Get ready, online shoppers. A new ruling opens the door for Nebraska to collect sales taxes from you

A U.S. Supreme Court ruling Thursday could give a $30 million to $40 million boost to Nebraska’s tax coffers but add costs for online shoppers.

The 5-4 ruling said states can force online shoppers to pay sales tax, overturning a 25-year-old Supreme Court decision that states argued were costing them billions of dollars.

But, barring a special legislative session, Nebraska won’t be able to start collecting sales taxes from online retailers until next year, after an Internet sales tax bill fell victim to a filibuster this year. The bill would have taken effect on July 1 if the Supreme Court or Congress had acted to allow such collections, as the high court did.

State Sen. Dan Watermeier of Syracuse, who sponsored the legislation, expressed frustration about the delay. He estimated earlier that Nebraska could bring in $30 million to $40 million more per year from taxing Internet sales.

“If we would have passed Legislative Bill 44, we would have started collecting sales taxes 10 days from now,” he said. “It’s exciting to have it overturned, but it’s disappointing to not have a law in place.”

One option for quicker action would be a special legislative session. Sen. John McCollister of Omaha, who introduced a Internet sales tax bill in the past, said there may be interest in such a session, given the amount of money at stake. Gov. Pete Ricketts’ office did not immediately rule out the idea.

When the issue was considered during the regular session, legislative opponents argued that the state would do better to wait and see how the court ruled and Congress reacted.

Ricketts was among those opponents, although he had been seeking a compromise at the time the bill failed. He also had supported Nebraska’s joining with 33 other states and the District of Columbia last year in supporting South Dakota’s case before the high court. At the time, he said that passing a state law without guidance from the Supreme Court or Congress would be too risky.

On Thursday, Ricketts offered a brief statement about the ruling: “Any increased revenue attributable to total enforcement of our sales tax laws must be steered toward property tax relief. We are analyzing what the decision means for Nebraska.”

Bob Krist, the Democratic candidate for governor, criticized Ricketts for not supporting the Internet sales tax bill this year, which means Nebraska cannot immediately start collecting revenue that could have been used for property tax relief.

Nebraska Tax Commissioner Tony Fulton said officials were still reading the court opinion and could not comment on how it might affect the state.

At the Nebraska Retail Federation, President Jim Otto was celebrating. He said the group has tried for more than two decades to level the playing field between brick-and-mortar stores, which have to collect sales taxes, and online retailers, which have largely escaped doing so.

“This is great news for the retail core in every Nebraska community,” he said. “The Supreme Court has acted correctly in recognizing that it’s time for outdated sales tax policies to change with the times.”

But he said the ruling is only one step in the process. Either Congress or state legislatures around the country must now act to set the threshold at which online retailers must collect taxes. Otto said state action is more likely.

Sen. Tom Briese of Albion said he plans to introduce next year an Internet sales tax bill that would direct the additional revenue into property tax relief. He said the legislation would be tailored to fit within the Supreme Court ruling.

Outgoing Sen. Jim Smith of Papillion, the Revenue Committee chairman, urged Nebraska to act cautiously on the issue. He urged lawmakers to put the money into tax relief or economic development, not additional state spending. He also said he would like to see states take a consistent approach to taxing Internet sales to ease the burden on business.

The case that the Supreme Court overturned said that if a business was shipping a product to a state where it didn’t have a physical presence, such as a warehouse or office, the business didn’t have to collect the state’s sales tax. Customers were generally supposed to pay the tax to the state themselves if they didn’t get charged it, but the vast majority didn’t.

Justice Anthony Kennedy wrote that the previous decisions were flawed.

“Each year the physical presence rule becomes further removed from economic reality and results in significant revenue losses to the States. These critiques underscore that the physical presence rule, both as first formulated and as applied today, is an incorrect interpretation of the Commerce Clause,” he wrote.

Adam Thimmesch, an associate professor at the University of Nebraska College of Law, attributed the court’s change of heart to the growth of e-commerce. As physical presence became less important for doing business, the court recognized that it should not be relevant to state taxing authority, either.

“The ruling is of immense importance to states and to online vendors,” he said. “It removes a significant restriction on state power and allows states to collect sales tax revenue that they’ve been losing for decades.”

Justice Kennedy noted that, at the time of the 1992 ruling, mail-order sales totaled $180 million. “Last year,” he wrote, “e-commerce retail sales alone were estimated at $453.5 billion. Combined with traditional remote sellers, the total exceeds half a trillion dollars.”

The case the court ruled in has to do with a law passed by South Dakota in 2016. The law required out-of-state sellers who do more than $100,000 of business in the state or more than 200 transactions annually with state residents to collect sales tax and turn it over to the state.

The report includes material from the Associated Press.

We strive for accuracy. Report a typo, inaccuracy, or mistake here.

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