2018 Venture Capitol - September 17

Special Events


South Dakota Chamber Of Commerce - Venture Capitol
September 17, 2018

Special Report

The Special Session of the South Dakota Legislature


“South Dakota has a sales tax.” 

South Dakota Chamber President David Owen addresses members of the Legislature.

Just as Dickens needed readers of A Christmas Carol to understand the fact that “Marley was dead, to begin with” underscored the entire story, Governor Daugaard needed South Dakota citizens to grasp the simple truth that “South Dakota has a sales tax.” 

Governor Daugaard called the Legislature into Special Session last Wednesday to finally complete a task that was the culmination of years of debate about whether or not a business without any people or a store or any other form of “nexus” in a state can be compelled to collect and remit sales tax in that state.  At issue when all of this started was the Pony Express version of the internet . . . catalogs.  


Catalog companies like Quill said that with almost every state collecting sales tax using different definitions and different due dates and different forms, that unless you had people actually working in a state like North Dakota (at least Quill recognized North Dakota was a state) it was an “undue” burden to know all of those details, much less know how to collect the tax from a customer who was only filling out a form and mailing it to them.

Some fifty years ago, the Supreme Court agreed with Quill and told states that unless Congress passed a law requiring catalog companies to collect and remit sales taxes, they as individual states couldn’t force the collection of sales taxes.  All eyes turned to Congress.

Where nothing happened.

Then, the Internet arrived and people in society stopped talking to each other and started to live “on line” where they could shop . . . using “live catalogs”.  And, these internet sales were deemed to be the same as catalog sales which states could not tax unless the company doing those sales had staff people or buildings in a given state.

At that point, a group of states tried to reduce or eliminate the “undo” burden by agreeing on the definition of items like what is candy vs. food, what is clothing or when is a drink a cocktail.  With a common set of definitions, companies would only have to know what items each state taxed.  Poof - no big deal to apply, collect and remit the sales tax everywhere.  Congress even hinted that if enough states adopted the “streamlined” sales tax definitions, they might pass that law the court said they could pass waaaay back when.  More than two dozen states adopted the streamlined definitions and once again all eyes turned to Congress.

Where, again, nothing happened.

Enter South Dakota SB 106.  It seems reasonable that at some point vultures have to get tired of waiting for an animal to die so they go kill one, even if it’s just a between meal snack - like a squirrel. 

In similar fashion, it was decided that some state should just pass a law requiring internet sellers to collect and remit sales tax because the same internet and computers that made it possible to sell things all over the world could figure out what was and wasn’t taxed and thereby deal with the undue burden. 

With the leadership of the South Dakota Retailers Association and Senator Deb Peters, along with support from other business groups including the South Dakota Chamber of Commerce and Industry, the legislature passed SB 106.  The ball passed to Attorney General Marty Jackley to defend the new law before the US Supreme Court.  He more than met the challenge and the court agreed with Jackley, thus overturning the Quill decision that had stood for more than 50 years. 

Goliath was dead.  Attorney General Jackley put his slingshot in his pocket and returned home.

The Special Session

There were some details that needed to be settled before the tax could really be made mandatory.  Two bills were submitted to the Special Session.

SB 1 was a clean-up bill dealing with details that became unnecessary after the victory at the Supreme Court:

  • Removed an injunction against all remote sellers, except the defendants in the South Dakota v. Wayfair case and clarifies how the injunction applies to those businesses.
  • Eliminates the state’s ability to sue remote sellers because it isn’t necessary after the lawsuit.
  • Had an emergency clause to be effective when the Governor signed the bill (thus requiring 2/3rds vote).
  • Allows South Dakota to require remote sellers to collect and remit sales taxes starting November 1st of this year.  This allows those companies time to prepare their systems to actually collect the taxes.

SB 2 dealt with a more substantial part of having remote sellers collect and remit sales taxes, businesses that are the pipeline through which products flow without any ownership of those products.  Remember when Amazon agreed to collect and remit sales tax on sales in South Dakota?

That was a very positive agreement  . . . BUT . . . it only applied to about half of the sales Amazon has in South Dakota (or the Southern Antilles for that matter).  It did not apply to situations where Amazon is the platform used by another business to sell something to someone.

