On Cyber Monday, of all days, the U.S. Supreme Court let stand a New York state law requiring large online retailers to collect and remit the state sales tax if they have affiliate businesses — but no physical presence themselves — in New York. This could be really bad news for New Hampshire retailers.
The Supreme Court held in a 1992 case that a state could not impose sales taxes on retailers that did not have a physical presence within that state. So California sales taxes would apply to Amazon.com because it is based there, but New York sales taxes would not because Amazon has no facilities in the Empire State.
New York since passed a law requiring large online retailers to collect and remit the state sales tax if they used local affiliates, or partners. Amazon.com and Overstock.com pay smaller sites to drive traffic to their sites. New York says this amounts to employing a sales force in New York state. That is absurd, but on Monday the Supreme Court let stand the law and the lower court ruling that upheld it.
So what does this have to do with New Hampshire? The decision will encourage other states to impose their own taxes on out-of-state businesses that do not have physical presences there. New Hampshire has long fought the efforts of other states, primarily Massachusetts, to turn Granite State businesses into tax collectors. Now that fight will be harder to win — and the ruling is likely to rekindle efforts of other states to reach across borders to collect taxes.
If this is not checked, it could spell the end of the New Hampshire Advantage. People who now come to New Hampshire to shop tax-free will not bother if our businesses are forced to collect taxes for their states (and, in some cases, cities). New Hampshire’s congressional delegation opposes online sales taxation. Now is the time for all four of them to sound the alarm (Sen. Kelly Ayotte began doing so on Monday) about this threat to New Hampshire and other states that do not tax sales.