Remote Sales Tax Collection



Last June, the U.S. Supreme Court handed down a landmark decision in South Dakota v. Wayfair, eliminating the requirement that businesses must be physically present in a state before their sales can be taxed and granting states the ability to collect taxes from out-of-state internet retailers.

For nearly two decades, NCSL has championed the efforts in Congress and in the states to fix the remote sales tax issue. It is no surprise that then-NCSL President, Senator Deb Peters (S.D.), carried the 2016 legislation that spurred the legal challenge and resulted in a victory for state tax modernization.  

The case centered around a South Dakota law that required out-of-state remote sellers with a certain number of sales into the state to collect and remit sales taxes. The court sided with South Dakota because the state showed that such a requirement was not overly burdensome for interstate sellers. The majority made specific note of the fact that South Dakota’s law was not retroactive and provided a safe harbor for smaller remote vendors. They also noted, in response to concerns that the collection requirement will be overly complex for small businesses, that South Dakota has signed on to the Streamlined Sales and Use Tax Agreement, which standardizes taxes across states to lower compliance costs, requires state-level tax administration, and provides internet vendors with access to sales tax administration software paid for by the state. Sellers who use the software are immune from audit liability. 

Based on the court ruling, and judging by states’ responses in the aftermath, South Dakota’s SB 106 is the standard for states looking to tax sales made by out-of-state remote sellers. For any states that might consider retroactivity, don’t include a safe harbor provision, or otherwise overly burden interstate commerce through other features of their tax systems, there is the potential for additional litigation. States that do not have clear authority to require remote sellers to collect tax may need to develop legislation that will ensure a level playing field for all businesses. 

Streamlined Sales and Use Tax Agreement

When the Supreme Court initially entrenched the physical nexus requirement in the 1992 case of Quill v. North Dakota, it took particular issue with the complexity of many state sales tax systems and the burden that would be imposed on an out-of-state retailer in determining the tax owed. To respond to these concerns, the National Governor’s Association and the National Conference of State Legislatures created the Streamlined Sales and Use Tax Project to simplify state sales tax collection and provide justification for Congress to act and overturn the court’s decisions.

The project brought together legislators, tax administrators and private sector representatives from 35 states and produced The Streamlined Sales and Use Tax Agreement (SSUTA). The SSUTA simplifies the registration process for businesses that need to register in multiple sales tax-levying states. The agreement includes common sales tax-related definitions and rules, along with simplified rate structures, as a way to reduce burdens on smaller remote sellers. The SSUTA also exempts smaller remote sellers from tax collection responsibilities and provides all participating remote sellers free tax software.

There are currently 23 full-member SSUTA states. Tennessee is an “associate member” and will come into full compliance by July 1, 2019. The top six sales tax collection states by population—California, Texas, Florida, New York, Illinois, and Pennsylvania—have not joined the agreement so far.

State Action on Remote Sales Tax Collection

Following the U.S. Supreme Court’s decision, numerous states with a sales tax and the District of Columbia have taken some kind of action to enforce remote sales tax collection. As of January 1, 43 states and the District of Columbia currently require remote sales tax collection. States that have taken legislative action post-Wayfair have been primarily modeling their laws after South Dakota, but some collection efforts have been led by departments of revenue if statutory authority was already provided. NCSL’s Executive Committee Task Force on State and Local Taxation developed principles for state implementation after South Dakota v. Wayfair.

Remote Sales Tax Collection



 No State Sales Tax

 Collection Required

 Collection Not Required

Note: This map highlights states that require remote sales tax collection. States that allow businesses to elect to collect or report are not included in the “collection required” group.

South Dakota v. Wayfair


  • Jan. 27, 2016

    Senator Deb Peters (R-S.D.) introduced Senate Bill 106 in the South Dakota Legislature. S.B. 106 (2016) requires remote sellers that 1) have more than $100,000 of annual sales in South Dakota, or 2) engage in 200 or more separate transactions with South Dakota customers, to collect and remit the state’s sales tax.

