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Stage set for internet sales tax battle

New Hampshire Union Leader

July 12. 2018 11:48PM

CONCORD — Talk about New Hampshire fighting off an internet sales tax turned to action on Thursday as lawmakers began the painstaking work of building a statutory firewall to protect the state’s online merchants from having to collect sales taxes for hundreds of jurisdictions across the country.

In preparing for a special session on July 25, senators and representatives participated in workshops where draft legislation was presented and discussed in question and answer sessions by high-ranking officials in the administration of Gov. Chris Sununu.

Sununu announced plans to call the state Legislature back for a special session in late June, soon after the U.S. Supreme Court announced its ruling in South Dakota v. Wayfair. (See related editorial, Page A6)

In a 5-4 vote, the justices ruled that states like South Dakota, which has a sales tax, could collect that sales tax from online retailers in other states, including the five states like New Hampshire that do not have a sales tax of their own. Individual consumers in New Hampshire are not affected.

“New Hampshire has a compelling interest in responding to the Wayfair decision,” Attorney General Gordon MacDonald told lawmakers gathered in Representatives Hall for a morning-long information session hosted by the attorney general and John Formella, legal counsel to Sununu.

Also present for the morning workshop and an afternoon meeting of a legislative task force were Department of Revenue Administration Commissioner Lindsey Stepp, and Commissioner of the Department of Business and Economic Affairs Taylor Caswell.

Draft reviewed

They took lawmakers through a draft version of the legislation the governor would like to see approved, and answered questions, first from lawmakers at large and later in the day from the 17-member House-Senate Wayfair Task Force, led by Rep. Norman Major, chairman of the House Ways and Means Committee, and Senate Majority Leader Jeb Bradley.

The eight-page draft puts into legislative language what Sununu proposed in his June 28 announcement. Any state or other taxing authority seeking to collect sales taxes from a New Hampshire business would be required to notify the N.H. Department of Justice in writing.

Before collecting any money, the out-of-state taxing authority will be required to receive a written determination from the N.H. Department of Justice that the authority’s statutes provide certain protections and meet strict requirements, including an exemption for a certain dollar volume of sales, a prohibition against retroactive enforcement and an exemption for small businesses.

The DOJ would be empowered by legislation from the July 25 special session to file a lawsuit to block any attempt to collect sales taxes in violation of the anticipated new law.

The hope is to make collection of sales taxes from New Hampshire businesses so cumbersome that the 45 states that have a sales tax won't even bother.

Feedback welcome

MacDonald emphasized that the legislation is in draft form, and other ideas are welcomed.

“No one has a monopoly on the right answers,” he told lawmakers. “Other ideas are welcome. Other approaches are welcome. Feedback is welcome.”

When asked what business owners should do if they start receiving tax notices from out of state, Formella urged them to contact the Attorney General’s office.

“The Department of Justice can’t give legal advice to individual businesses, but one thing we can encourage is that they be vigilant for any notices they get from other states and reach out to appropriate New Hampshire authorities,” he said.

MacDonald also urged business owners to beware of scammers claiming to be tax collection authorities. “Be vigilant against potential scamming and scammers,” he said, “because I think there is ripe opportunity for that.”

Facing liability

State Sen. Sharon Carson, R-Londonderry, expressed concern that the proposed legislation creates a structure by which out-of-state taxing authorities could conceivably get permission to audit and tax the state’s online retailers if they manage to jump through all the hoops.

“I think we need to make a strong statement that we are not going to let another state come in and audit our businesses,” said Carson.

Formella responded that some degree of realism is required.

“If we just passed a blanket law that said other states can’t come in, it may give our businesses some comfort, but then we put them at risk because they are relying on that statute, and if it doesn’t survive challenges, they could be exposed to liabilities,” he said.

Stepp pointed out that New Hampshire revenue officials audit businesses in other states for business taxes they may owe the Granite State.

“With regard to business taxes, we do go to businesses in other states and ask to audit them because we believe they have a liability to remit taxes to New Hampshire,” she said. “This is a fine line. We are in a unique position regarding sales taxes, but we want to be able to preserve the revenue we raise today through business taxes.”

Courts Business Politics

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