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Internet Sales Tax Comes One Step Closer

By Fred Knapp
The Nebraska Legislature took a step closer Tuesday to requiring online retailers to collect sales tax on purchases by Nebraskans.
Legally, Nebraskans already owe sales tax on what they purchase online. There’s even a line on your state income tax form that asks how much you bought that wasn’t taxed, and has you add that tax to how much you owe. But Sen. Curt Friesen of Henderson says that isn’t happening. “No one’s reporting it on their state income tax. No one has noticed that box. There’s a few probably political individuals who don’t want to get caught by not checking the box. But other than that, everybody ignores it,” Friesen said.
A study six years ago, by the Nebraska Department of Revenue estimated less than 2 percent of the tax owed was being paid. That’s due in part to the U.S. Supreme Court’s 1992 Quill decision that a retailer did not have to collect sales tax if it didn’t have a physical presence in a state. However, the court is now considering a case that could overturn Quill.
The court’s decision is expected by June 30. The bill the Legislature is considering says if Quill is overturned, online retailers should start collecting sales tax July 1. Sen. Dan Watermeier, the bill’s sponsor, cited estimates ranging from $30 million to $95 million for how much in additional sales taxes Nebraska could collect.
Sen. John McCollister said that, along with fairness to brick and mortar businesses competing with online sellers, is a reason to support the bill. “Nebraska needs the revenue. The $40 or $50 million this LB44 would bring in is critical money for this state. Revenues have been flat. So it’s time for us to figure out legal and good ways for us to bring in some more  revenue,” he said.
Sen. Lou Ann Linehan also supported the bill, but for a different reason. “The reason I’m supporting this is not so we can increase our revenues, but it’s a matter of fairness. I don’t see how its fair that a group of taxpayers who buy at the local retail store end up paying sales tax and someone who goes on the internet doesn’t pay the sales tax even though, by law, they’re supposed to pay the sales tax,” she said.
Sen. Jim Smith opposed the proposal. Smith said with a decision pending in the Supreme Court, the bill is unnecessary. “We need to let the Supreme Court make its decision. And then we need to set in place a method of collection depending on what the outcome of that court case is,” Smith said.
Supporters argued that since the Supreme Court decision won’t come until after the Legislature adjourns, Nebraska would have to wait until next year to apply the tax, costing the state tens of millions of dollars it could start collecting this year.
This was the second round of debate on the bill. Last year, after first round debate, it got 28 votes to advance. Tuesday, after second round of debate, it got 34 votes. That number is significant, because it takes 33 votes to defeat a filibuster, and 30 to override a veto.
Linehan was among senators who opposed the bill last year but now support it. She said the money it would collect could be used to help offset property and income taxes. Smith said he will try to get an amendment attached to the bill at the final round of debate, to push the enforcement date back from July 1 to Oct. 1, and to abolish a requirement for companies to report their sales anyway if the Supreme Court does not overturn Quill.
Following Tuesday’s vote, Gov. Pete Ricketts issued a statement that calling the bill “flawed” adding that it “contains burdensome regulation and unnecessary red tape on companies doing business in Nebraska.”
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