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CHAPTER 10-64

COLLECTION OF SALES TAXES FROM OUT-OF-STATE SELLERS

10-64-1      Legislative findings.
10-64-2      Certain sellers located outside of state required to collect and remit sales taxes--Criteria.
10-64-3      Declaratory judgment action against out-of-state seller.
10-64-4      Injunction during pendency of declaratory judgment action.
10-64-5      Appeal to Supreme Court.
10-64-6      Prospective obligation to collect or remit tax.
10-64-7      Obligation to remit tax after injunction lifted or dissolved.
10-64-8      Procedure for recovery of taxes, penalties, or interest--Liability of purchaser for use tax unaffected.
10-64-9      Use of sales taxes collected from sellers located outside of state.


     10-64-1.   Legislative findings. The Legislature finds that:
             (1)      The inability to effectively collect the sales or use tax from remote sellers who deliver tangible personal property, products transferred electronically, or services directly into South Dakota is 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)      The harm from the loss of revenue is especially serious in South Dakota because the state has no income tax, and sales and use tax revenues are essential in funding state and local services;
             (3)      Despite the fact that a use tax is owed on tangible personal property, any product transferred electronically, or services delivered for use in this state, many remote sellers actively market sales as tax free or no sales tax transactions;
             (4)      The structural advantages of remote sellers, including the absence of point-of-sale tax collection, along with the general growth of online retail, make clear that further erosion of this state's sales tax base is likely in the near future;
             (5)      Remote sellers who make a substantial number of deliveries into or have large gross revenues from South Dakota benefit extensively from this state's market, including the economy generally, as well as state infrastructure;
             (6)      In contrast with the expanding harms caused to the state from this exemption of sales tax collection duties for remote sellers, the costs of that collection have fallen. Given modern computing and software options, it is neither unusually difficult nor burdensome for remote sellers to collect and remit sales taxes associated with sales into South Dakota;
             (7)      As Justice Kennedy recently recognized in his concurrence in Direct Marketing Association v. Brohl, the Supreme Court of the United States should reconsider its doctrine that prevents states from requiring remote sellers to collect sales tax, and as the foregoing findings make clear, this argument has grown stronger, and the cause more urgent, with time;
             (8)      Given the urgent need for the Supreme Court of the United States to reconsider this doctrine, it is necessary for this state to pass this law clarifying its immediate intent to require collection of sales taxes by remote sellers, and permitting the most expeditious possible review of the constitutionality of this law;
             (9)      Expeditious review is necessary and appropriate because, while it may be reasonable notwithstanding this law for remote sellers to continue to refuse to collect the sales tax in light of existing federal constitutional doctrine, any such refusal causes imminent harm to this state;
             (10)      At the same time, the Legislature recognizes that the enactment of this law places remote sellers in a complicated position, precisely because existing constitutional doctrine calls this law into question. Accordingly, the Legislature intends to clarify that the obligations created by this law would be appropriately stayed by the courts until the constitutionality of this law has been clearly established by a binding judgment, including, for example, a decision from the Supreme Court of the United States abrogating its existing doctrine, or a final judgment applicable to a particular taxpayer; and
             (11)      It is the intent of the Legislature to apply South Dakota's sales and use tax obligations to the limit of federal and state constitutional doctrines, and to thereby clarify that South Dakota law permits the state to immediately argue in any litigation that such constitutional doctrine should be changed to permit the collection obligations of this chapter.
             (12)      The Supreme Court of the United States issued its decision in South Dakota v. Wayfair, 138 S.Ct. 2080 (2018), on June 21, 2018, holding:
                  For these reasons, the Court concludes that the physical presence rule of Quill is unsound and incorrect. The Court's decisions in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), and National Bellas Hess, Inc. v. Dept. of Revenue of Ill., 386 U.S. 753 (1967), should be, and now are, overruled.
                  Wayfair, 138 S.Ct. at 2099. With the Supreme Court's decision in Wayfair that the physical presence rule of Quill and Bellas Hess is "unsound and incorrect" and that Quill and Bellas Hess are "overruled," the Legislature hereby finds that the purpose of the declaratory judgment provision in 2016 Senate Bill 106, codified in § 10-64-3, has been fulfilled and completed.

Source: SL 2016, ch 70, § 8, eff. May 1, 2016; SL 2018 (SS), ch 2, § 1, eff. Sept. 12, 2018.


     10-64-2.   Certain sellers located outside of state required to collect and remit sales taxes--Criteria. Notwithstanding any other provision of law, any seller selling tangible personal property, products transferred electronically, or services for delivery into South Dakota, who does not have a physical presence in the state, is subject to chapters 10-45 and 10-52, shall remit the sales tax and shall follow all applicable procedures and requirements of law as if the seller had a physical presence in the state, provided the seller meets either of the following criteria in the previous calendar year or the 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 one hundred thousand dollars; or
             (2)      The seller sold tangible personal property, any product transferred electronically, or services for delivery into South Dakota in two hundred or more separate transactions.

Source: SL 2016, ch 70, § 1, eff. May 1, 2016.


