill forces states to extend what is in practice a discriminatory subsidy in favor of a specific class of out-of-state sellers, namely, those sellers who lack a physical presence within the state. On the facts of the challenged statute, there is no valid economic reason to mandate such a discriminatory subsidy. While there once may have been sufficient concerns as to whether sales tax compliance costs would impose an undue burden on out-of-state sellers so as to justify a bright-line physical-presence rule, such concerns no longer exist here. Given the specific features of South Dakota’s sales and use tax regime and the state’s adherence to the Streamlined Sales and Use Tax Agreement (“SSUTA”), there is no credible argument that the South Dakota tax regime is excessively burdensome on remote sellers. From an economic standpoint, a bright-line physical-presence requirement prohibiting S.B. 106 makes no sense. The Court has, in analogous circumstances, utilized the flexible balancing test articulated in Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970), to assess whether a given state law imposes an undue burden on interstate commerce. Such an approach is warranted here. Under the balancing test, South Dakota’s important state interest in collecting sales taxes outweighs the minimal tax compliance burden on out-of- state sellers. S.B. 106 should therefore be upheld.
Published Version
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