  • March 22, 2016

    South Dakota Governor Dennis Daugaard (R) signed S.B. 106 into law.

  • March 25, 2016

    The South Dakota Department of Revenue sent notices to 206 sellers it identified as meeting the statutory requirements of S.B. 106. The notice required the sellers to register for a license to collect and remit state sales tax by April 25, 2016. 

  • April 28, 2016

    The state filed declaratory judgement action against the retailers Wayfair, Overstock, Newegg and Systemax for not collecting sales taxes and were therefore in violation of S.B. 106. (Systemax did not challenge the state and followed through with registering to collect sales tax for purchases made by South Dakota residents.) The other three companies refused to comply, arguing that they were not required to collect per Quill.

  • March 6, 2017

    The South Dakota 6th Judicial Circuit ruled that the state’s economic nexus regime ( S.B.106) is unconstitutional.

  • Sept. 13, 2017

    The South Dakota Supreme Court upheld the lower court’s ruling that S.B. 106 was unconstitutional.

  • Oct. 2, 2017

    South Dakota petitioned the U.S. Supreme Court to hear the case.

  • Jan. 12, 2018

    SCOTUS granted South Dakota’s petition.

  • April 17, 2018

    SCOTUS heard oral arguments.

  • June 21, 2018

    SCOTUS rules in favor of South Dakota and overturns Quill.

Failure by Congress to fix the remote sales tax issue is what led the state of South Dakota, in 2016, to enact Senate Bill 106, legislation authored by then-NCSL President Deb Peters (R-S.D.) that disregarded the physical presence precedent established by Quill with the intent of forcing a legal challenge in the hopes of ultimately overturning Quill.

From Legislation to Litigation: South Dakota’s Journey to the Supreme Court

South Dakota Senate Bill 106 (2016) was an economic nexus bill, meaning that, for the purposes of sales tax collection, a business presence in the state would now be based on a business’ economic activity, rather than if it had a physical footprint. The legislation required businesses that 1) sell more than $100,000 in goods, or 2) process 200 or more transactions a year into South Dakota to collect and remit the state’s sales taxes. The legislation was clearly written to force a legal challenge aimed to ultimately overturn the U.S. Supreme Court’s 1992 Quill vs. North Dakota decision as the legislation included what is tantamount to a legal brief into the bill.

Additionally, S.B. 106 established procedures designed to expedite a legal challenge to its provisions. The enacted law states that if its legality is challenged, the case must be heard “as expeditiously as possible” by a state circuit court. Appeals would then go directly to the South Dakota Supreme Court—South Dakota does not have a court between the State Circuit Court and the State Supreme Court—which must also hear the case expeditiously. (These provisions are ultimately why, in less than two years from enactment, litigation challenging the law's constitutionality quickly worked its way through the state courts and was then appealed to the U.S. Supreme Court for consideration.)

Before the law became effective, the state sent letters to just more than 200 online retailers to let them know that they would either need to start collecting and remitting applicable sales tax or risk legal action. At that point, 70 remote sellers applied for a sales tax license and started collecting the state’s sales tax. However, not every online retailer complied. The state then filed a complaint in court alleging that certain online retailers met the criteria in Senate Bill 106 and that the defendant retailers should be required to collect and remit tax on sales into the state.

The defendants—the out-of-state sellers required to collect sales and use tax under Senate Bill 106—argued in South Dakota Circuit Court and before the South Dakota Supreme Court that the South Dakota law was unconstitutional because it clearly violated Quill. The state agreed with the defendants in that the South Dakota law violated Quill, but the state argued that circumstances have changed in the 25 years since Quill, and the U.S. Supreme Court should overturn its precedent. Ultimately, the South Dakota Supreme Court was sympathetic to the state’s arguments, but nonetheless ruled in favor of the defendants given the Quill precedent.

