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South Dakota Enacts Nexus Standards

Yet another state jumped on the band wagon to force out-of-state companies to collect and remit state tax. Specifically, South Dakota recently passed legislation adding sales and use tax collection requirements for out-of-state businesses conducting sales within the state. The legislation continues the trend of states enacting aggressive nexus statutes aimed at out-of-state online retailers.

The concept of nexus is derived from the Commerce Clause and the Due Process Clause of the United State Constitution. Essentially, these Federal limitations limit the ability of a state to tax business that takes place outside of the state. However, if a business has enough of connection to a state, then the state can force the business to abide by its state and local tax laws.

In Quill Corporation v. North Dakota (U.S. 1992), the U.S. Supreme Court held that nexus required a physical presence of the business within the state to require a business to follow a state’s state and local tax laws. The physical presence requirement has resulted in much litigation throughout the country. Essentially, there has been confusion as to how much of a connection to a state is required before a physical presence is established.

Since Quill, and with the emergence of online retailers, states have recently been enacting aggressive nexus laws to tax out-of-state businesses (mainly online retailers) conducting sales within the state. For example, many states, like New York, force online retailers to collect tax even if their only contact with a state is a state resident’s referral website.

The South Dakota legislation, consistent with other state statutes, provides that a retailer is presumed to be liable for the collection of sales and use tax in South Dakota, if the seller meets either of the following criteria in the previous or current calendar year:
(1) The seller’s gross revenue from the sale of tangible personal property, any product transferred electronically, or services delivered into South Dakota exceeds $100,000; or (2) The seller sold tangible personal property, any product transferred electronically, or services for delivery into South Dakota in 200 or more separate transactions.
The legislation also provides for an expedited appeals process for any challenges to the constitutionality of the law.

Given the growing trend of state courts to burden small and medium online businesses, it is no surprise that the legislation was enacted. Until the Supreme Court or Congress clarifies the nexus issue, states will continue to pass aggressive nexus statutes.

About the Authors:

Gerald “Jerry” Donnini II is a partner of the Law Offices of Moffa, Sutton, & Donnini, P.A. Mr. Donnini concentrates in the area of Florida and Federal tax matters, with a heavy emphasis on the tobacco, convenience store and petroleum industries . He also handles a myriad of multi-state state and local tax issues. Mr. Donnini is a co-author for CCH’s Expert Treatise Library: State Sales and Us Tax and writes extensively on multi-state tax issues for

Mr. Donnini also regularly represents cigarette, beverage, and tobacco distributors against the Division of Alcohol and Tobacco in connection with refund claims and audit defense. While at Nova Southeastern University, Shepard Broad Law Center, Mr. Donnini was the Notes and Comments Editor of Nova Law Review and Vice President of the Sports and Entertainment Law Society. Prior to attending law school at Nova in 2008, Jerry was an accountant for National Retail Properties, Inc. Mr. Donnini earned his LL.M. in Taxation at New York University. You can contact Mr. Donnini via email at or call 954-642-9390.

Mr. Taylor is a multi-state sales and use tax attorney and an associate in the law firm of Moffa, Sutton, & Donnini, P.A., based in Fort Lauderdale, Florida. Mr. Taylor’s primary practice area is multi-state sales and use tax controversy. Mr. Taylor also practices in the area of cigarette & tobacco tax and general commercial litigation. Mr. Taylor received his law degree from Nova Southeastern University, Shepard Broad Law Center. You can contact Mr. Taylor via email at or call 954-234-2884.

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