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Veto may be all that can stop online sales tax bill

April 12, 2017 GMT

LINCOLN — Nebraskans may soon be paying more to purchase products via the Internet.

A proposal that would require online retailers to either collect sales taxes for the state, or report such sales, won first-round approval by state lawmakers on Tuesday.

However, the 28-13 vote to advance Legislative Bill 44 leaves some uncertainty about whether it could survive an expected veto by Gov. Pete Ricketts. It takes 30 votes to override a gubernatorial veto.

Such a law has been sought for years by bricks-and-mortar retailers, who complain that their online competitors enjoy an unfair price advantage.

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Under current law, only companies with a physical presence in Nebraska are required to collect sales taxes, so most online retailers outside the state do not.

The sponsor of LB 44, State Sen. Dan Watermeier of Syracuse, said the measure would not only level the playing field for Main Street and big box retailers in the state, but is also projected to bring in an extra $30 million to $40 million in tax revenue per year.

“With the state experiencing a significant budget shortfall, there is no better time to pass this,” Watermeier said.

Omaha Sen. John McCollister called the revenue “low-hanging fruit” that the people of Nebraska deserve.

But some lawmakers, led by Sens. John Kuehn of Heartwell and Mike Hilgers of Lincoln, criticized the bill.

Hilgers said it’s likely that if Nebraska passed LB 44, a lawsuit would quickly be filed to block any new revenue.

He said the state should wait on enacting such a law until either a lawsuit over a similar South Dakota law is decided in court or until the U.S. Congress changes interstate commerce laws.

Kuehn said that requiring retailers to remit sales taxes could hurt home-based and small-town businesses hoping to sell items over the Internet.

“We’re not just talking about Walmart ... Amazon ... or eBay,” the senator said.

But Watermeier dismissed those arguments.

He said his bill was patterned after a Colorado law that has been upheld unanimously by a federal appeals court there. That court included newly named U.S. Supreme Court Justice Neil Gorsuch.

Gorsuch is also a former law clerk of Supreme Court Justice Anthony Kennedy, who has openly invited a challenge to a 25-year-old ruling that has allowed online retailers to avoid collecting such taxes because the situation has changed. At the time of that ruling, collection was deemed to be too cumbersome.

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Watermeier said that online sales have grown exponentially since 1992, to about $3.2 trillion today and that modern computer programs have eased the process of collecting such taxes.

At least 28 states have introduced similar bills, the senator said, spurred by the lost sales tax revenue and the fact that the U.S. Congress has failed to act.

“States have to modernize their tax systems for the 21st century,” Watermeier said.

Under LB 44, online retailers with at least $100,000 in sales in Nebraska or at least 200 transactions in the state must remit the required state and local sales taxes on those purchases. If they decline to do that, they would be required to notify the purchaser of the tax that is due and make an annual report of such purchases to the state, which could then seek payment of the tax.

Watermeier disputed that LB 44 would harm small retailers. If they had 200 separate transactions in Nebraska, they would probably have hundreds more in other states, he said, and if they were a Nebraska online retailer, they would already be required to pay the tax.

Ricketts, according to backers of LB 44, has promised to veto the bill.

He has said that any additional revenue is not assured and that he’d rather see companies volunteer to collect the taxes.

That has happened. In December, the retailing giant Amazon announced that it will begin to voluntarily remit the sales taxes on purchases from Nebraska and Iowa. It is projected to bring in an additional $11 million in revenue to Nebraska.

Amazon had already been remitting sales taxes to about 29 states, mostly because it had warehouses or another physical presence in those states.

Watermeier emphasized that LB 44 does not enact a new tax but would collect one that is already owed but rarely paid.

Nebraskans are supposed to voluntarily report their online purchases on annual state income tax returns, but only about 1 percent of taxpayers volunteer that information.

McCollister, whose wife used to operate two toy stores in Omaha, said the bill would also eliminate a practice called “showrooming.” That’s when customers shop for an item at a bricks-and-mortar retailer, he said, and then walk out and buy it online, saving state and local sales taxes.“That’s an unfair advantage that retailers in Nebraska should not have to face,” McCollister said.

paul.hammel@owh.com, 402-473-9584