In October 2017, South Dakota Attorney General Marty Jackley announced the state had formally petitioned the U.S. Supreme Court asking for the authority to enforce its 2016 remote sales tax law, S.B. 106.

Given Congress' failure to act, the U.S. Supreme Court  on Jan. 12, 2018, agreed to hear the case, South Dakota v. Wayfair









Sales Tax Nexus

Nexus refers to the connection a business has to a state. Once a business has nexus, they are required to collect and remit sales and use taxes to the state and its local taxing jurisdictions. Before South Dakota v. Wayfair, physical presence was required for a business to have nexus.  

States started enacting innovative nexus laws beginning in 2008, which began with New York passing the first state affiliate nexus law. Affiliate nexus refers to when a remote vendor has a connection to an in-state entity that performs certain work, such as maintaining a warehouse in the state or anything in relation to a remote vendor’s sales. The connection between the in-state entity and the remote vendor’s work would result in the affiliate having nexus within the state.  

Click-through nexus laws require remote sellers to collect taxes if they have a linkage with any in-state marketing affiliates, specifically through click-through referrals such as links or ads. The seller generally pays the in-state entity for any sales as a result of these ads or links. This connection establishes nexus since the in-state entity refers individuals to the remote seller’s website.  

The first economic nexus law was enacted by South Dakota in S.B. 106 in 2016. Economic nexus refers to when a business has a certain amount of economic activity, such as the amount of transactions or sales, that require them to collect and remit applicable sales and use taxes. For example, a remote seller has economic nexus in South Dakota if: 1) gross revenue from sales into the state exceeds $100,000; or 2) has 200 or more separate transactions. 

Marketplace Facilitator Tax Collection



 No State Sales Tax

 Marketplace Collection Required

 Marketplace Collection Not Required

Note: This map highlights states that currently require marketplace facilitator collection.

Marketplace Collection Requirements

Marketplace provisions aim to transfer collection responsibilities from third-party sellers to marketplace facilitators. Marketplace facilitators refer to a marketplace that contracts with third-party sellers to sell goods and services through the marketplace’s platform. For example, this requires websites such as Amazon and eBay to collect and remit taxes on behalf of their third-party sellers to the state.   

States began enacting these laws in 2017. As of January 1, 38 states and the District of Columbia have marketplace facilitator collection provisions, which will trigger these online platforms to collect and remit taxes for their third-party sellers. The NCSL Executive Committee has unanimously adopted guidelines for model legislation to implement marketplace facilitator sales tax collection requirements. 



Estimates were wide-ranging on how much revenue was unable to be collected prior to South Dakota v. Wayfair, but there is no doubt it was a significant amount. Similarly, state revenue estimates are just as varied. NCSL’s State Tax Actions report gathers information through surveys to legislative fiscal offices on tax and revenue changes enacted each calendar year. In the 2018 report, states that enacted tax changes requiring collection on remote sales had estimates ranging from about $7 million to $190 million for fiscal year 2019.

Local Distribution

States that are SSUTA members have centralized, state-level sales tax collections, which reduces administration and compliance costs. As noted earlier, the U.S. Supreme Court implied that this is one of the reasons South Dakota’s economic nexus legislation was upheld. However, localities rely on sales tax revenue in 38 states. Many of them levy different rates than their home state and some have, up until the Wayfair decision, been responsible for collecting these taxes. If these localities want to gain access to the online sales tax revenue pie in a way that is consistent with the Wayfair ruling, they might need to cede some autonomy to the state and allow it to collect the tax on their behalf. 


The state passed the “Simplified Seller Use Tax Remittance Act” in 2017, which allows eligible remote sellers to collect and remit a flat, eight percent sales tax rate, rather than collecting and remitting based on a litany of different local rates. The local revenue share is four percent (two percent to counties, two percent to cities) and is distributed based on population.  


