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Column: N.H.’s Battle Over Online Sales Taxes Continues

For the Valley News
Published: 8/18/2018 10:29:23 PM
Modified: 8/18/2018 10:30:12 PM

When serious issues come up during campaign season, it is hard for those trying to address them to speak through the noise.

On July 25, the New Hampshire House turned down a legislative response to a historic U.S. Supreme Court decision on the sales tax (South Dakota v. Wayfair, Inc.). I was on the task force that developed that bill, and my Republican chair, Rep. Norm Major, ran it.

The bill was constitutional, professional and as effective as those constraints allow. The noise around it was not.

Major and I have worked on this issue for two decades, first responding to New Hampshire sales tax bills and then within the National Council on State Legislatures’ task force on the “streamlined sales tax,” which developed and lobbied for a congressional bill that would require out-of-state vendors to collect and remit sales taxes to customers’ states.

We opposed it, and made the group mitigate (not always adequately) many of its ill effects on businesses — but only for the 24 states, including Vermont, that joined the streamlined sales tax initiative, and some of the 24 joined with the intent of removing key protections for small businesses later.

When Congress didn’t act, the task force set up a court challenge to the “physical presence” rule, which led to the Supreme Court’s Wayfair decision.

New Hampshire’s congressional delegations have engaged in this battle for 15 years. We all know that overturning the old physical presence rule would be a major threat to many of our state’s retailers engaged in online sales for all or part of their business.

The Supreme Court said the physical presence rule (which said a taxing authority couldn’t require collection by businesses with no employee or real estate within its jurisdiction) was outdated, and that the fiscal harm this rule does to 44 states is larger than the financial harm to businesses that would have to collect taxes.

The court’s majority and minority opinions all agreed the rule was bad. But five justices found the protections included in lower-court case law would adequately mitigate damage to smaller businesses, and four justices found they might not.

Physical presence was an easy and overarching rule to apply, so the other protections haven’t been fully determined by the Supreme Court or codified by Congress.

These protections are not currently in law or case law in all sales tax states. They include:

No business must collect taxes on sales made before it is told it has an obligation to do so.

There shall be a floor exempting businesses that sell less than a certain amount (ranging from $100,000-$250,000) into a state.

A jurisdiction must provide sales tax information and conduct audits in a way that does not overly burden a business if a large number of the 10,000 or more taxing jurisdictions in the U.S. come after it.

These are items that the streamlined sales tax task force agreed on. But 20 states have systems too different to allow them to comply.

One example of the difficulty: Colorado’s constitution will not allow the state to tell its subdivisions what and how to tax. If my New Hampshire yarn shop sells to a Colorado customer, I must determine that customer’s town and county, and get the rules for four sales taxes: a state “transportation tax,” a sales tax, a county tax and a town tax. Any of these might exempt a sale under some small amount; any might tax wool yarn differently than synthetic.

All sales taxes are full of holes like this.

Wonder how Kittery, Maine, manages to exist as it does, right on the border of sales-tax-free New Hampshire? Maine exempts a lot of the goods a tourist might buy there from its sales tax. And Vermont recently was exempting clothing bought within 10 miles of New Hampshire’s borders.

These complications help make sales tax software expensive, as are set-up and maintenance of many product lines, and undergoing audits from multiple jurisdictions.

If the above protections are clear and nationally required, the whole system works better and allows interstate commerce to thrive — the intent of the Constitution’s Commerce Clause. Our U.S. senators’ staffs estimate it will be two years before small-business complaints in sales tax states, which must also now collect for multiple other jurisdictions, cause Congress to begin to work on a serious solution.

Our defeated bill required outside jurisdictions to register with the attorney general’s office, provide information on how their sales tax works, which businesses they think should collect it, and why.

It encouraged New Hampshire businesses to report to the attorney general when contacted to comply by a specific jurisdiction, something the attorney general’s office still wants (by calling 603-271-1221).

And it would have set up an internal system to verify that the jurisdiction is real (remember the IRS scammers?) and decide if its taxing law and rules deviate too far from the standard protections favored (but not decided or determined) in the Wayfair decision.

If so, it would file a lawsuit in New Hampshire courts seeking to enjoin the tax collection by that entity, perhaps getting the court to deny that jurisdiction’s collection authority until the lawsuit is decided, and forestalling action in another state’s court, whose decision would have to be enforced by our courts on our businesses.

Ideally, the lawsuit would bump up immediately to federal court to become a test case and, we hope, speed the process of defining the other protections, either in court or Congress, and influence that process to achieve better protections for the small businesses so important to our economy.

After elections, perhaps we can get this done. But due to Wayfair, 43 sales tax states and their subsidiaries can send out tax letters right now. A 2017 Government Accountability Office report on the streamlined sales tax bill’s economic implications mentioned that one state had already sent out such letters to 200 businesses in other states demanding an estimated amount. About half paid because it would cost more to contest and audit than to pay.

This is what we need to stop, for our citizens, our economy and the national economy.

Far from being unconstitutional, codifying how sales tax collection will work in the post-Wayfair world is necessary for interstate commerce, as the Supreme Court’s decision recognized.

Susan Almy, of Lebanon, is in her 11th term as a Democratic member of the New Hampshire House of Representatives. She is past chair of the House Ways and Means Committee.

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