Don't Mess With Taxes

States as well as shoppers now must deal with remote sales taxes. (Image by Daniela Hartmann via Flickr CC)

Just over a year ago, the Supreme Court of the United States (SCOTUS) struck down a previous ruling and expanded the ability of states to collect sales tax on from remote sellers.

Many states in the wake of the 5-to-4 SCOTUS decision in South Dakota v. Wayfair have or are working on systems to collect sales tax from sellers who don't have a physical presence in their states.

New Hampshire, however, has taken a different approach. The state has no sales or income tax and wants to keep it that way.

The just-enacted law, according to Gov. Chris Sununu (R), is "great first step" in protecting Granite State businesses from facing online taxes levied by other states.

It requires other states to notify New Hampshire of its intent to apply a tax 45 days before applying it. That advance word will enable the state Department of Justice to fight the tax.

Immediate opposition to SCOTUS decision: New Hampshire lawmakers expressed their outrage at what the SCOTUS Wayfair ruling would mean for the state's businesses.

"If they think we are just going to take this without a fight, well then they have another thing coming," Sununu tweeted immediately after the High Court announced its decision. "We will exhaust all means to make sure that New Hampshire isn’t negatively affected by this disastrous decision."

However, it took longer than the governor had hoped. Ultimately, though the state's new law, also dubbed the Wayfair Bill, passed both New Hampshire chambers with bipartisan support before being signed into law July 19 by Sununu.

New law's requirements: The New Hampshire Wayfair law has three main provisions.

First, any out of state taxing authority, referred to as a foreign taxing jurisdiction, seeking to audit or impose tax collection obligations on a New Hampshire business will be required to notify the New Hampshire Department of Justice at least 45 days in advance.

Second, the N.H. Department of Justice then will conduct a review to ensure that any attempts to impose sales and use tax collection obligations are constitutional. If the Department of Justice believes that other foreign taxing jurisdictions are improperly targeting New Hampshire businesses, the Department of Justice can file suit to block the taxation attempts.

Third, if a business is determined to be required to collect and remit sales taxes to an out of state taxing jurisdiction, this bill gives that business the right, under New Hampshire law, to recover reasonable costs incurred in the collection and remission of sales and use taxes to an out of state taxing jurisdiction.

Compliance optional: While the new law does make other state tax departments jump through hoops, it also gives New Hampshire businesses the option to comply with any foreign taxing authority directive if the businesses decide that's in their economic interests.

In those situations, the tax-compliant sellers should let the N.H. Department of Justice know. Also, that outside taxing authority still must provide the 45-day advance notice even when a New Hampshire business elects to comply.

New Hampshire businesses also can comply under protest.

Picking another court fight: The New Hampshire anti-Wayfair law also provides state officials a chance to live up to their state motto's "Live Free or Die" pugnacious attitude.

They actually want the law to get the sales tax issue before the Supreme Court again.

State Rep. Susan Almy, Democratic chair of the N.H. House Ways and Means Committee, told Tax Notes that although the Wayfair ruling in June 2018 "essentially recommended" that Congress put laws in place to clarify the many complications posed by the no-nexus decision, there's no indication that Washington, D.C., lawmakers will act any time soon.

"We want predictable order and some form of reimbursement of costs, or a suitably high sales level to match it, so that small and medium businesses — and those selling a wide range of products as defined by the tax codes — can afford to continue to engage in interstate commerce," Almy told the tax publication.

New Hampshire's new law, she added, was designed to protect it against constitutional challenge while the state Department of Justice develops the case or cases to get a future SCOTUS decision that would "provid[e] reasonable safeguards for small, medium, and diversified businesses — those most likely to be unable to afford to engage in interstate online commerce if they have to comply with the varying tax laws of large numbers of jurisdictions."

Many states, many nexus changes: As the New Hampshire law underscores, the variety and vagaries of the many state government tax systems mean that sellers have to deal with a wide range of post-SCOTUS Wayfair rules.

The Sales Tax Institute has a comprehensive collection, last updated July 17, of the impacts of the Wayfair decision by state.

The STI interactive state sales tax nexus chart lets you check out all the sales tax possibilities.

You also might find these items of interest:

• What's your state's top combined state/local sales tax rate?
• Useless use taxes lead to national online sales tax collection
• Congress holds interstate sales tax hearing, but no post-Wayfair consensus

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