New Hampshire fights out-of-state sales tax

New Hampshire is fighting back.

The Granite State’s latest move to protect businesses from sales tax legislation, HB 135, was introduced on Jan. 8, 2025. It states that “no New Hampshire business shall be required to collect sales taxes for a foreign jurisdiction [a.k.a., another state] unless mandated by Congress or New Hampshire law.” It’s no surprise that New Hampshire had taken this position, according to Scott Peterson, vice president for tax policy and government relations at Avalara: “They have always been the most vocal against the belief that their in-state retailers should have to collect sales tax on behalf of customers in other states. They believe that it’s really complicated to collect sales tax, and they don’t want their in-state businesses to have to comply with other states’ onerous regulations.”

The state is in a bind because one state can’t simply pass a law stipulating that no other state can force a New Hampshire retailer to collect their sales tax, Peterson said. “So the proposed bill says there is an obligation on the part of other states to make a good-faith effort to make sales tax compliance simpler for New Hampshire retailers,” he explained.

This has been met by a lack of understanding on how to deal with New Hampshire, according to Peterson: “It’s an odd conversation — state attorney generals and governors don’t like criticizing one another on matters such as this. Both Democrats and Republicans agree that retailers need to comply with existing state-by-state sales tax laws.”

There currently is no legal maneuvering to get this issue into court, according to Peterson. “In state-on-state conflicts, this would likely go straight to the Supreme Court,” he said. 

At present, this leaves a number of unanswered questions: 

• How far will New Hampshire take this — will they soften the language to focus on meaningful reform?
• Will other states agree to bend a bit to comply with slightly different regulations in New Hampshire? 

“It is unlikely that other states will become more flexible to accommodate New Hampshire,” said Peterson. “Probably the only way to deal with the present proposed legislation is to attempt to drag neighboring states into court.”
It is possible that the law will just sit in place for a year or more and not be challenged, Peterson believes, “but there will likely be an eventual court case. It would come from another state that wants a New Hampshire retailer to collect their state tax. A jeopardy assessment is the state department of revenue’s best case at how much revenue is coming from out-of-state business, how much tax is owed, and going into the state where that business resides and taking it to court in that case. New Hampshire likely doesn’t have standing to sue another state unless that state is forcing New Hampshire retailers to collect, so this almost has to start with another state suing New Hampshire.”

Of course, it is possible that New Hampshire retailers will simply decide to go ahead and comply with other states, if they accept the likelihood that New Hampshire is in a losing battle. 

“They might decide, ‘The heck with it, let’s just go ahead and start collecting sales tax in other states regardless of our state law,'” Peterson said. “It’s not likely to be an effective law. Imagine being a retailer who needs to go to court and must wait until New Hampshire almost inevitably loses the case. Then the retailer owes back sales tax for however long they failed to collect.”

“It’s clear that New Hampshire has not thought through the burden that this bill conceivably will place on their in-state retailers,” he concluded.