New Hampshire on the hunt for fraudulent tax bills

New Hampshire Governor Christopher Sununu is concerned about the potential impact of South Dakota v. Wayfair, Inc. on New Hampshire businesses. In its decision, the Supreme Court of the United States overruled the physical presence rule that’s long prevented states from taxing sales by businesses with no physical presence in the state. States now have a path to tax remote sales, including those by New Hampshire sellers.

South Dakota has yet to enforce the economic nexus law that triggered the suit, which imposes a tax collection obligation on remote businesses with gross sales into South Dakota exceeding $100,000, or at least 200 separate transactions into the state. The Supreme Court remanded the case to state courts for further proceedings, and that will take some time. Eager to speed up the process, South Dakota Governor Dennis Daugaard has scheduled a special session of the legislature on September 12 to address the issue.

While the patience of South Dakota is tested, many other states are adopting sales tax economic nexus policies of their own. Most of these are inspired by South Dakota’s law and use the same $100,000/200 transactions thresholds. Although many states won’t enforce economic nexus until later this year or early 2019, it took effect in Hawaii, Maine, and Vermont on July 1, 2018. The Vermont Department of Taxation is already seeing the effects of its new policy, which is expected to increase sales tax revenue by $2–6 million this year.

As a state with no sales tax, New Hampshire will not benefit from the Supreme Court ruling in South Dakota v. Wayfair, Inc. Instead, its businesses may have to do something they don’t usually do: collect and remit sales tax.

To protect them from that obligation, the state is preparing for war.

NH has no sales tax

Gov. Sununu’s initial response to the Wayfair decision was to warn anyone who tries to impose a sales tax collection obligation on New Hampshire businesses to prepare for “the fight of your life.”

State lawmakers largely share his opinion. During a July 25 special session of the Legislature, the Senate unanimously approved a measure that would hinder efforts by other states to impose a sales tax collection requirement on New Hampshire businesses. However, the House paired it back substantially, merely establishing “a commission to study ways to protect the state’s tax advantage.”

The governor is undeterred. On August 23, he issued a joint statement with Attorney General Gordon MacDonald and Economic Affairs Commissioner Taylor Caswell explaining steps the state is taking to protect New Hampshire businesses following the Wayfair decision. These are:

• The Department of Justice (DOJ) has prioritized efforts to detect and alert New Hampshire citizens to potential scams in which an individual impersonates another jurisdiction’s taxing authority in an attempt to acquire payment or sensitive customer data
• The DOJ has dedicated resources to gather information related to actual efforts of other taxing jurisdictions to impose their sales and use tax obligations on New Hampshire businesses
• The state has created a single website to serve as the central clearinghouse for information about this topic: NH Has No Sales Tax.

The site cautions businesses to be on the lookout for “fraudulent efforts to gain business information or even seek payment of fraudulent tax bills.” That seems to include efforts by other states: “The Department of Business and Economic Affairs strongly urges businesses that receive requests for information related to the collection of sales tax from out-of-state taxing authorities to immediately alert their accountant, attorney, and other advisors to determine a course of action.”

Meanwhile, Representatives Jess Edwards and Kevin Scully are drafting legislation that “would challenge the whole foundation of the Supreme Court’s decision.” It’s based on the premise that “any out-of-state taxing is against New Hampshire’s constitution and unlawful.” Expect to hear more about it after the New Hampshire Legislature convenes in January 2019.

For now, however, approximately half the states in the nation are working under the assumption that they have the authority to tax certain remote sales. Many have adopted South Dakota–style economic nexus laws, whereby a tax collection obligation is triggered when a remote seller has more than $100,000 in sales in the state, or 200 or more separate transactions.

Economic nexus policies took effect in a handful of states on July 1, 2018. More will come on line in the following months, particularly October 1, 2018, and January 1, 2019. For more information, visit this Avalara resource page.