Brick-and-mortar stores: make online retailers collect sales tax

Nov. 10, 2016, 6:45 a.m. ·

Brick-and-mortar merchants like Hirschfeld's in North Platte want internet sellers to collect sales tax, too (Photo by Fred Knapp, NET News)

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The days of Nebraskans being able to buy things online from out-of state companies without paying sales tax may be coming to an end – at least if the state’s brick-and-mortar retailers succeed in their push for a new way to end what they call unfair competition.

On a recent weekday afternoon, the shiny metal racks full of pants and sweatshirts inside the red-brick Hirschfeld’s clothing store in downtown North Platte were pushed aside, so speakers could hold a pep-rally of sorts. State Sen. Mike Groene of North Platte read a proclamation from Gov. Pete Ricketts, extolling Nebraska’s brick-and-mortar stores for creating local jobs, paying local taxes, and contributing to local charities.

Ricketts’ proclamation made no mention of internet retailers collecting sales taxes. But the next speaker, Jim Otto of the Nebraska Retail Federation, said beyond encouraging people to buy local, that’s what his group wants. “One of the issues that we are pushing is the fact that (the) Amazon’s of the world do not collect and remit sales tax, and all the Hirschfeld’s of the world do in fact collect and remit sales tax, and that’s a very unfair situation,” Otto said.

That situation results from a 1992 U.S. Supreme Court decision that a mail-order office supply company without a physical presence in a state did not have to collect or pay sales tax. That same Supreme Court decision noted Congress has the ultimate power to resolve the issue. But over the next quarter-century, as online sales increased, Congress has done nothing to change the situation.

The result is kind of a legal limbo. Otto said Nebraskans who buy things online are supposed to pay the tax, but online retailers don’t collect it. “The tax is due. The question is, do you pay the tax you owe, or do you not pay the tax you owe? Presently, there isn’t a good system to collect the tax that is owed, but it is still owed. So those people who are buying online and not paying the sales tax, it’s not because it isn’t owed. What we presently have is legalized tax evasion,” he said.

There is actually a line on Nebraska’s state income tax return for people to add in the tax they owe on items that weren’t taxed, and a separate form for people who don’t want to wait for income tax time to pay. In 2012, the Department of Revenue reported just over 11,000 people used those forms to pay just over $850,000 in taxes. That same year, the Department estimated $45 million in taxes were owed for online and catalog purchases.

Line for paying internet sales tax on Nebraska's income tax form (Source: Nebraska Department of Revenue)

Last year, U.S. Supreme Court Justice Anthony Kennedy said the court should reexamine its 1992 decision about whether online and catalog sellers have to collect sales taxes. Now, states have begun to act on their own, to set up a test case.

Earlier this year, South Dakota passed a law saying companies with more than $100,000 in sales or 200 transactions in the state have to collect sales tax. Some companies have stopped selling to customers in that state; others have voluntarily started to comply. The state’s Department of Revenue says since the law took effect May 1, 132 retailers have signed up to collect the tax, which has brought in just over $300,000 so far.

Amazon, which Otto mentioned as an example of an online retailer that does not collect sales tax in Nebraska, could not be reached for comment. But South Dakota Rep. Chip Campbell said the online retailer has challenges, just like brick-and-mortar stores. “Amazon has shipping issues, and they ultimately will have the tax issue to deal with, and what will that do to their bottom line. There are two sides to the issue and I can understand both sides. Making it fair for both is the challenge,” Campbell said.

Efforts similar to South Dakota’ are underway or are being considered in about a dozen other states.

For information on internet sales taxes in other states, click here.

Back in North Platte, Sen. Groene says he supports the idea of requiring companies to collect the tax. “It’s not a tax increase. It’s really closing a loophole. If you want to buy outside of the state but still enjoy the benefits of the state and the infrastructure, then you ought to pay your taxes,” he said.

But South Dakota State Rep. Lance Russell said he’s worried about making it easier to collect taxes on internet purchases. “I believe that the internet has powered and fueled commerce, the exchange of ideas and so many things that we don’t want to inhibit. And frankly, I believe that taxing the internet could become a way in which to control it by the federal government,” Russell said.

So how does all of this affect Nebraska consumers? Just down the road from Hirschfeld’s in North Platte, at Mid-Plains Community College, Chuck Salestrom who works in public information, marketing and development says he has no objection to paying sales tax. “It’s just part of the business – part of purchase. And so I don’t think anything about it. It’s some of the ways that we keep our property taxes and everything else down as much as we possibly can,” Salestrom said.

But asked if he would fill out an extra tax form, or add online purchases to his income tax, Salestrom laughed and said “Probably not.”

“First of all, I would probably forget that I bought it by the time we were filling out our tax forms,” Salestrom said.

Whether or not that situation continues for Nebraskans may be determined by what the Legislature, and then the courts, do in the coming year.