State of Wayfair: New Hampshire Steps Back

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 Tripp Baltz

Here’s what happened in the brief life of New Hampshire’s anti-online sales tax law. Gov. Sununu (R) proposed it. The state Senate unanimously passed it. And just as quick, the House scuttled it.

The bill was touted as a way to protect residents and businesses in New Hampshire—one of five states that lack a statewide sales tax—from sales and use tax collection requirements imposed by other states after Wayfair. It would have forced taxing states—dubbed “foreign taxing jurisdictions"—to register with the New Hampshire attorney general, and thereby waive their sovereign immunity, along with other unpalatable provisions.

Concerned about constitutionality questions, and perhaps worried the measure would paint a lawsuit bullseye on the state’s back, a 13-member House majority killed the bill in a one-day special session July 25.

The June 21 South Dakota v. Wayfair ruling—which tossed out Quill Corp. v. North Dakota, the Supreme Court’s 1992 physical presence threshold for when states could tax remote sales—has many states looking to expand their authority over online sales taxation. It caused New Hampshire to consider going loudly in the other direction.

The majority in the 5-4 ruling suggested strongly that South Dakota’s law would pass constitutional muster; the statute imposes a tax collection threshold at 200 transactions or $100,000 in in-state sales. But the court stopped short of formally declaring South Dakota’s law valid in the absence of Quill, and the South Dakota Supreme Court still has to bless the state’s economic nexus model before it can become effective. It’s expected to do so in mid-August. In the wake of the groundbreaking decision, dozens of states that haven’t already done so are mulling whether to copy South Dakota’s law.

Tax Foundation Checklist

Do this, not that.

Several groups and individuals submitted written testimony July 24 to the House Judiciary Committee, which held a hearing on the Wayfair ruling and its implications for states and taxpayers.

The Washington-based Tax Foundation submitted a checklist of actions for Congress and the states to take in the aftermath of the ruling. If states want their laws to pass constitutional muster ultimately, embrace the following provisions of the South Dakota law, the foundation said:

  • a safe harbor for small businesses,
  • no retroactive collection,
  • single, state-level administration of sales taxes,
  • uniform definitions,
  • simplified rates,
  • software, and
  • immunity from trouble when the software makes a mistake.

For Congress, the foundation gave the following advice. Codify Wayfair, as one pending bill would do, and the key elements of the South Dakota law. Neutralize the retroactivity threat. Adopt a different nexus standard ... or ... as they have for the decades since Quill in this arena: “Do nothing.”

MTC to Congress: Whoa on Wayfair

Stand down, Congress!

The Multistate Tax Commission approved a resolution July 25 “urging restraint” by Congress as states and other stakeholders work things out, Wayfair-wise. Let states do it “without federal intervention,” the resolution said.

“Congress had the opportunity to act with respect to remote-seller collection authority and its efforts have, for decades, been unsuccessful,” the resolution said. As a result, states have lost billions in owed taxes, said the MTC, an intergovernmental agency that promotes uniformity across state taxing systems.

The MTC Executive Committee is scheduled to hear a proposal July 26 from retail groups that have led much of the state-side litigation against online sales tax regimes, including the Wayfair case. The groups are interested in discussing a deal on simplification and uniformity measures that would ease the burden of multistate sales tax collection by remote sellers, while enabling states to obtain the tax due on purchases by their residents.

Paying for Tax Cut in Arkansas?

Meanwhile, a potential windfall from Wayfair could help give Arkansas the wiggle room it needs to pay for a proposed tax cut.

A legislative task force will hear testimony July 26 and 27 on ways to finance Gov. Asa Hutchison’s (R) proposed cut to the state’s top marginal tax rate to 6 percent from 6.9 percent, which has a price tag estimated to be as high as $280 million. Now revenue collected on remote sales could be in the mix.

The current Arkansas threshold for online sales taxation turns on physical presence within the state, according to Department of Finance and Administration regulations. However, the Arkansas use tax definition of a vendor doesn’t really say the “extent to which that vendor needs to have a presence in Arkansas one way or another,” said Matthew C. Boch, co-author of Bloomberg Tax’s Arkansas Corporate Income Tax Navigator.

And that all could change post-Wayfair.

2019 in Nebraska

It’s unlikely lawmakers will gather for a Wayfair special session in the Cornhusker State.

After the U.S. Supreme Court ruling, about a dozen Nebraska legislators said they were interested in taking a look at the tax code in response to the opinion. But the state’s Tax Rate Review Committee, which met July 23, didn’t recommend a special session to do that. Nebraska Gov. Pete Ricketts (R) has said he prefers kicking questions about Wayfair into 2019.

The state Department of Revenue, however, will release guidance soon to address the responsibilities of remote sellers going forward, Jim Bogatz, department spokesman, told Bloomberg Tax July 25.

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