Recently, the Supreme Court of the United States (SCOTUS) handed down an opinion in the South Dakota versus Wayfair (SD v Wayfair). The South Dakota Legislature had passed a law that enabled South Dakota to go after taxes on purchases citizens had made from Wayfair. The S. D. Supreme Court held that the law was unconstitutional, and it was appealed to SCOTUS. Previously, SCOTUS had held the opinion that no taxes could be collected if the retailer had no substantial physical presence in the State seeking the tax revenue.
Parallel to this an organization has grown up. The Streamlined Sales and Use Tax Governing Board has created uniform rules by which about 25 States transfer sales tax back and forth. The SCOTUS opinion (decision would be an overstatement) overturned the previous precedent and held that they would no longer use the standard of significant physical presence. They then remanded the case back to the S. D. Supreme Court. The actual status of the case is that it is awaiting a second decision of the S. D. Supreme Court and potential further appeals to SCOTUS. The S. D. Supreme Court is under no obligation to agree with the SCOTUS, and there is no guarantee second appeal will be accepted by SCOTUS.
In reaction to this Congress is looking to States such as New Hampshire which have no sales tax and how they will handle it. The Governor quickly announced that he was calling the Legislature into special session to “solve” the problem. A task force was convened to hold hearings and develop legislation which was delivered to the Legislature from the task force which was aided by the Attorney General’s office.
On July 25, 2018, the General Court of the State of New Hampshire, the Legislature, was convened in Special Session. The House of Representatives (the House) was presented with rules that would not allow the House to introduce any Bills or send any Bills to Committee for public hearings. Attempts were made to amend the rules to allow the introduction of Bills and to allow public hearings which were defeated. Special Session Senate Bill Number 1 (SSSB1) passed The House of the Senate (the Senate) and was introduced to the House.
The proposed legislation enabled the foreign taxing jurisdictions (States, counties and towns) to register with the Attorney General’s office seek to have a particular retailer collect taxes and on sales to their jurisdiction and remit them to the jurisdiction. They would have to demonstrate that collection of the tax does not violate the Constitution of the State of New Hampshire or the Constitution for the United States of America. The Bill also created a Commission to continue to study the issue.
The House amended the Bill removing everything except the Commission and passed SSSB1. The Senate refused to accept the amended Bill and adjourned, and SSSB1 died on the doorstep of the Senate.
The Constitutional issues at play are as follows:
- Constitution of the State of New Hampshire Part 1 Article 12 – Every member of the community has a right to be protected by it, in the enjoyment of his life, liberty, and property; he is therefore bound to contribute his share in the expense of such protection, and to yield his personal service when necessary. But no part of a man’s property shall be taken from him, or applied to public uses, without his own consent, or that of the representative body of the people. Nor are the inhabitants of this State controllable by any other laws than those to which they, or their representative body, have given their consent.
- Constitution of the State of New Hampshire Part 1 Article 28 – No subsidy, charge, tax, impost, or duty, shall be established, fixed, laid, or levied, under any pretext whatsoever, without the consent of the people, or their Representatives in the Legislature, or authority derived from that body.
- Constitution of the State of New Hampshire Part 2, Article 6 – The public charges of government, or any part thereof, may be raised by taxation upon polls, estates, and other classes of property, including franchises and property when passing by will or inheritance; and there shall be a valuation of the estates within the state taken anew once in every five years, at least, and as much oftener as the general court shall order.
- Constitution for the United States of America, Article 1, Section 8, The Congress shall have the power … To regulate commerce with foreign nations, and among the several states, and with the Indian tribes:
- Constitution for the United States of America, Article 1, Section 10, Paragraph 2, No state shall, without the consent of the Congress, lay any imposts or duties on imports or exports, except what may be absolutely necessary for executing its inspection laws; and the net produce of all duties and imposts, laid by any state on imports or exports, …
- Constitution for the United States of America, Article 1, Section 10, Paragraph 3, No state shall, without the consent of Congress, …, enter into any or compact with another state,
- Constitution for the United States of America, Article 4, Section 1, Full faith and credit shall be given in each state to the public acts, records and judicial proceedings of every other state. And the Congress may by general laws prescribe the manner in which such acts, records and proceedings shall be proved, and the effect thereof.
The SCOTUS has already discarded the federal constitutional arguments by removing their stipulation of substantial physical presence. Presuming the power to allow cross border tax collection without the consent of Congress, and that their opinions should be universally applicable without any action by Congress. While objections on these counts would have probably been take by or current Attorney General, they would not have likely withstood an appeal to SCOTUS.
If the New Hampshire Legislature had passed SSSB1, it would have admitted that foreign tax jurisdictions have the power to require new Hampshire businesses to collect taxes for them. The Part 1, Article 12 and 28 arguments would have been lost because we had given our consent. The only remaining argument would have been Article 6 which only allows taxation of property and property when passed by will or inheritance, it does not allow the taxation of property by sales or income. A position which this Representative holds stridently. But, most legislators do not.
If SSSB1 had passed as introduced we would not have had a wall protecting our businesses, but a toll booth. We would have inadvertently created the ladder to broach the walls. While the defeat was embarrassing to House and Senate Leadership and the Governor, it prevented event greater embarrassment in the future.
Today the New Hampshire House Freedom Caucus which led the fight to amend SSSB1 is working with House and Senate leadership and the Governor to craft legislation that will in fact prohibit foreign taxing jurisdiction from requiring New Hampshire businesses from being the revenuers of foreign taxing jurisdictions.