If Amazon has made an agreement with the factory producing one-armed sweaters that they will ship a bunch of  to an Amazon warehouse so that when a customer orders one, it can be shipped right away (which would be a Prime experience - sorry).  Then, the agreement requires that sales tax be collected and remitted.

However, when Amazon (or Ebay or Alibaba) are just the conduit for a sale between a store and a South Dakota customer, it’s a different situation,  Well, until last Wednesday, but that comes later.  Bring back the Pony Express.

Think about Amazon as acting like a rugged dude on a horse picking up a package at the Chicago Mercantile after giving the store some money.  He then rides off and hands the package off to a series of other rugged riders on horseback until one of them gives it to little Laura Ingalls Wilder at a little house somewhere on the prairie.  The dudes on the horses don’t have to collect sales tax.  Likewise, when Amazon has only been an advertising and shipping platform for stores to use to sell stuff, the agreement didn’t require them to collect and remit sales tax.

Introducing life after “South Dakota v. Wayfair”

The court said that South Dakota could require tax collections when Amazon is just acting like the Pony Express.

SB 2 creates in law a definition for “marketplace” which just happens to fit the function similar to the Pony Express example.  Now, when the rugged dude on the horse picks up a package and gives the money to the store, he also hands a small portion of money to a special rider that uses her series of other riders to take that money to Pierre to hand it over to a dapper but less rugged guy known as the Secretary of Revenue.  That is the sales tax owed to South Dakota because someone in South Dakota bought a package, regardless of where that package originated.  This makes buying something from a long way away just like going to the store on one’s own horse, which is the point of this entire venture.

SB 2 essentially extends the obligation for “third party” transaction venues such as Amazon, Ebay and Alibabi to collect and remit sales tax as part of the transaction, even when they are just the conduit that facilitated the sale.  This will also address the need for out of state stores to have the software that tells them which items are taxable in which state and at what rate that tax is applied, thus eliminating the need for businesses all over the country to have sales tax licenses from every other state.

SB 2 doesn’t take effect until March 1st, 2019 so that businesses operating as a “marketplace” have time to prepare for performing the required duties.  In other words, feed the horses and brief the riders.

This means that in the end - and due to computers - we can eliminate the undue burden of not having nexus. 


What this means to businesses both in state and out-of-state.

We have focused on getting money from out-of-state businesses that sell their stuff to the hard working people of South Dakota.  What does this court decision do to South Dakota businesses trying to sell stuff to people in other states?

It works the same in reverse.  South Dakota businesses will have to know what states charge sales tax on the items they sell and will have to collect that tax money to be remitted to the state where their customer resides.  Other states are greedy like that.  Here again is the advantage of having the “marketplace” vendors being registered as such and capable of fulfilling that function for all businesses.  This means that when South Dakota citizens purchase items from other states, the price will include the sales tax due in that other state.


How much money will the state collect from remote sales?

Nobody knows with any certainty but there are some statistics that can provide a reasonable guess.  Here are some of those facts:

Percent of total sales that are e-commerce or online.  As much as it seems everything is purchased over the internet, the US Census Bureau has been working on models to measure e-commerce for about 20 years.  The US Census Bureau estimates that e-commerce sales were approximately 8% for 2016 which they have extrapolated to a total of 9% for last year. 

The South Dakota Department of Revenue statistics report that in 2017 the state had $21 billion in taxable sales.  That figure includes many items that are not part of the Census Bureau’s definition of “retail sales” for e-commerce which excludes items such as automobiles and gasoline.

The Department of Revenue staff has estimated that the states may collect around $32 million and the local governments may collect approximately $28 million or so.  This would be a total of $50 million, part of which has been collected for several years through voluntary compliance by large retailers such as Target and Wal-Mart.    


Learn more about the economic issues driving South Dakota at this year’s Economic Outlook Seminar Tuesday, October 30, 2018 at The Country Club of Sioux Falls.


This message has been sent to: FirstName  LastName

108 North Euclid Avenue | PO Box 190 | Pierre, SD 57501
Contact | 605-224-6161
South Dakota Website Design and Development