The U.S. Supreme Court on Thursday cleared the path for Nebraska's collection of state sales taxes already owed on online purchases, opening the door to an increase in state revenue estimated at $30 million to $40 million a year.
The 5-4 decision overruled a previous court decision that prohibited collection of state sales taxes from retailers that don't have a physical presence in the state.
Reacting to the decision, Gov. Pete Ricketts signaled his determination to convert the new state revenue into local property tax relief rather than use it to help fund state services and programs.
"Any increased revenue attributable to total enforcement of our sales tax laws must be steered toward property tax relief," the governor said in a news release.
Meanwhile, small local retailers cheered the high court's decision, while at least one local e-commerce company is predicting a minimal impact.
"This is great news for the retail core in every Nebraska community," said Jim Otto, president of the Nebraska Retail Federation, whose group has been working on changing the law for more than two decades.
The Supreme Court has acted correctly in recognizing that it’s time for outdated sales tax policies to change with the times, Otto said in an email. However, he said, there is still work to be done.
He was referring to the fact that the Nebraska Legislature would still have to pass a law setting up such a system and codifying the details of how out-of-state retailers would collect and remit state sales taxes.
"We have already started the process to make sure the Nebraska Legislature addresses this in the 2019 session," Otto said.
Paul Jarrett, CEO of Bulu, a Lincoln company that sells a subscription service offering sample boxes of nutrition products, said collecting online sales taxes has for some time been a question of when rather than if, “and I think most people are prepared for it.”
The companies likely to be most affected are those that will have to manually change custom software systems, he said.
Jarrett also said he believes making all retailers collect sales taxes for online sales is the fair and right thing to do: “It should be the same, level playing field for everyone."
Without the change, customers are still generally responsible for paying the sales tax to the state themselves if they weren't charged it, but most didn't realize they owed it and few paid.
More than 40 states had asked the Supreme Court for action. Five states don't charge sales tax.
Under the ruling Thursday, states can pass laws requiring out-of-state sellers to collect the state's sales tax from customers and send it to the state. More than a dozen states have already adopted laws like that ahead of the court's decision, according to state tax policy expert Joseph Crosby.
Earlier this year, legislation to begin collection of the online sales tax in Nebraska was blocked by a filibuster. With 33 votes required to invoke cloture, a motion to end debate on the bill fell two votes short on a 31-13.
Sen. Dan Watermeier of Syracuse, sponsor of the proposal (LB44), argued the state should move ahead with collection of the sales tax, contending that the state needs to level the playing field for Main Street businesses in Nebraska that automatically add the state sales tax to the price of local purchases.
Ricketts contended the state should wait for the Supreme Court decision.
If the Legislature had enacted his bill, Watermeier said, collection of the taxes could have begun on July 1 rather than waiting now for action by a legislative session that will not convene until next January.
"It was all in place," he said.
"This always has been a fairness issue for me," Watermeier said. "Now, we are hurting our own companies."
A number of other states have already enacted laws requiring online vendors to collect taxes, said Adam Thimmesch, an associate professor at the University of Nebraska College of Law. However, he warned that those states might still "need to be weary of their laws being struck down based on their impact on smaller vendors."
"States would be wise to adopt rules that protect vendors with low amounts of sales in their states and they should be very cautious about trying to collect back taxes," Thimmesch said. "States also need to watch for actions taken by Congress."
Amazon, one of the giant online retailers, already voluntarily collects the tax on purchases made by Nebraskans. But most online purchases by Nebraskans go unreported with no payment of sales taxes owed.
OpenSky Policy Institute executive director Renee Fry said the court ruling "paves the way for Nebraska to modernize its tax code to better conform to our economy."
And, she said, it will "help the state collect revenue already owed and necessary to support our schools, health programs and other services that are essential to a strong economy."
The American Legislative Exchange Council said the court decision will be "detrimental to small businesses and online retailers," stifling economic growth and discouraging entrepreneurship.