Online sales tax bill dies in Legislature

March 15, 2018, 4:41 a.m. ·

Voting board shows tally that doomed internet sales tax bill (Photo by Fred Knapp, NET News)

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A measure that could have required online retailers to begin collecting sales tax from Nebraskans died in the Legislature Thursday.

In 1992, the U.S. Supreme Court ruled, in the case of Quill Corp v. North Dakota, that states can’t require out of state sellers to collect sales tax, if those sellers don’t have a physical presence, like a warehouse or a store, in the state. But the court may be on the verge of overturning that ruling. It has scheduled oral arguments next month on a South Dakota law that requires online retailers to collect the tax, which is already owed, but rarely paid, by consumers.

Sen. Dan Watermeier proposed a bill saying that if Quill is overturned, Nebraska would begin requiring online retailers to collect tax starting July 1. Sen. Tom Briese supported the measure, calling it a matter of fairness. “Why do this ahead of the potential Supreme Court decision? Why do it now?” Briese asked. “I think it behooves us and it’s our duty and responsibility to protect our Main Street retailers. And I think the quicker we can get this policy in place, it’s better for those folks that we really have a duty and obligation to help protect.”

Supporters said the bill would enable the state to begin collecting tens of millions of dollars in additional tax revenue before the Legislature reconvenes next January. But opponents like Sen. Paul Schumacher advised lawmakers not to count their chickens before they’re hatched. Schumacher said Congress could intervene if the Supreme Court overturns Quill. “This will create such a burden on interstate commerce, and we have at a federal level an opportunity to impose a national tax on internet sales, preempting the states and taking the money,” Schumacher said. “It won’t necessarily mean any money in our (state) pockets.”

Sen. Tyson Larson questioned the enforcement costs. The proposal would have applied to any seller with at least 200 sales in the state. Larson used the example of an out-of-state firm that sold 200 cloth diapers costing $20 each, generating $220 worth of tax at the state rate of 5.5 percent. “When we look at this, we’re looking $220 – and I get it, $220 is $220 – but what is it going to cost the Department of Revenue to go and find every one of those individuals or companies, whether they be in Minnesota, California -- I’ve seen shops in Israel, United Kingdom, all over the place – what is it going to cost us to go do this? Is that cost actually going to be more than $220?” he asked.

Other senators suggested once the Supreme Court rules, the state could begin requiring tax collections without passing the bill. Watermeier disputed that. “The Department of Revenue cannot just turn a switch on,” Watermeier said. “The Department of Revenue cannot begin to remit collections of sales tax without (a) statute that we’re putting in. That’s laughable. They gotta have our clear direction. That’s what I’m giving us today.”

When lawmakers took a second round vote on the bill, it got 34 votes. Thursday, it needed at least 33 to overcome a filibuster against it.

This week's vote.

Last week's vote.

One of those who supported it previously, Sen. Bob Krist, said he was voting against it because Watermeier had agreed to remove a backup provision in case Quill was not overturned. That backup provision would have required sellers who don’t collect taxes to report to consumers and to the state how much tax was owed. Krist, a candidate for governor against Gov. Pete Ricketts, another critic of the bill, said that change changed his vote on the proposal, LB44. “I did support (LB)44. I don’t think I can. I’m not sure that I’m ready to recommit it to a committee. At this point in the session if it’s recommitted it’s dead. So I’m more likely to see an up or down vote from my perspective. But I can’t support (LB)44 anymore,” Krist said.

When the time came for a vote, 31 senators supported a cloture motion to end debate and vote on the bill. That was two short of the number needed, killing the bill for this year.