Maine Governor Snubs Digital Sales Tax Bill

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Aaron Nicodemus

Maine Gov. Paul LePage (R) vetoed a bill June 20 that would have broadened the state’s taxing authority over remote retailers.

The governor rejected L.D. 1405, which would have required sales tax collection from out-of-state sellers with annual in-state sales exceeding $100,000 or 200 separate transactions. The proposed “economic nexus” legislation tracks the same sales threshold adopted by several other states—all following the lead of South Dakota, which is engaged in litigation over the constitutionality of its law.

In a letter to lawmakers, LePage said that he vetoed the bill because he didn’t want Maine to become “a national outlier and needlessly expose the state to litigation.” He also said that small online retailers might cease selling their products to Maine customers, as some did when he signed an affiliate-nexus law in 2013. That law, L.D. 346, requires companies with affiliate programs to register and collect Maine sales tax on sales to Maine customers.

Maine’s bill was among many 2017 state proposals that took aim at the U.S. Supreme Court’s rule under Quill Corp. v. North Dakota, which prohibits states from imposing sales and use tax collection obligations on vendors without an in-state physical presence.

LePage’s letter noted that while he believes Quill should be overturned, “the establishment of nexus for the purpose of sales tax collection is a complex issue that requires a comprehensive approach.” LePage has supported the federal Marketplace Fairness Act, which would enable state governments to collect sales and use taxes from remote retailers without an in-state physical footprint. He urged Maine’s delegation to support the passage of a federal solution.

Maine lawmakers, who extended their session on June 21 by five days to craft a two-year state budget, can now decide whether they want to override the governor’s veto.

Litigation Update

Trade associations were considering challenging the Maine bill had LePage not vetoed it.

“Maine’s kill-Quill legislation will likely be enjoined by a court before it goes into effect,” Steve DelBianco, NetChoice’s executive director, told Bloomberg BNA by email prior to LePage’s veto. “It will meet the same fate as South Dakota and Tennessee efforts to blatantly ignore 150 years of U.S. Supreme Court doctrine.”

The South Dakota litigation is furthest along compared to other cases in Alabama and Tennessee, where legal challenges are percolating over economic nexus regulations that the states hope will encourage a “kill Quill” decision from the Supreme Court.

South Dakota’s litigation has reached the state Supreme Court after a lower trial court found the statute, S.B. 106, unconstitutional. State officials have long-acknowledged that the law conflicts with Quill, but are seeking an order that advocates for the U.S. Supreme Court to accept a subsequent appeal and overturn the 25-year-old physical presence rule.

Massachusetts also came under fire in a recently filed lawsuit over its nexus-redefining Directive 17-1, but the state has positioned its approach as Quill-compliant. The American Catalog Mailers Association (ACMA) and NetChoice have asked the Massachusetts Superior Court to invalidate the directive as unenforceable under several statutory and constitutional provisions. The lawsuit also seeks a preliminary and permanent injunction barring implementation of the directive.

That directive is scheduled to be implemented on July 1, but could be delayed pending the legal challenge. A hearing on the preliminary injunction has been scheduled for June 27.

Rhode Island Revving Up?

The finance committee in the Rhode Island House recently passed H 5175A, a $9.2 billion version of the state budget that includes language directing remote retailers to begin collecting state sales tax. The legislation’s language is similar to an earlier proposal crafted by Gov. Gina Raimondo’s (D) office.

The budget bill heads to the House for a vote on June 22.

To contact the reporter on this story: Aaron Nicodemus in Boston at anicodemus@bna.com

For More Information

LePage's veto letter to legislators is at http://src.bna.com/p4e.

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