Proposal to collect state taxes on online sales considered
Lawmakers debated a bill May 4 that would require some online retailers to collect state sales taxes on Nebraska transactions.
As introduced by Sen. Dan Watermeier of Syracuse, LB44 would require an online retailer without a physical presence in the state to collect and remit state sales taxes. He said the bill would eliminate an unfair disadvantage for the state’s local stores.
“[LB44] addresses the issue of fairness with the brick-and-mortar companies in our state,” Watermeier said.
Watermeier introduced an amendment on select file that would give online retailers the option to voluntarily collect and remit state sales taxes if their revenue exceeds $100,000 a year or they make 200 or more separate transactions in the state that year.
If the seller opts not 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.
Retailers also would be required to send Nebraska purchasers an annual 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.
Giving retailers the choice to comply would address concerns in an attorney general’s opinion that the bill is unconstitutional, Watermeier said. The opinion states that the notice and reporting requirements in the bill are not severable from the tax collection requirement, which the U.S. Supreme Court found unconstitutional in a 1992 case.
Watermeier said his amendment addresses that problem by adding a severability clause, which states that if any section or part of any section in the law is found unconstitutional, the declaration shall not affect the validity or constitutionality of the remaining parts.
The amendment also would protect sellers from claims that state sales tax was over-collected under LB44 if the measure is found to be unlawful.
Omaha Sen. John McCollister supported the bill, saying that it would help the state collect $30 million to $40 million a year in tax revenue that already is owed. He said the bill would help Nebraska business owners.
“Main street retailers are asking for this kind of fairness,” McCollister said.
In support of the bill, Sen. Carol Blood of Bellevue said that, in addition to helping Nebraska retailers compete against online sellers, it would help the state collect more tax revenue to pay for government services.
“We have to find new and creative ways to generate income, not constantly cut our budget, because that is not a long-term solution,” she said.
Omaha Sen. Ernie Chambers opposed the bill, saying that supporters could not explain how the proposed penalties would be collected. He filed a floor amendment to remove the notification and reporting requirements, which he said are intended to be so onerous that companies would have little choice but to collect the taxes.
“It’s simply designed to heap one problem, one duty, one requirement on top of another until you coerce somebody’s will to do what you want them to do,” Chambers said.
Lincoln Sen. Mike Hilgers agreed and said that a federal court most likely would enjoin the bill if it passes. He said Nebraska should wait for a court decision on a similar South Dakota law before taking action.
“In another year or so, we will have another data point that will give us a better sense of the legal landscape so that we can make a better policy decision,” Hilgers said.
Also in opposition was Sen. John Kuehn of Heartwell. He questioned whether sales tax was the determining factor when people choose where to shop, saying that online retailers offer greater convenience and sometimes lower prices than physical stores.
“Pretending or deciding that we’re going to save main street businesses with LB44 is ignoring reality,” Kuehn said.
The Legislature adjourned for the day before voting on the amendment.
