Sales Tax Slice: Bills, Bills, Bills as No-Sales Tax States Seek to Counter Wayfair with Legislation

In anticipation of the Supreme Court’s ruling in South Dakota v. Wayfair, Inc., many states rushed to enact economic nexus laws similar or identical to South Dakota’s. Although the Supreme Court did not directly rule that South Dakota’s law was constitutional, it did approvingly cite the elements of their statute. Other states have taken this as a green light to begin enforcing these economic nexus rules. But this momentum has left another group of states taking a different tack: states with no sales tax.

New Hampshire, Delaware, Montana, Oregon, and Alaska do not impose a sales tax on the sale of tangible personal property. Until the Supreme Court’s ruling in Wayfair, a retailer in one of those states could have relied on the physical presence requirement of Quill and National Bellas Hess to avoid having to collect and remit any sales or use tax so long as they kept their presence within a no-tax state. Now that states are charging ahead with their economic nexus provisions, retailers in no-tax states might see the end of what Justice Kennedy called a “judicially created tax shelter.”

New Hampshire has taken the lead in its opposition to the Wayfair decision and its implication for New Hampshire-based retailers, as reported by Bloomberg Tax’s Aaron Nicodemus. Gov. Chris Sununu (R) has stated that he will seek to “erect every possible and constitutionally permissible legal and procedural hurdle.” To achieve this end, the legislature has been called back into session to consider a bill, and a draft has been released. The bill would force other states seeking to impose collection requirements or seeking information from New Hampshire-based retailers to first seek approval from the state attorney general. The foreign state would first file a registration and pay fee at least 90 days before proceeding against a retailer. New Hampshire would then review the registering state’s law to determine whether it complies with the U.S. Constitution and state law, using the elements of South Dakota’s law as a guide.

On the federal side, senators from several no-tax states have proposed the Stop Taxing Our Potential Act (STOP Act) which would overturn Wayfair and limit sales tax collection requirements to those with physical presence in a taxing state. The STOP Act would also define physical presence to exclude click-through nexus, and would exclude marketplace providers and referrers from the definition of “sellers”; reporting requirements would be prohibited without this physical presence.

In addition, Rep. Bob Goodlatte (R-Va.) has scheduled a hearing on taxing remote sales for the House Judiciary Committee as early as next week, as reported in the Daily Tax Report: State.

Continue the discussion on Bloomberg Tax’s State Tax Group on LinkedIn: Do you think Congress will act to overturn Wayfair?

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