New Hampshire Legislature puts brakes on governor’s response to South Dakota v. Wayfair, Inc.

New Hampshire Governor Chris Sununu is vehemently opposed to letting other states tax New Hampshire businesses.

After the Supreme Court of the United States removed the physical presence rule by deciding in favor of South Dakota in South Dakota v. Wayfair, Inc. (June 21, 2018), thereby permitting states to tax sales by out-of-state businesses, the governor launched into action. He established a bipartisan task force to draft New Hampshire’s response to the decision (SSSB 1) and called a one-day special session of the legislature to discuss it.

SSSB1 sought to create obstacles for states wishing to require New Hampshire businesses to collect and remit tax on their remote sales into other states. It included such hurdles as requiring other states (“a foreign taxing authority”) to register with the New Hampshire Department of Justice and reimburse New Hampshire businesses for any incurred compliance costs, including initial setup costs.

The Senate approved SSSB 1 (unanimously) during Wednesday’s special session. The House did not.

By the time the House was finished with SSSB 1, all that was left was the creation of “a commission to study ways to protect the state’s tax advantage.” This was rejected by the Senate, which has promised to bring a new bill to the floor.

So, is the House for allowing other states to impose a tax collection obligation on New Hampshire businesses?

It seems members’ reactions were mixed. Some found the process too rushed. Some believed it didn’t go far enough. As Representative Carol McGuire explained, “The New Hampshire advantage is ‘no sales tax.’ It is not ‘only sales tax for those jurisdictions who can jump through hoops. We need to draw a line in the sand and say, ‘We support the New Hampshire advantage, that is, no sales tax, no how for nobody.”

Others thought the bill was unconstitutional. Many worried SSSB1, if enacted, would trigger an avalanche of lawsuits. House Democratic Leader, Steve Shurtleff: “I think it would have ended up in federal court over possibly New Hampshire violating the commerce clause.”

It’s a valid concern, according to Professor Daniel Hemel, who specializes in taxes at the University of Chicago Law School. He notes, “Our Constitution doesn’t allow states to wall themselves off from the operation of other states’ laws (hat tip to WSJ).

So far, New Hampshire is the only of five states with no general sales tax to respond to the Wayfair decision with legislation. The other no-sales-tax states are Alaska, Delaware, Montana, and Oregon, (many Alaska localities do levy a local sales tax).

Yet opposition may be mounting at the federal level. The House Judiciary Committee met July 24 to discuss the ramifications of the Supreme Court’s decision in South Dakota v. Wayfair, Inc. It was an information-gathering session, but some members of the committee indicated there may be a need for Congress to intervene. Learn more here.

Congress could act. As the Wayfair opinion notes: “The Constitution grants Congress the power ‘[t]o regulate Commerce … among the several States. … Congress may legislate to address … problems if it deems it necessary and fit to do so.”

Bringing this full circle, as New Hampshire’s state legislators return to the drawing board, New Hampshire Senator Maggie Hassan says she will stand strong “against burdensome regulations that hurt our innovative small businesses and weaken our state’s economic strength.”

Along with fellow New Hampshire Senator Jeanne Shaheen and Senators Jon Tester (Montana) and Jeff Merkley (Oregon), Sen. Hassan has cosponsored the Stop Taxing Our Potential Act of 2018 (STOP). It seeks to prohibit states from imposing a tax collection obligation on any business without a physical presence in the state. Learn more here.

Learn more about South Dakota v. Wayfair, Inc. and it’s potential impact on businesses here.