In South Dakota v. Wayfair, Inc., decided June 21, 2018, the Supreme Court ruled 5-4 that a state can require an out-of-state business to collect its sales tax based on the seller’s economic activity in the state, without any physical presence there. The decision overturned a rule that had stood since 1967 and reshaped how online and other remote sellers handle sales tax across the country.1Supreme Court of the United States. South Dakota v. Wayfair, Inc. (06/21/2018)
What the Court Changed
Before Wayfair, a state could only make a business collect its sales tax if the business had a physical foothold there: an office, a warehouse, inventory, or employees. The Supreme Court set that standard in National Bellas Hess, Inc. v. Department of Revenue of Illinois in 1967 and reaffirmed it in 1992 in Quill Corp. v. North Dakota, which involved an office supply company that sold into the state by catalog but had no outlets or sales representatives there. Under Quill, a seller whose only contacts with a state were by mail or common carrier lacked the “substantial nexus” the Commerce Clause requires.2Justia Law. Quill Corp. v. North Dakota, 504 U.S. 298 (1992)
That rule meant an online retailer with no in-state property or staff could sell into a state without charging sales tax, while a local store down the street had to collect on every purchase. Buyers technically owed a “use tax” on untaxed purchases, but almost no one paid it. The Court’s own opinion in Wayfair cited estimates that states were losing between $8 billion and $33 billion a year in uncollected tax.1Supreme Court of the United States. South Dakota v. Wayfair, Inc. (06/21/2018)
South Dakota passed a 2016 law designed to force the Supreme Court to revisit the question. It required out-of-state sellers to collect the state’s sales tax if, in the current or previous calendar year, they either exceeded $100,000 in gross revenue from sales delivered into the state or completed 200 or more separate transactions for delivery into the state. The law barred retroactive application. South Dakota then sued three large online retailers that met the thresholds but had no employees or real estate in the state: Wayfair, Overstock.com, and Newegg.3South Dakota Legislature. 2016 Senate Bill 106
Why the Court Ruled the Way It Did
Justice Anthony Kennedy wrote for the majority, joined by Justices Thomas, Ginsburg, Alito, and Gorsuch. The opinion called the physical presence rule “unsound and incorrect” and overturned both Quill and National Bellas Hess. A large online retailer’s virtual presence in a state, Kennedy wrote, could be just as economically meaningful as a brick-and-mortar store, and the physical presence requirement was the kind of “arbitrary, formalistic distinction” the Court’s modern Commerce Clause cases had moved away from.1Supreme Court of the United States. South Dakota v. Wayfair, Inc. (06/21/2018)
The Court treated South Dakota’s law as a reasonable model. Its revenue and transaction thresholds limited the collection obligation to sellers with meaningful activity in the state. The ban on retroactive enforcement protected sellers from surprise liability. And South Dakota’s membership in the Streamlined Sales and Use Tax Agreement made compliance easier through shared systems. Together, those features satisfied the Court that the law did not unduly burden interstate commerce.
Chief Justice Roberts dissented, joined by Justices Breyer, Sotomayor, and Kagan. The dissenters did not defend the old rule on its merits. They argued that Congress, not the Court, was the right body to change it, warning that “any alteration to those rules with the potential to disrupt such a critical segment of the economy should be undertaken by Congress.”
How Economic Nexus Works
In place of physical presence, the Court approved economic nexus: what matters is the volume of a seller’s sales or transactions in a state, not whether the seller owns property or employs anyone there. South Dakota’s figures — $100,000 in sales or 200 transactions in a calendar year — became the template that most states copied, though the Court did not require a single national threshold. States remain subject to two Commerce Clause limits: their tax laws may not discriminate against interstate commerce, and they may not impose undue burdens on it.
Every state with a general sales tax has since adopted an economic nexus law. Five states have no general sales tax and therefore no economic nexus requirement: Alaska, Delaware, Montana, New Hampshire, and Oregon. Alaska is a partial exception, because its municipalities can impose their own sales taxes, and some Alaska localities require remote seller collection through a multistate compact.
Thresholds have shifted since 2018. At least 15 states, including South Dakota itself, have dropped the 200-transaction trigger entirely and now rely only on revenue. Illinois joins them effective January 1, 2026. The reason is practical: a seller with hundreds of small orders can clear 200 transactions on just a few thousand dollars of revenue, and the paperwork cost of registering, filing, and remitting in that state can swamp the tax at stake. Revenue levels also vary. Most states use $100,000, but some set theirs higher or lower, so where your collection duty starts depends on each state’s current rule.
