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Fiery talk on sales-tax fight could be all smoke

New Hampshire Union Leader

June 30. 2018 11:18PM
Gov. Chris Sununu (David Lane/Union Leader file photo)

CONCORD - Gov. Chris Sununu has drawn a line in the sand on internet sales taxes, but it remains to be seen whether that line will hold after last month's Supreme Court decision in South Dakota v. Wayfair.

If New Hampshire's strategy to protect its online merchants succeeds, the state could become a haven for internet-based retailers, like how Delaware became the credit card capital, according to state Sen. Andy Sanborn, R-Bedford, who was among many lawmakers who joined Sununu in his strategy roll-out on Thursday.

But if 45 sales-tax states, most of them much bigger than New Hampshire, decide to fight back, the consequences could be severe. One tax policy expert suggests they could say, "If New Hampshire won't allow us to collect sales taxes on internet transactions, we won't allow New Hampshire-based retailers to ship into our state."

Both strategies are subject to legal challenges based on the interstate commerce clause in the Constitution, and the final verdict on the complicated issue is easily years away.

In a 5-4 vote on June 21, the Supreme Court 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.

A week later, in a moment made for pre-election optics, Sununu stood before the cameras at the State House and delivered a message to any state trying to collect taxes from New Hampshire's online retailers: "You'll be in for the fight of your life."

Sununu's strategy involves creating so many hurdles for other states attempting to collect sales taxes that they give up and leave us alone. When the Executive Council meets on July 11, the governor will seek a vote to summon lawmakers back for a special session to pass a law that puts such a plan into motion.

Extensive review

The draft legislation would require taxing states to submit to an extensive review of their statutes by the N.H. Department of Justice to determine that they meet certain requirements, including an exemption for a certain dollar volume of sales, a prohibition against retroactive enforcement and an exemption for small businesses.

Other states would have to prove their laws would not impose an unconstitutional burden on New Hampshire businesses, and the DOJ would be empowered by legislation from the special session to file a lawsuit to block any attempt to collect sales taxes in violation of the anticipated new law.

Sanborn said the hope is that New Hampshire can build "so many walls and roadblocks that states like South Dakota are going to decide the juice is not worth the squeeze."

"That gives us the ability to turn to businesses around America and say we are a safe haven," said Sanborn. "We are not going to allow other jurisdictions to force you to become their tax collector."

That sounds good in theory, says Kim Rueben, a senior fellow and director of state and local finance initiatives at the Tax Policy Center in Washington, D.C., a joint project of the Urban Institute and Brookings Institution.

"It's an interesting strategy," she said. "I'm not sure how it will stand up against interstate commerce rules, and I also don't know whether other states will decide to retaliate by saying, 'You can't ship your products to our state.' It feels a little bit like New Hampshire is setting up its own cross-state trade war."

New Hampshire already has rules of its own that control the shipment of wine into the state by online retailers.

Small-business concerns

Sununu repeatedly expressed concern for small-business owners in announcing the state's strategy, and had a small-business owner by his side for the announcement.

Jeff Bart, whose grandfather started the Granite State Candy Shoppe in 1927, has brick-and-mortar locations in Concord and Manchester, but says online sales now account for 20 percent of his revenue.

He was hard-pressed, however, to identify any one state into which he ships $100,000 worth of candy a year, which is the minimum amount that would trigger taxing action by South Dakota and many other taxing states.

"These laws are not trying to capture the truly mom-and-pop business," said Rueben. "The companies the lawsuit was brought against, and, are selling hundreds of thousands of dollars in multiple states."

New Hampshire does have big online retailers, some with corporate headquarters here, like Connections (formerly PC Connections) in Merrimack. But like many large companies, Connections has brick-and-mortar locations in sales tax states, including Ohio, Illinois and Pennsylvania, and so is already collecting and remitting taxes.

Bart says it's unclear whether his business will fall into the taxing category or not, and it's the uncertainty that makes business planning difficult.

"We don't know how the laws are written in every jurisdiction," he said. "My gut tells me that $100,000 amount might not apply in every case. I'd have to do a full analysis to fully understand whether our liability would be there or not."

Acting in Washington

On the same day the state launched its counterattack to the Wayfair ruling, its two senators in Washington responded with initiatives of their own.

Sens. Jeanne Shaheen and Maggie Hassan, both Democrats, joined with senators from Montana and Oregon, two other states without sales tax, to introduce the Stop Taxing Our Potential (STOP) Act. If signed into law, it would overturn the Supreme Court's decision.

Shaheen also joined Sen. Ron Wyden, D-Oregon, in calling on the Small Business Administration to develop a plan for firms that will be affected by the Wayfair ruling, with repeated references to small business.

"The internet has helped small businesses flourish by creating a more level playing field that allows them to reach new customers across the world," their letter states. "Until last week, these online small businesses were also protected from being forced to collect sales taxes in states where they have no physical presence."

Bart, whose candy shop falls into that small-business category, hopes Republican Sununu can work with the Democratic senators for a common cause.

"I'm very concerned with what's taking place and I appreciate his involvement," he said. "And I'm hopeful there will be continued cooperation with the national delegation in Washington to resolve this once and for all."

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