South Dakota v. Wayfair, Inc.
The Supreme Court of South Dakota held that a state law which required certain internet sellers with no physical presence in the state to collect and remit sales tax violated the dormant Commerce Clause. South Dakota does not have a state income tax and derives much of its revenue from the collection of sales tax. Decisions from the U.S. Supreme Court, however, interpreting the Commerce Clause prohibited the state from imposing the obligation of collecting sales tax on sellers with no physical presence in the state. In 2016, the state legislature passed legislation extending such obligation to collect sales tax to those sellers with no physical presence in the state. A number of internet sellers received notice from the South Dakota Department of Revenue informing them of the passage of the law. The sellers did not register for sales tax purposes and the state filed a declaratory judgment action in state court.
The internet sellers sought to remove the state's action to the United States District Court for South Dakota on the basis of federal question jurisdiction but the District Court rejected the removal and remanded the case to a state circuit court. The state circuit court enjoined the state from enforcing the obligation to collect and remit sales taxes on the sellers and the state filed an appeal. On appeal to the Supreme Court of South Dakota the state argued that the Supreme Court should reconsider U.S. Supreme Court precedential case law and that this was the appropriate case for such a reexamination. The Court held that while the state's arguments were persuasive, it did not have the authority to overrule U.S. Supreme Court precedent and that the state law violated the dormant Commerce Clause.