Legislative Testimony for LB18, LB284 & LB291: Enabling Legislation for Online Sales Tax Collections
All of these bills include provisions strongly suggested by the U.S. Supreme Court following the South Dakota v. Wayfair case[i] decided last June. This case sets new legal as well as tax precedent for states, which is why Nebraska needs this legislation.
Historically, states were only allowed to levy a sales tax if the retailer had a physical presence in that state. This decision made by the U.S. Supreme Court in the Quill Corp. v. North Dakota case[ii] in 1992 stated that, “the lack of physical nexus in a state is sufficient grounds to exempt a corporation from having to pay sales and use taxes to a state.”
The Supreme Court’s decision in South Dakota v. Wayfair overturned the physical presence requirement in Quill.
While the Supreme Court’s decision allowed sales taxes on e-commerce and other remote sales, Nebraska still has to update its statutes with provisions the court strongly suggested in order to protect itself from future legal challenges.
The Court provided a checklist of factors present in the South Dakota law that allow the collection of remote sales taxes to be constitutional[iii]:
- Safe harbor: Exclude “those who transact only limited business” in the state. (South Dakota’s is $100,000 in sales or 200 transactions.)
- No retroactive collection.
- Single state-level administration of all sales taxes in the state.
- Uniform definitions of products and services.
- Simplified tax rate structure. (South Dakota requires the same tax base between state and local sales tax, has only three sales tax rates, and limited exemptions from the tax.)
- Software: access to sales tax administration software provided by the state.
- Immunity: sellers who use the software are not liable for errors derived from relying on it.
Nebraska has completed items 3 through 7 of the checklist as a result of its membership with the Streamlined Sales and Use Tax Agreement. [iv]
In order to complete the checklist, Nebraska must pass enabling legislation to become compliant with the safe harbor or de minimis threshold provision and not to allow any retroactive collection.
The Nebraska Department of Revenue has already issued a statement that they interpret the current statute to apply to all remote sellers who meet a threshold of $100,000 or more than 200 transactions annually. This has been effective since January 1st of this year.
However, because we do not have these two missing provisions in state statute, only voluntary collections have begun. This legislation is needed for the state to legally require remote sellers to remit their sales tax.
As of December 15, 2018, 34 states have adopted laws or regulations to tax remote sales, with legislation or administrative action pending in several others. Twelve of these states are clearly compliant with the Wayfair Checklist, and many others are undertaking improvements to shore up their remote sales tax regimes.
Legal experts at the Tax Foundation have stated[v] that they anticipate litigation in states which take too many shortcuts in their efforts to capture the remote seller revenue. They recommend for states to avoid this by modeling their legislation on the South Dakota law upheld by the Supreme Court.
To avoid any unnecessary litigation and to allow the state to enforce remote seller internet sales taxes, we encourage the committee to support this enabling legislation and advance it to General File.
Our comments about each bill individually:
LB18 – We support the intent of LB18 for updating the Nebraska statute to collect sales tax on remote sellers. We do not support the redirection of these proceeds away from the General Fund and directed towards the Property Tax Credit Relief Fund. These additional sales tax dollars should be directed into the General Fund and any allocations to specific funds or use for property tax relief should be made from the General Fund. We do, however, support the idea of tracking precisely how much revenue is attributable to internet sales for future tax policy discussions.
LB284 – We support LB284 for updating the Nebraska statute to collect sales tax on remote sellers. This bill also appropriately makes note of the special situation arising from internet marketplace platforms such as Amazon.
LB291 – We support LB291 for updating the Nebraska statute to collect sales tax on remote sellers. This bill does not create a new act; it instead updated existing statute to meet the necessary items outlined in the Wayfair case checklist.
[iii] Checklist was taken from Tax Foundation’s Post-Wayfair Options for States, updated 11/26/2018, https://taxfoundation.org/post-wayfair-options-for-states/
[iv] The Streamlined Sales Tax and Use Agreement (SSUTA) is a multistate organization that works to increase uniformity and reduce complexity in sales tax collection.