Nebraska law requires folks to self-report their online purchases and pay sales tax to the state if not collected by the website retailer.
Most people don’t.
But if Congress passes a law requiring companies to collect such taxes, Nebraska could gain as much as $118 million a year through Internet purchases.
The U.S. Senate overwhelmingly voted Monday to pass a bill -- the Marketplace Fairness Act -- to let states collect sales taxes from Internet purchases, catalog sales, and through radio and TV ads. It would exempt businesses with annual online sales of less than $1 million.
Current law says states can only require retailers to collect sales taxes if the merchant has a physical presence in the state.
So retailers like Best Buy -- which has stores all across the country -- collect sales taxes when they sell goods over the Internet. But online retailers like eBay only have to collect sales taxes from states where they have offices or distribution centers.
The proposed law "levels the playing field for businesses located in Nebraska who must charge the tax," said state Sen. Galen Hadley, chairman of the Legislature's Revenue Committee.
"This will make it easier for Nebraska citizens to comply with the law," he said.
There is a lot of money at stake. Internet sales in the United States totaled $226 billion last year.
Jim Otto, president of the Nebraska Retail Federation, has been fighting for years in support of such legislation.
"Giving special treatment to online-only sellers is not fair to brick-and-mortar retailers who pay local taxes, hire local workers and support local activities," Otto said. "No matter where you buy a car, you pay sales tax on the car in your home county when you license it.
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"Not so when you buy something online from a retailer in Timbuktu. That sales tax is owed but presently goes legally uncollected. The Marketplace Fairness Act will stop our present situation of legalized tax evasion."
According to the New Rules Project, not requiring online retailers to collect taxes gives them a 4 to 9 percent price advantage over local stores.
The Internet taxation problem began in 1992, long before the Internet was so ubiquitous. That's when the U.S. Supreme Court ruled that retailers do not have to collect sales taxes in states where they have no actual store or office. The high court said requiring companies to comply with myriad tax rates and regulations from state to state would impede interstate commerce.
The case addressed mail-order sales, but it eventually had huge implications as the Internet grew, along with online sales.
The court said that while Congress could pass a law requiring all retailers to collect sales taxes, it was "free to decide whether, when, and to what extent the states may burden interstate mail-order concerns with a duty to collect use taxes."
The federal legislation has the support of the Obama administration but faces an uncertain fate in the House, where many Republicans suggest it represents a tax increase.
The National Conference of State Legislatures estimates that Nebraska loses some $118 million a year in uncollected tax revenue from Internet sales.
Nebraska Tax Commissioner Doug Ewald gives a more conservative estimate, saying the state loses $38 million a year and local governments lose about $7 million a year.
Nebraska already is part of the Streamlined Sales and Use Tax Agreement, a coalition of 24 states formed to help recoup that lost tax revenue. Nebraska also has adopted the coalition's uniform language to make it easier for companies to comply with collecting the taxes by not having to deal with state and local tax laws and regulations.
Microsoft Chairman Bill Gates and Omaha billionaire Warren Buffett recently spoke in favor of the law.
"I think the fairness argument is compelling. You've got thousands of merchants here in Omaha and have people walk into those stores, look at the item, and then order it from somebody out of state and then not pay a sales tax," Buffett said on CNBC. "To have that as a differential in their cost is just unfair."