Last month, when the US Supreme Court ruled that states and local communities could collect sales tax from online retailers in other jurisdictions, it was heralded as a boon for those looking to recoup lost revenue and small businesses trying to compete with large online retailers.
But for some in New Hampshire, the South Dakota v. Wayfair ruling was viewed as an affront to the state’s politics and way of life. It is, after all, a point of pride for flinty Granite Staters that they don’t have an income tax or sales tax — known to locals as the “New Hampshire advantage.”
“ ‘Live free or die’ is not just a slogan on a license plate. It is the very essence of who we are,” said Governor Chris Sununu last month when he called for a special session to find a legislative fix that would halt other states from implementing taxes on local businesses.
On Wednesday, the New Hampshire Legislature will gather in Concord to vote on a bill that doesn’t explicitly bar other states from collecting sales taxes from local companies —
but it does aim to make it more difficult for them.
A bipartisan task force created a proposal that would force all jurisdictions to register with the New Hampshire Attorney General’s office and pay an administrative fee before collecting taxes from a Granite State business. The city or state will then have to prove to the attorney general’s office that its sales tax is constitutional, complies with all other existing laws, and doesn’t unfairly target a particular small business.
Sununu has said he will sign the bill into law if the Legislature approves of it, which they are expected to do this week.
Prior to the ruling, businesses selling goods online would only pay state and local sales taxes if they had a physical presence in that state — or if they decided to do so voluntarily, like Amazon has done in many places.
But the high court’s decision allowed states to collect sales taxes from businesses in other states, creating uncertainty for many smaller retailers who sell products online and who now must track nearly 10,000 tax jurisdictions nationwide.
It could be especially onerous for small businesses in the five states that don’t already have a mechanism for collection because they don’t have a sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon.
New Hampshire is the only state of the five, however, which has moved quickly in a local response to the ruling.
In the future, if South Dakota or — gasp! — Massachusetts want to collect sales taxes from a New Hampshire business, they are, according to Sununu, “going to have the fight of their life.”
Meanwhile, some lawyers and legal specialists aren’t sure if the bill will eventually pass legal muster.
University of Chicago Law School professor Daniel Hemel, who studies taxation and the law, said such a move could openly violate the US Constitution’s “full faith and credit” clause, but it could also just be irrelevant given a state can sue a business that refuses to pay taxes owed.
“I am not sure what New Hampshire’s endgame here is other than for a potentially politically vulnerable governor to score some political points,” said Hemel. “My advice to New Hampshire businesses is that Chris Sununu is not going to save you from your sales tax obligation to other states.”
One person watching closely how this will all play out is Dave Fuller of Fuller’s Sugarhouse in Lancaster, N.H. He founded his maple syrup business with his wife Patti in 1972, and he and his brother sell syrup online.
“Certainly we are concerned about it for no other reason but the mechanics of how does a small company keep track of all these taxes rates,” Fuller said. “It would be quite devastating for us and we might have to get out of the online business.”
He said his business is in wait-and-see period while the Legislature considers action and he figures out how the new ruling will affect his tax collection. He thinks he has a little bit of time.
“I don’t see the whole country coming after the Fuller Sugarhouse next week,” he said.