On July 19, 2019, New Hampshire Governor Chris Sununu signed SB 242, which attempts to provide protection for New Hampshire-based remote sellers against tax assessments from other state and local taxing jurisdictions.
SB 242 will require any out of state taxing authority seeking to audit or impose tax collection obligations on a New Hampshire business to notify the New Hampshire Department of Justice at least 45 days in advance. In a statement issued by Governor Sununu, he commented that the New Hampshire Department of Justice will conduct a review of such notices to ensure that any attempts to impose sales and use tax collection obligations are constitutional. If the Department of Justice believes that other foreign taxing jurisdictions are improperly targeting New Hampshire businesses, the Department of Justice will be empowered to file suit (declaratory judgment action) to block these improper attempts. SB 242 also requires a 45-day notice for out of state taxing authorities attempting to obtain private customer transaction information that would be used to determine a liability of the customer.
SB 242 further provides that if a business is determined to be required to collect and remit sales taxes to an out of state taxing jurisdiction, that business has the right to recover (from the tax collected) reasonable costs incurred in the collection and remission of sales and use taxes to an out of state taxing jurisdiction.
ZHF Observations
The Bill raises unique and complex constitutional issues regarding one state, New Hampshire, essentially dictating how another state enforces its tax laws and allowing New Hampshire businesses to retain other states’ taxes. It also raises a significant question whether New Hampshire has standing to sue the taxing state on behalf of New Hampshire businesses and, if so, what court(s) have jurisdiction over such actions. The taxing states could invoke the original jurisdiction of the United States Supreme Court and bring an action directly in that Court challenging the New Hampshire law.
If this law remains unchallenged, would the other states that do not have a sales tax (Alaska, Delaware, Montana, and Oregon) be emboldened to enact a similar law to protect their remote sellers?
Curiously, even states with a sales tax might entertain adopting similar language to protect their remote selling industry from unconstitutionally broad actions by other states.
If you have any questions on this subject, please contact Rich Farrin, John Trippier, or any other Zaino Hall & Farrin professional.