The U.S. Supreme Court’s decision to overturn precedent and allow cities and states to collect sales taxes on goods sold online is certainly bad for New Hampshire. Whether it’s “disastrous” for the state’s economy, the word used by most of the state’s congressional delegation, depends on Congress. If it acts to standardize reasonable rules governing the taxation of internet sales, significant economic harm, if not disaster, will be avoided. If not, the Granite State and its thousands of small businesses will suffer.
The court’s ruling was probably inevitable. Online sales have become too big a factor in the economy, and too big a disadvantage to brick-and-mortar businesses in the 45 states that levy sales taxes, for states and the high court to ignore.
Between cities, counties and states, there are some 12,000 sales tax venues, each with its own rules, levies, permits and limits. Before the internet, there was no way even a medium-sized company could comply with all their laws. Now, within hours of the high court’s ruling, companies began selling, or in one case giving away, sales tax tracking software to retailers. Retailers will have little choice but to pass the cost, in time and money, of serving as tax collectors to their customers, both in-state and out.
Gov. Chris Sununu has called for a special legislative session to craft state laws to protect New Hampshire businesses, but we fail to see how they can avoid complying with the high court’s ruling. New Hampshire can set up hurdles to the collection of taxes on out-of-state sales, but the power to regulate interstate commerce lies with the federal government.
The five states that lack a sales tax, Oregon, Alaska, Montana, Delaware and New Hampshire, could retaliate by enacting a sales tax of their own but that would do even more harm to retailers in those states. It would also impose what is a particularly regressive tax.
According to the nonprofit, nonpartisan Institute of Tax and Economic Policy, the poor pay 7 percent of their income in sales and excise taxes, middle-income households pay 4.7 percent, and the wealthy just 1 percent.
South Dakota, which took the online home goods company Wayfair to court to collect that state’s 4.5 percent sales tax on internet sales, requires any company with more than $100,000 in online sales, or that fulfills more than 200 orders, in that state to pay sales taxes. Some states set the limit at $250,000 or more. Some disregard the number of sales within the state and tax solely based on total sales revenue.
Despite the lines that form before holidays, the bulk of Concord’s Granite State Candy Shoppe sales are online. Will chocolates be exempt as food or taxed? It could depend on where the buyer lives. Illinois, for example, taxes Snickers bars, which contain mostly the same ingredients as Twix bars, but it does not tax the latter because that confection includes a bit of flour.
We’d like to see New Hampshire’s congressional delegation promote legislation barring the taxation of online sales of less than $250,000 in a given tax district, irrespective of the number of sales. Small businesses like Granite State Candy might easily exceed the 200 order limit in a city or state but most would be unlikely to exceed the $250,000 sales cap.
The internet has been a boon to small business. It must not become a burden.