Editorial: Sales Tax Grandstanding in Concord Feels Good, Means Little

  • Packages move along a conveyor belt at the Amazon.com Inc. fulfillment center in Robbinsville, New Jersey on June 7. MUST CREDIT: Bloomberg photo by Bess Adler.

Saturday, August 04, 2018

The next time the Statehouse in Concord is renovated, a grandstand ought to be erected to provide the proper venue for crowd-pleasing but meaningless charades such as the one put on recently by the governor and the New Hampshire Legislature regarding internet sales taxation.

In June, the U.S. Supreme Court ruled that internet retailers can be required to collect sales taxes even in states where they have no physical presence, overturning a precedent set in a 1992 case. This is perhaps nothing more than the court’s belated bow to altered circumstances: Back then, internet retailers were scrappy newcomers trying to establish a foothold in the market; now they are behemoths. In the meantime, state governments have been deprived of billions of dollars in annual revenue, and bricks-and-mortar retailers have struggled to compete on a playing field that was tilted against them.

Not long after the ruling, Gov. Chris Sununu and legislative leaders sounded the alarm and proposed protecting “the New Hampshire Advantage” by erecting a series of legal hurdles that other states would have to clear in order to receive the sales-tax revenues due them. The rationale for this was not quite clear. The fact that New Hampshire does not itself choose to have a sales tax cannot have a bearing on the legal obligation of online retailers to collect them for states that do. That is perhaps why Attorney General Gordon MacDonald chose to defend the initiative on other, irrelevant grounds. “New Hampshire has a long and proud history of frugality and limited taxation,” he said. “New Hampshire has a very strong interest as a sovereign in maintaining the advantage that it possesses as a state with a very unique tax structure, including an absence of a retail sales tax.”

A bipartisan task force then cobbled together legislation in a few days and rushed it before a special session of the Legislature. It passed unanimously in the Senate and Sununu prepared to sign it, presumably to hearty applause of the business community in this midterm election year.

But a funny thing happened on the way to the grandstand full of cheering voters. Liberal Democrats and conservative Republicans in the House combined to gut the measure, effectively killing it. Critics pointed out what backers of the legislation chose to ignore: that under the U.S. Constitution, Congress has sole responsibility for regulating interstate commerce; that by jumping out front and trying to erect legal barriers, New Hampshire might become the target for a crushing lawsuit brought by deep-pocketed states that have sales taxes; that the bill as proposed was a rush job put together by the legislative leadership without the input of rank-and-file members; and that nobody yet knows how the Supreme Court ruling will play out, given that the requirement still holds that a business has to have a “substantial nexus” within a state in order to be compelled to collect sales taxes. Previously that “substantial nexus” was a physical presence; now it could be, for example, volume of sales. So no one even knows how many New Hampshire businesses would be affected by the ruling.

In short, the bill was good protectionist theater, but horrible policy. We give the penultimate word here to Rep. Dan Eaton, D-Stoddard: “It was raw politics, pure politics, feel-good stuff, to accomplish nothing.”

All in a day’s work for New Hampshire state government.