Amazon Agrees to Remit Sales Tax in South Dakota

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By Jennifer McLoughlin

Amazon is adding South Dakota to the growing list of states in which it voluntarily collects and remits sales tax.

During his Jan 10. State of State address, South Dakota Gov. Dennis Daugaard (D) announced that the retailer will start collecting state and local sales taxes next month and remitting the following month. This brings the total number of states in which Amazon collects such taxes to 34, plus the District of Columbia.

South Dakota itself launched litigation to enforce its digital sales tax statute, S.B. 106, which mandates remote retailers with annual in-state sales exceeding $100,000 or 200 separate transactions to collect and remit sales tax. The law was a direct challenge to the U.S. Supreme Court rule from Quill Corp. v. North Dakota, 504 U.S. 298 (1992), which prohibits states from imposing sales and use tax collection obligations on sellers without an in-state physical presence.

“Amazon, as you know, is a leading online merchant, growing every year by double digits,” Daugaard said. “Their decision to collect sales tax doesn’t solve the sales tax issue for online purchases, but it’s a big step in the right direction.”

In an e-mail Jan. 12, an attorney representing the retailers named in the lawsuit—Wayfair Inc., Inc. and Newegg Inc.—said Amazon’s decision to collect South Dakota’s sales tax has no effect on the key legal principle that the state already has conceded in the case: South Dakota’s new “economic nexus” statute is unconstitutional under Quill.

However, Matthew P. Schaefer, a partner with Brann & Isaacson, told Bloomberg BNA that the Amazon development reinforces how South Dakota’s justification underlying its statute is “grossly overstated”—namely, “‘lost’ sales tax revenue from remote sales.”

Sinking State Coffers

The Amazon announcement came on the heels of Daugaard noting that revenue hasn’t strengthened since December, cautioning that “we will need to continue to watch revenues over the next two months to ensure we adopt a structurally balanced budget in March.”

He reported that overall revenue is down another $5.8 million, with sales tax running below revised projections—attributing the weak sales tax to both the farm economy and the growth in online sales.

“As it joins 100 other eCommerce vendors in collecting South Dakota sales tax, Amazon demonstrates its commitment to being a good corporate citizen,” Jonathan Harms, communications director for the South Dakota Department of Revenue, told Bloomberg BNA in a Jan. 12 e-mail. “This shows how possible it is to collect sales taxes for online purchases and ensure that the revenues, which are important at the state and local level, can be accurately administered.”

S.B. 106, enacted in early 2016, was in part a tool to capture revenue lost to remote sales. It was also an early strategic step in the intensifying "kill Quill" movement, with the objective of advancing a lawsuit to the Supreme Court that ultimately overturns the 25-year-old physical presence standard.

Other states have adopted similar tactics, most notably Alabama. Alabama led the movement with its economic nexus regulation ( Administrative Rule 810-6-2-.90.03) and is now hosting its own litigation brought by Newegg.

Amazon started to collect sales tax for Alabama orders in late 2016.

‘Self-Correcting’ Problem

Litigation over the new South Dakota law is pending before the U.S. District Court for the District of South Dakota, which heard arguments Dec. 8 on two competing motions ( South Dakota v. Wayfair, Inc., D.S.D., No. 3:16-CV-03019, hearing 12/8/16 ). The retailers named as defendants removed the matter to the federal district court and sought summary judgment, seeking an order that strikes the statutory tax as contrary to federal constitutional limitations. The state sought remand, arguing that jurisdiction remains with the lower state court.

The court is expected to issue a ruling on the jurisdictional question soon.

Schaefer said after the hearing that the court recognized there is no dispute regarding the retailers’ right to summary judgment, as both sides agree that the law is invalid under Quill.

Reiterating what the retailers pointed out in their motion for summary judgment, Schaefer said that Amazon collects sales tax in states comprising over 85 percent of the U.S. population and accounts for approximately 60 percent of the growth in online sales. He added that a significant majority of the other largest e-commerce retailers likewise collect sales tax across the nation, including Walmart, Target and Best Buy.

“The purported problem of uncollected tax on remote sales has proven to be largely self-correcting,” Schaefer said. “The central issue with regard to whether, and subject to what conditions, states should be authorized to require sales tax collection by Internet sellers, therefore, is the proper regulation of the (increasingly digital) national marketplace, not over-exaggerated estimates of ‘lost’ tax revenue.”

There has been little movement in a separate case pending before a South Dakota court. The American Catalog Mailers Association and NetChoice are challenging the facial constitutionality of S.B. 106.

To contact the reporter on this story: Jennifer McLoughlin in Washington at

To contact the editor responsible for this story: Ryan C. Tuck at

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