South Dakota Senate Bill 106, signed in March of 2016, enacted a big change for sellers who do business in South Dakota.
Sellers of tangible personal property, transfer of electronic downloads, or service providers for delivery in South Dakota will have sales tax collection and remittance requirements if in the previous calendar year:
- The seller’s gross revenue in South Dakota was greater than $100,000, OR
- The seller had 200 or more individual transactions in South Dakota
It is important to note that this provision is for any seller, regardless if they have a physical presence in the state. For example: you manufacture widgets in Minnesota and ship via common carrier all over the country. You collect revenues by mail, telephone, and over the internet. You only have Minnesota employees and all your property and equipment is in Minnesota. If in the previous calendar year, you had more than $100,000 of sales that were shipped to South Dakota and/or had more than 200 transactions with South Dakota buyers, you have sales tax nexus in South Dakota as of May 1, 2016.
This bill makes it clear that it intends to challenge previous sales tax cases that require a physical presence to have nexus. SB 106 created procedures designed to fast track the litigation questioning the constitutional validity while disallowing South Dakota from enforcing the bill until the court system hears cases and any appeals by the South Dakota Supreme court. Big online retailers such as Overstock.com and Wayfair Inc. have litigation pending.
While it is unknown if SB 106 will succeed in court, it is something to keep in mind as more and more states are looking at economic nexus for out of state sellers as a source of revenue.
Contact your Olsen Thielen Tax Advisor if you have questions about your potential sales tax exposure in South Dakota or other states.