By Jim Haddadin
An effort in the U.S. Senate to revamp online sales tax laws threatens to weaken New Hampshire's competitive advantage and create a bureaucratic nightmare for local business owners.
U.S. Sen. Kelly Ayotte delivered that message during a swing through the state last week, telling business owners at meetings in Manchester and Portsmouth to begin voicing their opposition to the Senate proposal.
Last month, the Senate signaled solid bipartisan support for the idea of giving states more power to collect existing sales taxes on purchases their residents make from out-of-state Internet companies. The nonbinding measure passed on a 75-24 vote.
Though the vote was merely a show of sentiment, the one-sided outcome showed that supporters of collecting the levies could prevail should the Senate consider binding legislation later this year.
Ayotte, a New Hampshire Republican, joined the minority in opposing the idea. Opponents said the plan would be unworkably complicated, would pressure states without sales taxes to adopt them and would encourage companies to move overseas, where they said sales taxes could not be enforced.
"It's basically a money grab from the states that are hungry for money," Ayotte said on Thursday, March 28, speaking to business owners gathered at Pease International Tradeport. Ayotte said the proposal floated in the Senate would discourage people from starting a business, and would also saddle New Hampshire companies with complex new regulations.
In states with sales taxes, online buyers are currently supposed to pay a tax on their purchases but the requirement is seldom enforced. Ayotte said she fears New Hampshire businesses would become tax collectors, forced to decipher as many as 9,600 different state and local tax codes.
"In many states, they have authorized not just the states sales tax, but also in localities," she said.
A congressional battle over the issue has been simmering for years, pitting Internet companies against traditional retail stores. Part of what is at stake is potential revenue for cash-starved state governments across the country. An estimated $20 billion in sales taxes go uncollected annually by out-of-state online merchants. Supporters also argue that not collecting the levies is a competitive disadvantage for retail stores, which must collect local sales taxes.
Online businesses with less than $1 million in annual sales would be exempt from having to collect the levies.
But Ayotte said she views the exemption as a "red herring" - an attempt to shift attention away from the onerous burdens of an online tax collection law. Many in the Senate appear to be unaware of the potential consequences for businesses, she said.
Ayotte drew comparisons between the legislation being proposed in the Senate and a case she handled while serving as New Hampshire's attorney general. During her tenure, Ayotte appealed a case up through state Supreme Court after Massachusetts attempted to force its residents to pay a sales tax on tires they purchased from Town Fair Tire locations in New Hampshire.
"This law reminds me a little bit about that case - again, trying to trample on the choice New Hampshire has made," she said.
More than a dozen business owners and public officials were in attendance at Thursday's meeting, including Ken Smith, of Portsmouth. Smith serves on the City Council, and also owns the retail store Maine-ly New Hampshire. He called the Senate measure a form of government overreach that would leave him with the ability to only display a product catalog on his website. Ultimately, small business owners could be forced out of the market, he said.
"I physically don't have the manpower or the hours to be able to handle something like this," he said.
Ayotte agreed, saying there are a host of administrative questions regarding the implementation of the bill that have not been answered satisfactorily. She asked business owners in the room to contact associates in the region to discuss the downsides of online tax collection.
"Your business connections, I'm sure, go very far beyond New Hampshire in getting (the) word out," she said.