In 1992, the nation’s highest court ruled the United States Constitution prohibits a state from requiring mail order catalog retailers to collect sales taxes on sales made to state residents unless the retailer is “physically present” in the state. To this day, the so-called “physical presence rule” remains the law of the land.
 
The application of this rule has profound impacts on the existing retail marketplace. Internet retailers greatly benefit. They are not required to charge, collect or remit state sales taxes on the products they sell to out-of-state customers. Main Street retailers are not relieved of this compliance burden. They must charge, collect and remit state sales taxes on the products they sell to their in-store customers
 
State governments are also adversely impacted by the physical presence rule. Online shoppers rarely pay the applicable sales tax on their Internet purchases. In fact, the Wisconsin Department of Revenue estimated that unreported sales taxes on online purchases exceeded $170 million in 2015. 
 
In 2016, the State of South Dakota passed a law that required out-of-state retailers that made at least 200 sales or sales totaling at least $100,000 to collect sales taxes. South Dakota lawmakers knew full well this law violated the physical-presence rule, but viewed enactment as a way to get the United States Supreme Court to revisit its 1992 decision. Their wish was granted.
 
Last month, the United States Supreme Court agreed to hear the case of South Dakota v. Wayfair, Inc. Thirty-five states, including the State of Wisconsin, have asked the Justices to overturn the “physical-presence rule” and uphold the constitutionality of South Dakota’s out-of-state retailer sales tax law.
 
Oral arguments in this case have yet to be scheduled, but are likely to occur early next year. We will be monitoring and reporting back to members on relevant developments in this case.