At the end of June of this year, the U.S. Supreme Court issued its decision in South Dakota v. Wayfair, or the “internet sales tax case,” which overturned its prior case law that required “physical presence” before a state could subject a retailer to its sales tax collection and remittance laws. It is not a “new tax” of the internet as has been proclaimed by some. 

For 99 percent of New Hampshire merchants, the Wayfair decision will have no impact on how merchants do business. 

The Granite State is not a hub of e-commerce activity. There is no published data on what outgoing internet sales mean to the New Hampshire economy. During a recent interview on Dan Mitchell’s WKBK morning radio program, Governor Sununu couldn’t answer the financial impact of the case when the question was posed to him. So, his fight against the ruling makes no sense and could actually harm New Hampshire in the long run. 


In 2016, U.S. e-commerce represented more than $453.5 billion in sales. The 2018 Amazon Prime Day (a one-day global shopping event) resulted in 100 million products sold and about $3.6 billion generated in a 36-hour period.   

While Amazon and other mail-order and online businesses were able to provide consumers a way to avoid paying local taxes, their sustained success comes from being able to offer 24 hour/365 day shopping, a diverse in-stock product offering and fast delivery. It’s about convenience. Through the computer, we can buy anything in the world without putting on pants.


Forty-five states impose sales and use taxes. A “sales tax” is collected by the merchant when an item is purchased in a state where it is imposed. A “use tax” is remitted by the buyer if he imports a taxable item into a state for storage, use or consumption.   

It is easy to hold companies that make large amounts of purchases and in-state merchants responsible for sales and use taxes. But it is nearly impossible getting individuals to self-report and pay their use tax liability. Currently, 27 states require consumers to report their use tax liability as part of filing their income tax return; yet, less than 1 percent actually do. In 2009, 1.7 million Connecticut personal income tax returns were filed, but less than 13,000 reported any use tax liability. Considering the volume of online sales, a lot of tax money is not being paid. According to some estimates, states are losing “between $8 and $33 billion [in tax collections] every year.”


Prior to Wayfair, the U.S. Supreme Court held that a state could only require a merchant to collect and remit sales tax if it maintained a physical presence or agent in the taxing state. In 2015, it allowed a Colorado law to stand; that law required out-of-state sellers to provide a list of in-state customers to the Colorado Department of Revenue. 

In income tax cases there was never a physical presence requirement, merely a deliberate commercial action toward the state.

The Wayfair court called the principle of “physical presence” an “unsound and incorrect” interpretation of the U.S. Constitution’s Due Process and Commerce Clause protections. According to the Court, this artificial requirement created distortions that became more egregious and harmful as e-commerce became more commonplace. 

The South Dakota law (in the South Dakota v. Wayfair case) passes Constitutional muster because it provides an annual $100,000 gross receipts or 200 separate transaction threshold before the remote seller is required to collect sales tax. The Court also considered South Dakota’s standardization of its sales and use tax laws with 24 other jurisdictions and that it would only apply the law prospectively. 


The Wayfair decision created unanswered questions, so the law will be unsettled for some time. The two big questions are whether states can use a threshold less than $100,000/200 transactions and whether localities, like New York City or Philadelphia, can require out-of-city sellers to collect their taxes.  

The U.S. Supreme Court made it clear that Congress is free to regulate when a state may require sales tax collection. Our New Hampshire Senators, Jeanne Shaheen and Maggie Hassan, have co-sponsored a bill with other senators representing tax-free states to codify “physical presence.” Based on the current political climate and the proposed 2010 Main Street Fairness Act, this bill is unlikely to go anywhere.   


Despite being uninformed about the effect the Wayfair decision will have on New Hampshire businesses, Governor Sununu continues to champion a law that frustrates sales tax states from enforcing their laws here. The Governor’s proposal requires N.H. Attorney General registration, a fee, establishment that the sales tax law does not violate the U.S. and N.H. Constitutions and protects customer lists from disclosure. He called a special anti-Wayfair legislative session on July 25, 2018. While his bill passed the House, it, thankfully, was emasculated by the Senate.

If New Hampshire enacts this type of law, other states will retaliate and force us into expensive and protracted litigation. States stop sharing tax information and enact shields protecting their businesses, like Airbnb (worth $1.8 million annually), from meals and rental tax, the business profits (income) tax or will aggressively pursue personal income taxes against N.H. government employees when they work outside the state. Also, the Multistate Tax Commission could ask New Hampshire to leave its joint audit group.


Unless you are deriving substantial sales in another state, continue your business as usual. 

If you are close to either the $100,000 or the 200 transaction trigger in a state, talk with your tax advisor on whether you have a sales tax collection obligation. 

If you sell through Amazon, eBay or another large online marketplace, review their terms and conditions regarding sales tax and inquire whether they can collect and remit sales tax on your behalf.

The only small businesses that I can think of getting blindsided by Wayfair decision are local auction houses who rely on phone and online bidding to attract a national audience of buyers. A single painting that sells for $100,000 or more (including buyer’s premium) could create an immediate sales tax obligation once the hammer falls. But, the auction house can avoid sales tax by having the item picked up by the customer instead of delivering it to him. Other businesses will see the tax obligations coming.

Cole Mills is the tax director and counsel for Merchants Fleet Management in Hooksett, New Hampshire, and the prior head of tax for C&S Wholesale Grocers. For more than 20 years, Cole has practice state and local taxation. He is a frequent lecturer on sales and use taxes, other taxes and tax department management and currently serves as the ethics chairperson for New England Chapter of the Tax Executive Institute. Cole and his wife, Martha, reside in Keene.