New Hampshire, one of five states in the U.S. that does not have a statewide sales tax on goods, is readying to take the sales tax fight back to the courts, in defense of small businesses.
On Wednesday, lawmakers will take up a bill that appears to have bipartisan support in both chamber and full support by New Hampshire Governor Chris Sununu that will effectively funnel a legal fight back to the U.S. Supreme Court.
In short, the bill requires an out-of-state jurisdiction to go through legal hoops to try to collect sales tax from a New Hampshire business.
Here are some of the key points of the proposed legislation by New Hampshire lawmakers:
- Out of state tax jurisdictions seeking to collect sales tax from New Hampshire businesses would have to register with the State Attorney General’s Office in advance. The registration must happen at least 4 months before the jurisdiction tried to collect sales tax.
- For those jurisdictions that do register with the state, the work to try to collect sales tax gets even more complicated. Under the proposed bill, every time a jurisdiction decides to demand sales tax collection from a New Hampshire business, it must first send a letter to the Attorney General’s office asking for permission. This letter is required for each individual transaction and it must be sent at least 120 days before the collection request is made.
- States must also pay a fee to register with the state of New Hampshire and provide compensation to small businesses for setting up software to handle sales tax collection for that state.
- Those states that fail to follow the law – if passed – would be automatically in violation of state law and move up to the top of the list on the Attorney General’s office for legal action.
Will This Work?
If a jurisdiction would follow the law as proposed, it could take up to eight months to collect the first sales tax Dollar from a single transaction.
That is the basic premise of the law, to make the collection so prohibitively expensive for other states that they would just drop it.
Other states are likely going to balk at having one state trying to tell them when and how they can collect sales tax. And that is what this whole law is really about, another run up to the U.S. Supreme Court.
If this law passes, the key issue for the courts to decide is state rights, and whose state’s rights trump another state’s rights.
Because the U.S. Supreme Court only interprets laws, it does not make them, in the South Dakota v. Wayfair, Inc. case, they only decided that physical location is no longer a proper way to define when states may require remote sellers to collect sales.
In that case, the justices only opined that South Dakota’s annual threshold of 200 transactions or $100,000 in sales, whichever comes first, is a reasonable minimum burden. They also agreed with the state’s no-retroactive enforcement provision of its law.
But, since there is no defined threshold that applies to other states, because no one really knows if the high court would look at proportional thresholds by population or some other metric, any legislation a state passes can come under legal scrutiny again.
And if New Hampshire’s “Sales Tax Wall” passes, everyone involved expects immediate legal action through the courts.
Should another sales tax-free state decide to follow New Hampshire’s law, that could put pressure on the Supreme Court to take up this potential argument pitting different state rights claims against each other.
An interesting proposition for a Supreme Court that is considered to be mostly in favor of state rights.
The bottom line is this fight isn’t over. The South Dakota v. Wayfair, Inc. decision was just the beginning.
Ideally, all states would like to see congressional action and there are already bills from lawmakers from state’s that effectively would overturn South Dakota v. Wayfair, Inc.
But is there wide support for such a bill in the U.S. Congress from lawmakers from states that are trying to enforce sales tax collection? Probably not.
Unless Congress somehow finds a way to step in with a bill that could pass both chambers, there will be many more years of legal brawls on sales tax to try to further define or try to redefine sales tax nexus again.
And if New Hampshire’s bill goes to the High Court and stands up to a constitutional challenge, that could open up a whole new can of worms of in-fighting between states.
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