Ayotte presses her case against Internet sales tax proposal

A proposed Internet sales tax that just moved a step closer to becoming reality is “unworkable and unfair” and would turn New Hampshire’s e-commerce businesses into tax collectors for cash-strapped states, according to U.S. Sen. Kelly Ayotte

A proposed Internet sales tax that just moved a step closer to becoming reality is “unworkable and unfair” and would turn New Hampshire’s e-commerce businesses into tax collectors for cash-strapped states, according to U.S. Sen. Kelly Ayotte, who has emerged as one of the most vocal opponents of the measure.

On Thursday, Ayotte held meetings in her Manchester and Portsmouth offices with New Hampshire e-tailers to discuss their concerns with the proposed legislation.

The meetings came on the heels of a March 22 vote by the U.S. Senate to pass a budget amendment supporting the so-called Marketplace Fairness Act.

The amendment — which passed 75 to 24 — is non-binding, but shows that there exists substantial support for it among lawmakers. While the timeline is still unclear, it could come up for a vote sometime this year, said Ayotte, who along with Democratic Senator Jeanne Shaheen voted against the amendment.

“I still think we can turn this around,” said Ayotte. “A lot of people staking out a position for the first time haven’t had a chance to study it in depth.”

The measure has found bipartisan support among lawmakers who say the tax would level the playing field for brick-and-mortar retailers, which are required to collect sales taxes in their jurisdictions. Supporters also argue that it would provide needed revenue to local governments.

U.S. Sen. Dick Durbin, D-Ill. who introduced the act, called it a “matter of basic economic fairness” in a release. 

But the measure is unlikely to find support in New Hampshire, which is one of five states without a sales tax. Forcing retailers in New Hampshire to collect sales tax takes away some of its competitive advantage, said Ayotte.

The reason that online sellers do not currently collect sales tax stems back to a 1992 U.S. Supreme Court ruling that found that retailers need not collect sales tax in states in which they do not have a physical presence. The ruling dealt with a catalog company, but has since been applied to e-tailers.

Some of the country’s largest retailers — like Walmart and Target — support the tax because their widespread physical presence already requires them to collect online sales tax. Amazon also supports it because it already has deals with a number of states to collect sales tax where it has distribution centers. But other online retailers, like eBay, as well as a number of smaller sellers, vigorously oppose the proposal.

Ayotte called the amendment a “huge federal grab” that forces private businesses to become tax collectors for states.

Complying with the law would be a nightmare for businesses because there are more than 9,600 tax jurisdictions in the nation, she said. “You could be hauled in to be audited anywhere in the nation,” she said.

Joe Cortese, owner of Pittsfield-based Noblespirit, a wholesaler of coins, stamps and paper money, which sells exclusively online, said the tax “is fundamentally against business itself.”

If an Illinois customer chooses to do business with Cortese, transaction happens in New Hampshire, said Ayotte. So “if Illinois wants to collect (sales tax), let them collect from their residents. Don’t make Joe do a state function.”

She drew a comparison between the bill and a case that she litigated as attorney general, when Massachusetts tried to force Town Fair Tire locations in New Hampshire to collect its use tax on Massachusetts residents who crossed the border to shop there. The case made it to Massachusetts Supreme Court, which rejected the Massachusetts’ Department of Revenue’s claim that the tires should be taxed since they would be used in Massachusetts.

Joe Maloy, president of Polaris Direct in Hooksett, said that the bill is unlikely to make brick-and-mortar retailers more competitive. Once people have decided to shop online, a 3 to 6 percent tax on the purchase is unlikely to make them go to their local store to buy it instead, where they will encounter fewer options than they would online, he said.

“I think there’s a big fallacy on how that would support Main Street,” he said.

Jenn Coffey, a former state representative who recently launched an online business selling products like seatbelt cutters, said the cost of complying with the bill could be a barrier to entry for startups.

“I’m very concerned,” she said. “It’s hard to be a new upstart, it’s hard to get a new business off the ground and I’m at that stage if I have to be a tax collector … I think it would put me out of business.”

The amendment does include an exemption for retailers that have less than $1 million in annual sales. Ayotte called it “a false exemption” because it is not indexed to inflation, and could discourage growing businesses from going over the $1 million threshold.

Because of the support shown for the amendment, Ayotte said she is going to try to keep educating people on the law’s “negative implications.”

It’s a matter of “common sense” that it shouldn’t pass, said Ayotte, but she added, “common sense doesn’t always prevail in Washington.”