Economic Nexus in Tax Exempt States

Posted on July 12, 2018

On June 21, 2018, the U.S. Supreme Court issued a decision in South Dakota v. Wayfair abandoning the physical presence standard for state sales and use tax nexus as set by Quill v. North Dakota and National Bellas Hess v. Department of Revenue of III. This decision allows states to impose sales and use tax collection and remittance duties on remote or online sellers who have an economic presence in a state, set by a dollar or transaction threshold for sales delivered into the state. The ruling can create further taxation of e-commerce in all states. One by one, states are updating their policies on the new ruling, however there are five states with no sales tax which will create many questions for business owners.

The five states with no state sales tax are Delaware, Montana, Oregon, New Hampshire, and Alaska. Regarding the decision, businesses in these states may be required to collect out of state taxes if they meet the economic nexus requirements.

Response to Wayfair Decision

States that chose to waive sales and use tax rely on this as an advantage over other states. The Supreme Court ruling does not recognize how sales tax-free states draw many citizens to live, work, and start businesses for that specific reason.

Among the exempt states, New Hampshire has proposed a strategy to fight the Wayfair Supreme Court decision. New Hampshire will erect every possible and constitutionally permissible legal and procedural hurdle to prevent other states from forcing New Hampshire businesses to collect sales and use taxes.

“Expanding state sales tax authority over interstate commerce is bad policy, and will have major impact on one of New Hampshire's built-in economic advantages — our willingness to provide a major benefit to our state's business community by choosing to forego sales taxes of any kind,” said BEA Commissioner Taylor Caswell.

New Hampshire’s new provisions include:

  • Any out of state taxing authority seeking to audit or enforce tax collection obligations on a New Hampshire business will be required to notify the New Hampshire Department of Justice.
  • The out of state taxing authority will be required to receive a written determination, from the New Hampshire Department of Justice that the authority’s statutes provide certain protections and meet strict requirements. These protections and requirements will include a safe harbor for small businesses.
  • The out of state taxing authority will have to show that its laws will not impose an unconstitutional burden on New Hampshire businesses.
  • The New Hampshire Department of Justice will be empowered to file an expedited suit to block any attempt to impose tax collection obligations undertaken in violation of this new law.

“With this proposal, we will send a message to every out of state taxing jurisdiction and authority. If you try to come into our state and force our businesses to collect a sales tax in manner that violates our laws or the United States Constitution, you will be in for the fight of your life,” New Hampshire Governor Chris Sununu said. “Live free or die is not just a slogan on a license plate. It is the very essence of who we are. Our State Constitution says that ‘the people of this State have the sole and exclusive right of governing themselves as a free, sovereign and independent State.’ Working together, we will do everything in our power to prevent other States from violating this principle by imposing arcane sales and use tax obligations on New Hampshire businesses.”

Tips for the Taxpayer

If you are a remote seller making sales into states with economic nexus legislation, there are many factors to take into consideration. Business owners should check the requirements of each state they do business in as regulations will be changing within the following months. Allyn will continue to release publications and news releases related to the Wayfair decision. We recommend staying abreast of the changes by keeping up with our updates as well as those issued by state taxing authorities where your business has a large economic presence.

Contributor:  Dustin Kato

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