What This Means If You Sell Through a Marketplace
If your sales go through Amazon, eBay, Etsy, or a similar platform, your compliance load is lighter than it looks. Every state with a sales tax now has a marketplace facilitator law requiring the platform, not the individual seller, to calculate, collect, and remit the tax on transactions it facilitates. Amazon, for instance, handles collection and remittance on orders shipped to states where marketplace tax collection applies, and sellers do not remit those taxes again.4Amazon. US Marketplace Tax and Regulatory Fee Collection FAQ
You are not entirely out of it. You may still have a reporting obligation for taxes the platform collected on your behalf, and the platform does not handle income or gross receipts taxes that the same sales may trigger. If you sell through a marketplace and also sell directly from your own website, you have to track each channel separately: direct sales are your responsibility to tax. Some states let a seller whose entire volume runs through a marketplace request non-reporting status for sales tax while staying registered.
What Direct Remote Sellers Have to Do
If you ship to customers across state lines outside of a marketplace, the compliance cycle looks the same in every state, with the details filled in state by state.
- Monitor your revenue and, where it still applies, your transaction count in each state. Once you cross the threshold, the collection duty begins.
- Register for a sales tax permit with the state’s tax authority before you start collecting. Most states charge nothing to register; a few charge small application fees.
- Collect the right rate. Sales tax rates vary by state, city, county, and special taxing district, and a single state can contain hundreds of combinations keyed to the delivery address.
- File returns and remit on the schedule the state assigns you, which may be monthly, quarterly, or annually depending on volume.
About half the states participate in the Streamlined Sales and Use Tax Agreement, which offers a central registration system covering multiple states at once with no registration fees, free electronic databases for rates and jurisdiction boundaries, and liability protection for sellers who rely on those databases in good faith. Member states also recognize certified service providers that can handle the whole calculation-and-remittance process.5Streamlined Sales and Use Tax Agreement. Streamlined Sales and Use Tax Agreement In non-Streamlined states compliance is more manual, which is why many sellers use commercial tax automation software.
If You Already Missed the Threshold
A seller who crosses a state’s threshold and fails to register faces the same consequences as any business that owes tax it hasn’t remitted: back taxes for the noncompliance period, interest, and penalties that are usually a percentage of the tax due. The specifics vary by state.
Businesses that realize they should have been collecting have an important option. The Multistate Tax Commission runs a Multistate Voluntary Disclosure Program through which a seller can come forward, register, and pay back taxes for a limited lookback period in exchange for the state waiving penalties and forgiving liability for anything before the lookback window.6Multistate Tax Commission. Multistate Voluntary Disclosure Program Procedures Many states also run their own voluntary disclosure programs on similar terms. Timing matters: once a state contacts you about a potential obligation, you generally lose access to voluntary disclosure for that tax type.
Beyond Sales Tax
Wayfair itself was a sales tax case, but its reasoning has traveled. Many states have adopted or expanded economic nexus standards for corporate income tax and franchise tax, applying similar logic: enough revenue from a state can create a filing duty there, with no physical presence required. The Multistate Tax Commission’s model statute sets factor presence thresholds for income tax nexus at $50,000 in property, $50,000 in payroll, or $500,000 in sales within a state, and several states have adopted versions of it with their own numbers.
The practical takeaway is that crossing a sales tax threshold in a state is a signal to check whether the same volume also creates an income or franchise tax obligation there. Those are separate taxes with their own registrations and filings.
Congress Has Not Set a National Rule
Despite the dissent’s call for Congress to act, no federal legislation has established a uniform national framework for remote sales tax collection. A Government Accountability Office report noted that as of early 2026 no comprehensive bill had been introduced, though a Senate subcommittee held hearings in 2024 and a legislative discussion draft was circulated. The GAO concluded that “a comprehensive approach has yet to be adopted” to the multistate complexities sellers now face.7U.S. Government Accountability Office. Remote Sales Tax: Federal Legislation Could Resolve Some Complexities
Until that changes, compliance stays a patchwork. Each state sets its own thresholds, defines its own tax base, and runs its own registration and filing systems. The Streamlined Sales Tax Agreement smooths things out in participating states, but it covers only part of the country, and the burden of navigating 46 different sales tax regimes sits with the sellers.