When It Comes to Cross-Border Sales Tax Fight, N.H.'s Been Here Before

Jul 12, 2018

Credit JJBers via Flickr/Creative Commons

A major ruling by the U.S. Supreme Court last month means that states that impose a sales tax can now require businesses located outside of their borders to collect that tax and turn the money over. It’s a big deal for New Hampshire, one of the few states without a sales tax.

State lawmakers this week began work on a response to the Supreme Court ruling. They are trying to find a way to mitigate the impact on New Hampshire companies that sell goods online. The situation, in many ways, parallels a 2009 dispute involving the state of Massachusetts -- and a tire company.

 [Editor's note: we highly recommend listening to this story.]

Town Fair Tire’s New Hampshire locations near the state’s southern border attract plenty of Massachusetts customers, in part, because New Hampshire doesn’t have a sales tax, while Massachusetts does.

Under Massachusetts law, if a resident crosses the border and buys a good that is going to be used back in Massachusetts, there is supposed to be what’s called a "use tax" paid.

But since Massachusetts residents weren’t voluntarily paying this tax, the Bay State went after Town Fair Tire. They slapped them with a six-figure tax bill, arguing that the company should have known based on the address of the customer that these products were going to be used in Massachusetts.

This, of course, didn’t sit well with Town Fair Tire or with New Hampshire lawmakers.

“It was a bipartisan objection,” says Bill Ardinger, head of the tax department at the law firm Rath, Young and Pignatelli in Concord. He says the response to Massachusetts attempting to impose this tax on a New Hampshire business was galvanizing.

“New Hampshire felt that the assertion of that auditing enforcement activity by Massachusetts against a New Hampshire business in a New Hampshire location was too far.”

Too far. They were going too far in trying to enforce their tax laws in the Live Free or Die state.

As a result, two things happened: first, a legal battle within the Massachusetts courts that Town Fair Tire eventually won.

Second, and more relevant to today, is that the New Hampshire legislature quickly got to work on a piece of legislation. The bill, SB 5, said that New Hampshire companies shall not turn over private customer information to other states’ taxing authorities. That way, they’d have no way of knowing if the customer was a Massachusetts resident.  

U.S. Senator Maggie Hassan, then a State Senator, sponsored the bill.

“Other states decide to have a sales tax, that’s there right. But they have a relationship with their citizens, they can work to collect sales tax from their citizens,” says Hassan. “They can’t force businesses in New Hampshire to do that for them.”

Beyond its legal protections, this bill was also a symbol--it was a show of support from the legislature for New Hampshire businesses.

In the wake of the recent Supreme Court ruling, those businesses again may be in need of some help. The court cleared the way for states to require companies that sell online to collect and remit a sales tax to the customer’s home state regardless of if the business has a "physical presence" in the state, and even if the company is based in sales tax-free New Hampshire.

This week, Governor Chris Sununu launched a special legislative session to craft a new bill to try to slow or stop other states from forcing New Hampshire businesses to collect a sales tax. He says lawmakers could follow the same playbook from 2009.

“I don’t know if it will mirror that, but it will may have aspects to that, whether it be aspects of that language that I think were very successful,” he says.

Success this time around may be more complicated than just a tire store and some over-eager Massachusetts tax collectors. There are now going to be 45 states looking to collect what they believe is rightfully theirs.