South Dakota Enacts Sales and Use Tax Law (Physical Presence is Not Required)

Taxpayers selling into South Dakota with no physical presence in the state may be required to collect state sales tax. Effective May 1, 2016, the new law requires the collection of South Dakota sales and use taxes on sales into South Dakota if:

• In the previous years or current calendar year, the seller’s sales of tangible personal property, any product transferred electronically, or services delivered into South Dakota exceed $100,000; or
• The seller sold tangible personal property, any product transferred electronically or service for delivery into South Dakota in 200 or more separate transactions.  

South Dakota’s new law is challenging the physical presence standard under the Supreme Court of United States’ holding in Quill.¹ Under Quill, only sellers who have a physical presence in South Dakota are required to collect and remit sales tax on sales into South Dakota. The state’s new law expands sales and use nexus beyond physical presence and is now using economic presence to require out of state sellers to collect and remit South Dakota sales tax.  

The South Dakota legislature passed this regulation because under Quill the state did not have the ability to force out of state sellers to collect state sales tax and thus it was “…seriously eroding the sales tax base of this state, causing revenue losses and imminent harm to this state through the loss of critical funding for state and local services.”² 

Remote taxpayers selling into South Dakota must consider whether their activity meets one or both requirements, as stated above. If a taxpayer does meet one or both requirements, then it must register with the South Dakota Department of Revenue and obtain a business tax license (i.e., sales tax permit). The taxpayer then must start collecting South Dakota sales and use taxes on transactions into the state and remitting such tax to the South Dakota Department of Revenue.    

For questions about this regulation or other state and local tax matters, please contact us.

1. Quill Corp. v. North Dakota (91-0194), 504 U.S. 298 (1992).
2. SB No. 106