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Internet sales tax in U.S. faces a Judgment Day

New Hampshire Union Leader

April 08. 2018 2:33AM
The Fair Marketplace Act is a federal bill to permit the collection of sales taxes on online sales nationwide. New Hampshire's congressional delegation and Gov. Chris Sununu are voicing their opposition. (Metro Creative Connection)

CONCORD - The tax-free climate of buying and selling products over the internet has never been at greater risk of going away, and New Hampshire business and political leaders are determined to fight until the bitter end to try to preserve it.

The U.S. Supreme Court will hear oral arguments April 17 on a seminal test case that arose when the state of South Dakota sued online furniture retail giant Wayfair Inc. over its refusal to collect the state's 4.5 percent sales tax from out-of-state customers.

Gov. Chris Sununu isn't shy about equating this threat to the British crown's attempts to force American colonists in 1773 to buy tea from a favored company, a demand that helped ignite the American Revolution. 

"It is unacceptable that New Hampshire businesses may be forced to act as tax collectors for other states. We will not sit idly by while Washington, D.C., and sales-tax-reliant states try to raid the pockets of Granite Staters and increase the price of retail goods in New Hampshire," Sununu said.

"That is the very definition of taxation without representation, and we will not stand for it."

New Hampshire Attorney General Gordon J. MacDonald, in a legal brief to the court on Wayfair's behalf, wrote that this new requirement would stifle innovation for small retailers.

"There are approximately 10,000 to 12,000 different sales- and use-tax jurisdictions in the United States today. Countless small businesses use the internet for the retail sale of goods. The monetary amounts are often quite modest," MacDonald said.

Opponents here maintain that as one of just five states without a sales tax, this change would harm the state's brand and make consumers revolt, especially now that so many retail purchases are not made in person but online.

"We have made a policy decision as a state not to have a sales tax and that gives our state businesses an advantage," said Michael Skelton, president of the Greater Manchester Chamber of Commerce.

"When it comes to this issue around the internet sales tax, what really comes to mind is the risk, the potential additional cost and the uncertainty that this would bring."

The state's all-Democratic congressional delegation squarely supports Republican Gov. Sununu's administration on this issue.

"As governor, I worked to responsibly balance the budget without an income or sales tax, and I strongly oppose any effort to create an internet sales tax and force New Hampshire small businesses to collect sales tax for other states," said U.S. Sen. Maggie Hassan.

Sens. Jeanne Shaheen and Hassan co-wrote their own Supreme Court brief with like-minded senators and wrote resolutions in opposition to the Fair Marketplace Act, a federal bill to permit the collection of sales taxes on online sales nationwide.

"The Granite State would see no benefit in the form of tax revenue, only costs, with our businesses forced to pay thousands of dollars for software and setup to navigate constantly changing tax rates," Shaheen said.

"I will continue to work across the aisle to emphasize that this disastrous and misguided decision is wrong for our state."

A changing tide

The legal and political climate for this cause has changed dramatically, however, and it's clearly not been moving in the direction of New Hampshire's position.

In 1992, the nation's high court in the so-called Quill case upheld a principle it first articulated in 1967 that sales delivered by mail or truck to another state lacked the "significant nexus" for a sales tax to be applied.

But 26 years ago, virtually all businesses and many politicians - even from sales tax states - opposed the idea of taxing the internet on philosophical grounds.

They maintained for e-commerce to grow, it had to be unfettered by government.

Since that Quill decision, direct marketing experts estimate mail-order-based sales have grown in the U.S. from $180 billion annually to $3.2 trillion.

A 2012 study by the National Conference of State Legislatures concluded states were losing $23 billion in potential sales tax revenue and predicted the arc of those "losses" would accelerate with growing online business.

In a 2015 case, Supreme Court Justice Anthony Kennedy wrote that the internet sales tax ban was "now inflicting extreme harm and unfairness on the states" and that it was time to revisit Quill in light of changing technology.

South Dakota and 20 other states responded by passing "kill Quill" laws.

Even opponents concede the law before the high court is one of the least onerous in play since it exempts from having to collect the tax small firms with less than $100,000 in annual sales or fewer than 200 customers in South Dakota.

The National Retail Federation and large brick-and-mortar firms such as Walmart are lobbying for this change both in the courts and on Capitol Hill, as their supporters believe an online sales tax requirement could help them preserve market share.

Big Business on board

President Trump's solicitor general has argued on South Dakota's behalf, and 35 states have weighed in to back it up. Trump's appointment to the high court, Neil Gorsuch, is one of three justices who neutral legal observers are convinced will rule in favor of an internet sales tax.

Matt Cookson, executive director of the New Hampshire High Technology Council, said whatever the cost and complexity, this additional mandate across the country could depress e-business growth.

"You look at small internet retailers that are going national, and we have a number of them, this could be a real obstacle," said Cookson, whose group hasn't weighed in on this issue.

"If you've got, say, only five sales in Wisconsin, do you want to as a business have to figure out how to file the proper forms?"

Meanwhile, Amazon, the largest e-commerce retailer, collects sales tax on sales sent to their customers in the 45 states that have one.

This was done partly in response to some state tax collectors who forced the company to collect the tax if products were actually sold from a warehouse in their home states.

Manchester chamber executive Skelton said this dispute is too complex and multi-dimensional to be decided in a high court opinion. "When you consider just how large and significant e-commerce has become in our lives, it almost touches every aspect and that will only accelerate in the future," Skleton added.

"This only underscores the fact this is something that needs to be crafted carefully through policy-making and not court decisions."

The justices are expected to make their ruling by June.

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