CONCORD — At a hearing in Concord on Wednesday, four New Hampshire business owners detailed the time and money they have had to spend to comply with a 2018 Supreme Court decision that allows states to collect sales tax from out-of-state businesses.
Sens. Jeanne Shaheen and Maggie Hassan, both back a bill that would, in effect, overturn the South Dakota v. Wayfair decision. The 2018 decision overturned a 1992 ruling that said states could only collect sales tax from businesses with a “physical presence” in that state.
In the 2018 Wayfair decision, former Supreme Court Justice Anthony Kennedy wrote the “physical presence” rule had become “removed from economic reality” because of online commerce, and he wrote states were losing out on sales-tax revenue. Since the decision, 37 states have enacted laws to collect sales tax from out-of-state businesses.
Shaheen said the decision, and the new state laws that have sprung up in its wake, have placed a heavy burden on small businesses, which suddenly had to figure out how to comply with sales-tax laws of different states — as well as local sales-tax laws of cities, towns and counties.
Four business owners testified Wednesday at the field hearing of the U.S. Senate Committee on Small Business & Entrepreneurship that Shaheen convened in Concord.
The business owners described a patchwork of state and local tax rates, and rules about what is and is not taxable. They said there was no simple way to make sure they were collecting and paying all the sales taxes they are supposed to.
John Hennessey, owner of a Littleton business that sells collectible coins, said he spent $275,000 on compliance in 2018.
Dwight Moore owns a Dover business that deals with online product returns; he guessed out-of-state tax compliance ate between 1 and 2% of his revenue last year.
Scott Badger, a Center Conway maker of pet accessories, said he is spending $20,000 per year on annual subscriptions for tax compliance software — and even then, he said, he cannot be certain he has paid all the sales taxes he is supposed to. Finding sound advice about how to follow the law has been difficult to, Badger said. Tax attorneys tell him to ask the compliance software makers, and the software makers point him back to tax attorneys, he said.
North Conway auction business owner Ailie Byers said she abandoned an idea for an online business because the cost of complying with other states’ tax laws would have erased any profit she could have made.
For all this, Shaheen said, states saw little benefit from the additional sales-tax revenue. A 2017 study conducted by the Government Accountability Office found online sales tax would generate between $8.5 billion and $13.4 billion in a year.
Hassan also attended the hearing Wednesday, and said she supported Shaheen’s legislation because the decision put “burdens, costs and heaps of red tape” on small businesses.
The business owners who testified said taxing online purchases was probably inevitable, but said collecting sales taxes would be less costly and time-consuming if there were some national standards around what is and is not taxable. They also said Shaheen’s proposal to exempt smaller businesses from the tax would help them.