Colorado is a “home rule” state where localities levy and collect their own sales taxes (which often have bases that differ significantly from the state’s). Before the state legislature had a chance to respond to the Wayfair decision by taking steps toward simplifying this system, the DOR released new sales tax rules that suggested that sellers may be required to collect sales tax in the 71 jurisdictions that collect their own taxes, but subsequently adopted a grace period through May 31, 2019. To promote local sales tax uniformity and simplify administration, Colorado’s Sales and Use Tax Simplification Task Force has recently recommended legislation that would require the DOR to procure an electronic sales and uses tax simplification system. 


A proposal pending in Illinois (H 270) would grant localities the authority to require remote retailers to collect and remit sales taxes. (The state is currently only collecting the 6.25 percent state rate.) 


Louisiana is another home rule state with a bevy of local jurisdictions that have been responsible for levying and collecting their own sales taxes. To simplify this system, the legislature created the Sales and Use Tax Commission for Remote Sellers, which will serve as the single, state-level tax administrator for remote sales. It is not yet requiring remote sellers to collect and remit sales taxes, as it is still developing procedures and local tax uniformity efforts to administer sales and use tax collection for remote sellers. The state will collect an 8.45 percent rate from out-of-state online vendors. The collection includes the state sales tax rate of 4.45 percent and a 4 percent rate that will be distributed to local governments based on population. 


Similar to the measure enacted in Alabama, a bill (SB 50) moving through the Missouri Senate would create a "Simplified Remote Sales Tax Remittance Program" that would allow eligible remote sellers to collect and remit a simplified remote sales tax rate of 6.5 percent. (3.5 percent for food sold or delivered into the state.) The proceeds will be distributed to the localities in a manner determined by the Department of Revenue, but such determination has not yet been made.

Federal Legislation

Since the Wayfair decision, there have been several proposals at the federal level to either turn back the clock and reimplement physical presence nexus requirement or otherwise pre-empt existing state laws. NCSL strongly opposes any federal effort that would limit or delay the ability of states to collect sales taxes from remote sellers. 

US H 6724 (2018): This measure would have prohibited states from retroactively collecting remote sales taxes, required centralized collection, and forced states to establish a single, uniform sales tax rate for online sales.  

US H.R. 6824 (2018): Representative Jim Sensenbrenner (WI) introduced a measure in September 2018 that would have prohibited states from retroactively imposing sales tax collection duties on remote sellers, classified exempt small sellers as those with gross annual receipts of $10 million or less, and required states to join an interstate compact with simplified, uniform compliance processes before they could levy a tax on remote sellers.  It did not pass out of committee.  

US H.R. 7184 (2018): Rep. Sensenbrenner also introduced the “No Retroactive Online Taxation Act of 2018” in November 2018, which would have prohibited states from retroactively imposing sales tax collection obligations on remote sellers for any sale that occurred before June 21, 2018. It did not pass out of committee.

US SB 3725 (2018): The Online Sales Simplicity and Small Business Relief Act of 2018, which failed to pass, would have delayed the states’ ability to impose a sales tax collection obligation on remote sellers before 2020, prohibited retroactive taxation, and exempted sellers with gross receipts of $10 million or less from collection requirements.

US H.R. 379 (2019): This measure would prohibit localities from imposing collection responsibilities on remote sellers and would place conditions on states before they could do so as well. Specifically, states would need to establish a uniform sales tax rate and centralized collections and could not require sellers to provide information on purchasers beyond ZIP codes and the amount of taxes collected from ZIP codes. It would also delay the ability of states to impose sales tax collection obligations on remote sellers until Jan. 1, 2020.

US S 128 (2019): The Stop Taxing Our Potential Act is a recently reintroduced version of a failed measure in 2018 (SB 3180) which would undo the Wayfair decision by re-establishing a physical presence nexus requirement for state sales tax collection responsibilities. It goes on to define what does and does not constitute “physical presence.”

NCSL Federal Correspondence Post South Dakota v. Wayfair