SD Decision Sets Up Final Step for SCOTUS Challenge to Quill

The tax advantage currently enjoyed by many online retailers may soon be coming to an end. A ruling today by the South Dakota Supreme Court increases the likelihood that the United States Supreme Court will have the opportunity to revisit Quill Corp v. North Dakota, a 1992 decision that forbade states from requiring retailers without a physical presence to collect sales tax. The decision, which pre-dated modern e-commerce, created a loophole for online retailers to exploit at the expense of brick and mortar retailers.  Overturning Quill would close the harmful loophole and treat all businesses equally, whether they are online or on Main Street. 

In the twenty-five years since the original decision, online commerce has exploded. Retailers, cities and states across the country have aggressively pursued solutions to end the distinct competitive advantage given growing e-commerce giants over brick and mortar stores. But a nationwide solution has been elusive, and despite more than a quarter century of debate, Congress has yet to solve the problem. The twin impact of fewer brick and mortar storefronts and lost sales tax revenue has drained state and local coffers of billions in revenue every year. As a result, many states and local governments have had to raise other taxes to make up for the special tax treatment currently afforded many online transactions.  

"The artificial price advantage created by the United States Supreme Court in Quill has done significant damage to thousands of brick and mortar retailers, and meant billions in lost revenue for state and local governments," said Retail Litigation Center President Deborah White. "By revisiting Quill, the Court can restore free market competition and return to the basic principles of federalism that allow states to handle issues of local taxation." 

Today’s decision from the South Dakota Supreme Court stems from a statute passed in 2016 by the South Dakota Legislature designed to challenge Quill directly. The law, passed overwhelmingly by the Legislature and signed by Governor Dennis Daugaard, requires out-of-state retailers to collect and remit sales tax if they transact more than $100,000 of business in the state or more than 200 sales.  

The law was signed roughly one year after U.S. Supreme Court Justice Anthony Kennedy recognized in his concurring opinion in DMA v. Brohl that, "[t]he Internet has caused far-reaching systemic and structural changes in the economy" so that "a business may be present in a State in a meaningful way without that presence being physical in the traditional sense of the word."   

Noting the significant economic harms that were befalling state treasuries and local retailers, Justice Kennedy said that "it is unwise [for the US Supreme Court] to delay any longer a reconsideration of the Court's holding in Quill" and asked the "legal system [to] find an appropriate case for this Court to reexamine Quill." 

The state high court here did the only thing that it could do: recognize that Quill is the law of the land and defer to the U.S. Supreme Court to reconsider its precedent, which is what the state requested:   

“Quill remains the controlling precedent on the issue of Commerce Clause limitations on interstate collection of sales and use taxes. We are mindful of the Supreme Court’s directive to follow its precedent when it “has direct application in a case” and to leave to that Court “the prerogative of overruling its own decisions.” Rodriguez de Quijas v. Shearson/American Exp., Inc., 490 U.S. 477, 484, 109 S. Ct. 1917, 1921-22, 104 L. Ed. 2d 526 (1989).” 

The decision was swift and sets up the state’s ability to bring the decision quickly to the U.S. Supreme Court. 

“The combination of Justice Kennedy’s opinion in Brohl and the South Dakota Supreme Court’s quick but complete dispatch of the case significantly enhance the chances that the U.S. Supreme Court will agree to consider the case during the next Term,” said White, who also serves as General Counsel of the Retail Industry Leaders Association.   


The Retail Litigation Center is a public policy organization that identifies and engages in legal proceedings that affect the retail industry.  The RLC, whose members include some of the country's largest retailers, was formed to provide courts with retail industry perspectives on significant legal issues and highlight the potential industry-wide consequences of legal principles that may be determined in pending cases. 

RILA is the trade association of the world's largest and most innovative retail companies. RILA members include more than 200 retailers, product manufacturers, and service suppliers, which together account for more than $1.5 trillion in annual sales, millions of American jobs and more than 100,000 stores, manufacturing facilities and distribution centers domestically and abroad. 

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