New Hampshire fights back

Massachusetts has been fighting a battle against New Hampshire because of the latter's lower taxes. It seems that consumers have been traveling to New Hampshire to buy expensive items, tires for example, in order to evade paying Massachusetts' higher taxes. New Hampshire doesn't charge sales taxes and MA not only charges the sales tax, but also charges customers a users tax for items bought out of state intended for use in state. Since MA's citizens weren't voluntarily paying that user tax, MA wanted to force businesses that have outlets in both NH and MA to charge the user tax and remit it to Massachusetts.

I love the irony of the liberals in Massachusetts' legislature trying to compel businesses to forget about the privacy of their customers in order to find out where they're planning to use their tires so that they can get the taxes.

Now New Hampshire is moving to protect its businesses from having to hand over the information to Massachusetts.

The New Hampshire Senate quickly passed a bill yesterday barring retailers from sharing sales information with out-of-state tax collectors.

The Senate voted unanimously for Senate Bill 5, which was filed in response to action Massachusetts revenue agents took against a Connecticut tire store chain that has shops in New Hampshire.

Massachusetts has moved to collect $108,000 in use taxes from Town Fair Tire for sales it made to Massachusetts customers at its New Hampshire stores. Massachusetts has a sales tax and an excise, or use tax. Shoppers routinely cross the border into New Hampshire to avoid the taxes.

Attorney General Kelly Ayotte filed a brief in the store's appeal to the Massachusetts Supreme Judicial Court, and Gov. John Lynch promised he would fight to protect state retailers.

The bill sets up an automatic assumption that anything someone from another state buys here is intended to be used here.

Senate Majority Leader Maggie Hassan, D-Exeter, said the bill will help protect the state's ability to offer itself as a sales tax-free zone.

In addition, the NH bill would make it a lot more onerous for another state to get the sort of information that Massachusetts wants.

Massachusetts, or any other state, would have to notify the Department of Revenue Administration that it intended to collect the tax. That notice would have to be reviewed and cleared by the Attorney General's Office within 60 days.

Before a retailer could legally provide customer information, a state would have to prove that the store is subject to the tax through operations outside the state; prove that items bought here were meant for use in a shopper's home state, and show that it audits sales the same way in all states. Audits of taxpayers would have to cover 10 percent of all returns annually.

Massachusetts or other states would also have to require residents to file annual statements listing what they bought outside their home state, its value and admission that it was meant to be used in their home state.

It seems that Massachusetts has been trying to bully New Hampshire merchants for years to get the use tax that Massachusetts charges its citizens.

However, several Nashua retailers came forward yesterday and said Massachusetts has sent auditors to look through their books, even though they have no stores across the state line.

The owners of Splash Bath Showrooms, Geri and Bob Boisvert, said they were contacted several years ago by Massachusetts tax authorities who said they wanted to audit the couple's business to see if it owed them any money. The Boisverts had just run some ads in the Boston media market.

Splash does not make any deliveries or do any installations south of the border. Both its showroom and warehouse are in Nashua, but the Boisverts said they were still afraid to say no.

"If you refuse, they make your life miserable," Geri Boisvert said.

If a store refuses to comply, Massachusetts can hold business owners personally liable, she said.

On the advice of their lawyer, they agreed to let the auditors in.

"We knew we had nothing to hide," Bob Boisvert said.

This has been going on for years, said Nancy Kyle, president of the Retail Merchants Association of New Hampshire. But retailers have been afraid to speak up because of the possible repercussions.

"They're petrified," she said. "They're aghast."

The Massachusetts Department of Revenue goes after smaller retailers because they don't have the resources to fight, she said.

It's a fascinating legal issue whether one state can compel another state to give out that sort of information on their employers. Can Massachusetts compel New Hampshire merchants to collect their tax for them or should Massachusetts instead focus their attention on their own citizens who are evading the use tax.

Town Fair Tire's attorney Nagle said he believes Massachusetts is using this case as a test case The issue isn't whether Massachusetts residents have to pay use taxes on tires they buy in New Hampshire and use in Massachusetts -- they are legally required to -- the issue is whether businesses in New Hampshire should have to collect those taxes, he said.

There is also a troubling retroactive aspect to the Town Fire Tire case, said Nagle.

"The same could be true for other retailers," he said.

New Hampshire has filed a friend of the court brief in the lawsuit because of the implications for state retailers, said Ayotte.

Ayotte said the state is also concerned about customer privacy issues.

The case has broader implications for New Hampshire because it borders other states with use taxes and because of its tourism industry.

"You could imagine how complicated it could become," said Ayotte.

First retailers would have to figure out where a person lived and second they would have to figure out where the person intended to use what they were purchasing, she said.

"We shouldn't have to be the taxing agent for another state," she said.

I can easily see this case ending up before the Supreme Court, especially once New Hampshire's new law goes into effect preventing its merchants from sharing information with out-of-state tax collectors. In small states like in New England, it's not such a big deal to drive to another state for a major purchase. You can have a pretty drive in the country and save money. But it doesn't seem right to turn small New Hampshire merchants into snoops just to find out where their customers live and intend to use their purchase. Massachusetts should just have to find another way to squeeze the money out of their citizens, much the same way that states, like my own state of North Carolina, that want to tax internet purchases have to figure out a way for their citizens to pay up for those purchases come tax time.

Meanwhile, cheers to New Hampshire for fighting back against its high-tax neighbor.