     10-64-3.   Declaratory judgment action against out-of-state seller. Notwithstanding any other provision of law, and whether or not the state initiates an audit or other tax collection procedure, the state may bring a declaratory judgment action under chapter 21-24 in any circuit court against any person the state believes meets the criteria of § 10-64-2 to establish that the obligation to remit sales tax is applicable and valid under state and federal law. The circuit court shall act on this declaratory judgment action as expeditiously as possible and this action shall proceed with priority over any other action presenting the same question in any other venue.
     In this action, the court shall presume that the matter may be fully resolved through a motion to dismiss or a motion for summary judgment. However, if these motions do not resolve the action, any discovery allowed by the court may not exceed the provisions of subdivisions 15-6-73(2) and (4).
     The provisions of § 10-59-34, along with any other provisions authorizing attorney's fees, do not apply to any action brought pursuant to this chapter or any appeal from any action brought pursuant to this chapter.
     No declaratory judgment action may be initiated pursuant to this section or this chapter at any time after September 12, 2018.

Source: SL 2016, ch 70, § 2, eff. May 1, 2016; SL 2018 (SS), ch 2, § 2, eff. Sept. 12, 2018.


     10-64-4.   Injunction during pendency of declaratory judgment action. The filing of the declaratory judgment action established in this chapter by the state operates as an injunction during the pendency of the action, applicable to each state entity, prohibiting any state entity from enforcing the obligation in § 10-64-2 against any taxpayer who does not affirmatively consent or otherwise remit the sales tax on a voluntary basis. The injunction does not apply if there is a previous judgment from a court establishing the validity of the obligation in § 10-64-2 with respect to the particular taxpayer. Except as to a defendant in an action initiated by the state pursuant to § 10-64-3, any injunction imposed by this section is automatically dissolved and lifted on November 1, 2018.

Source: SL 2016, ch 70, § 3, eff. May 1, 2016; SL 2018 (SS), ch 2, § 3, eff. Sept. 12, 2018.


     10-64-5.   Appeal to Supreme Court. Any appeal from the decision with respect to the cause of action established by this chapter may only be made to the state Supreme Court. The appeal shall be heard as expeditiously as possible.

Source: SL 2016, ch 70, § 4, eff. May 1, 2016.


     10-64-6.   Prospective obligation to collect or remit tax. No obligation to collect or remit the sales tax required by this chapter may be applied before November 1, 2018.

Source: SL 2016, ch 70, § 5, eff. May 1, 2016; SL 2018 (SS), ch 2, § 4, eff. Sept. 12, 2018.


     10-64-7.   Obligation to remit tax after injunction lifted or dissolved. If an injunction provided by this chapter is lifted or dissolved, as to a defendant in an action initiated by the state pursuant to § 10-64-3, the state shall assess and apply the obligation established in § 10-64-2 from that date forward.

Source: SL 2016, ch 70, § 6, eff. May 1, 2016; SL 2018 (SS), ch 2, § 5, eff. Sept. 12, 2018.


     10-64-8.   Procedure for recovery of taxes, penalties, or interest--Liability of purchaser for use tax unaffected. A taxpayer complying with this chapter, voluntarily or otherwise, may only seek a recovery of taxes, penalties, or interest by following the recovery procedures established pursuant to chapter 10-59. However, no claim may be granted on the basis that the taxpayer lacked a physical presence in the state and complied with this chapter voluntarily while covered by the injunction provided in § 10-64-4.
     Nothing in this chapter limits the ability of any taxpayer to obtain a refund for any other reason, including a mistake of fact or mathematical miscalculation of the applicable tax.
     No seller who remits sales tax voluntarily or otherwise under this chapter is liable to a purchaser who claims that the sales tax has been over-collected because a provision of this chapter is later deemed unlawful.
     Nothing in this chapter affects the obligation of any purchaser from this state to remit use tax as to any applicable transaction in which the seller does not collect and remit or remit an offsetting sales tax.

Source: SL 2016, ch 70, § 7, eff. May 1, 2016.


     10-64-9.   Use of sales taxes collected from sellers located outside of state. If the state is able to enforce the obligation to collect and remit sales tax on remote sellers who deliver tangible personal property, products transferred electronically, or services directly to the citizens of South Dakota, the additional net revenue from such obligation shall be used to reduce the rate of certain taxes. The rate of tax imposed by §§ 10-45-2, 10-45-5, 10-45-5.3, 10-45-6, 10-45-6.1, 10-45-6.2, 10-45-8, 10-45-71, 10-46-2.1, 10-46-2.2, 10-46-58, 10-46-69, 10-46-69.1, 10-46-69.2, 10-46E-1, and 10-58-1 shall be reduced by one-tenth percent on July first following the calendar year for which each additional twenty million dollar increment of net revenue is collected and remitted by such remote sellers. However, the rate of tax imposed by §§ 10-45-2, 10-45-5, 10-45-5.3, 10-45-6, 10-45-6.1, 10-45-6.2, 10-45-8, 10-45-71, 10-46-2.1, 10-46-2.2, 10-46-58, 10-46-69, 10-46-69.1, 10-46-69.2, 10-46E-1, and 10-58-1 may not be reduced below four percent pursuant to the provisions of this section.

Source: SL 2016, ch 65, § 19, eff. June 1, 2016.


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