Online sales tax advances; increased food aid falls short

April 11, 2017, 5:23 a.m. ·

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Sen. Dan Watermeier promotes his online sales tax bill (Photo by Fred Knapp, NET News)

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Out-of-state online retailers would be required to collect sales tax on purchases by Nebraskans, under a proposal advanced Tuesday in the Legislature. Meanwhile, lawmakers turned down an expansion of food assistance.


Sen. Dan Watermeier is the sponsor of LB44, the bill to require online retailers to collect sales tax. Watermeier said it was, in a sense, nothing new. “This is not a new tax. It has always been owed. Nebraskans are already required to keep track of online purchases and then report any owed sales tax on their income tax form,” Watermeier said. “Several years ago a line was added to the Nebraska individual income tax return for individuals to report their use tax due on internet purchases, but I don’t believe many Nebraskans comply.”

The Department of Revenue estimates that the bill would bring in $30 million to $40 million a year if the federal government allowed it. But a 1992 U.S. Supreme Court decision in Quill Corp. v. North Dakota said sales tax had to be collected only by retailers with a physical presence in a state.

Sen. Mike Hilgers said that means the bill is probably unconstitutional. “If we pass this bill, there will be suit filed, and a court will very likely because of the existence of the Quill decision will enjoin our ability to collect taxes on this particular bill. That’s precisely what happened in the Colorado case. Colorado passed their bill in about 2011. And they didn’t get resolution until last year. So they did not collect taxes for over five years on that particular bill, Hilger said, adding “If you think LB44 is going to provide a mechanism for us to solve our shortfall over the next biennium, I think that’s mistaken.”

The Nebraska bill is modeled on laws in at least two other states. A South Dakota law requiring out of state retailers to collect, which is now working its way through the court system, and a Colorado law requiring retailers to report to consumers and states about online sales, which was upheld by a federal court last year.

Sen. John McCollister said the proposal would provide for fairer competition between brick-and-mortar retailers, who charge sales tax, and out-of-state online retailers who do not. He talked about two toy stores his wife used to own. “People would come into either one of her toy stores, take a look at the merchandise, get a good chance to look at it, look at the quality of the toys that she was selling, and then they would go to the internet and save 7.5 percent,” McCollister said. “That’s an unfair advantage that retailers in Nebraska should not have to face.”

Watermeier said that kind of competition is hurting Main Streets and shopping malls, and their surrounding areas, around the country. “In recent weeks, Gordman’s, Payless, Radio Shack have all filed for bankruptcy, and JC Penney and Sears have recently announce store closures. A recent article predicted that more than 3,500 stores are expected to close in the U.S. When anchor stores close it also negatively affects the performance of the shopping mall,” Watermeier said. “LB 44 won’t reverse this trend, as shoppers are increasing enjoying shopping online. But at least it eliminates (an) unfair cost disadvantage.”

But Sen. Jim Smith, chairman of the Revenue Committee, said the bill would not deliver on its promises. “I do believe it creates a false hope of new revenue for our state. I do believe that it fails to guarantee new revenues to our state, and that there’s no path to force compliance with LB44,” Smith said. And Gov. Pete Ricketts retweeted a statement he originally put out last month, saying that the bill could put Nebraska’s budget on shaky ground.

Senators advanced the bill on a vote of 28-13. If it advances two more times and Ricketts vetoes it, it would take 30 votes to override that veto.

Tuesday afternoon, senators considered a proposal by McCollister to raise the income eligibility for SNAP benefits, also known as food stamps. Currently, Nebraskans are eligible if their household income is up to 130 percent of the federal poverty level – That’s about $26,000 for a family of three. McCollister proposed raising that to 158 percent of poverty, or about $32,000.

McCollister said his proposal would help many working people, at not much cost to the state. “SNAP benefits are funded 100 percent by the federal government. Let me repeat that. One hundred percent of the cost of SNAP benefits are funded by the federal government. And the state has to pay for just 50 percent – 50 percent of the administrating program,” McCollister said.

The Department of Health and Human Services estimated that about 1800 households be helped, which McCollister said would bring in about $5.6 million worth of federal aid per year. The Department estimated it would have to hire seven additional people to handle administrative cost, at a cost to the state of about $200,000 a year.

Sen. Merv Riepe, chairman of the Health and Human Services committee, cited those costs in opposing the proposal. “The bill adds additional people. The expansion of SNAP is an expansion of an entitlement program – an entitlement program that clearly in this fiscal budget environment is not one that we’re prepared for,” Riepe said.

The legislative fiscal office said the Department of Health and Human Services’ estimate of increased administrative costs was based on a 1992 study, before things like online registration for benefits. McCollister said the true cost would be between $57,000 and $75,000.

But Riepe argued that any increase in the department’s workload could lead to decreased efficiency and a loss of millions in federal funds.

When time came to vote, 24 senators supported McCollister’s bill, with 19 opposed – leaving it one vote short of what was needed to advance.