Proposal to collect state taxes on online sales advances

Some online retailers would be required to collect state sales taxes on Nebraska transactions under a bill advanced from general file April 11.

Sen. Dan Watermeier
Sen. Dan Watermeier

Introduced by Sen. Dan Watermeier of Syracuse, LB44 would require an online retailer without a physical presence in the state to collect and remit sales taxes to Nebraska if its gross sales revenue in the state exceeds $100,000 a year or it makes 200 or more separate transactions in the state that year.

Watermeier said Nebraska could collect an additional $30 million to $40 million in sales tax revenue from online retailers every year.

“With the state currently experiencing a significant budget shortfall, there isn’t a better time to pass this legislation,” he said. “Although it won’t solve all of our budget problems, it certainly helps.”

Watermeier said that online shopping has transformed commerce since 1992, when the Supreme Court ruled that a business must have a physical presence in a state before it can be required to collect state sales taxes. Not requiring online retailers to collect state sales taxes puts Nebraska brick-and-mortar stores at a disadvantage, he said.

Sen. John McCollister of Omaha agreed and said that Nebraskans who shop online already are required to pay taxes on those purchases. LB44 would make it easier for them to comply with the law while increasing state tax revenue, he said.

“This money is low-hanging fruit,” McCollister said.

Sen. Kate Bolz of Lincoln also spoke in support of the bill. A broad range of groups testified in support of LB44 at its public hearing, she said, including the Nebraska Retail Federation, the Nebraska Grocery Industry Association, the Nebraska Association of School Boards, the Nebraska Farm Bureau, the Nebraska Farmers Union, the League of Nebraska Municipalities, the Nebraska Chamber of Commerce and several others.

“I think it’s rare that we see a committee statement with such a diversity of supporters across the political spectrum,” she said. “I think that’s because they recognize that this is a common-sense strategy to address our sales tax situation.”

Sen. Mike Hilgers of Lincoln opposed the bill, saying that it almost certainly would be challenged in federal court, which likely would prevent Nebraska from collecting taxes from online retailers until after the case is settled. Hilgers said Nebraska should wait for a Supreme Court ruling on a similar South Dakota law — which he said is designed to challenge the court’s 1992 decision — before taking action.

“If you think LB44 is going to provide a mechanism for us to solve our shortfall over the next biennium, I think that’s mistaken,” he said.

Sen. Jim Smith of Papillion also opposed the bill. As a retailer, Smith said, he understands the difficulty of competing with internet sellers that are not required to collect state sales taxes. But Nebraska could not force businesses to comply with the bill’s requirements, he said, and LB44 is meant only to trigger action in the federal courts, something other states already have done.

“I just don’t think that this bill does what it has been promoted as doing,” Smith said. “I do believe it creates a false hope of new revenue for our state.”

If a retailer would refuse to collect the tax, it would be required to notify Nebraska purchasers that tax is due and that the state requires them to file a sales or use tax return on their purchases. Each failure to notify would result in a $5 penalty.

Online retailers would be required at the end of each year to send Nebraska purchasers a notification detailing their purchases and to file an annual statement for each purchaser with the state Department of Revenue. Failure to meet either of those provisions would result in penalties of $10 for each instance.

Senators voted 28-13 to advance the bill to select file.

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