LUTZ BUSINESS INSIGHTS
How Changes in Nebraska Sales Tax Laws May Affect You and Your Business
STACY WATSON, TAX & CONSULTING SHAREHOLDER
The rise of mobile technology and advances in digital capabilities has created a thriving e-commerce marketplace. This has made it possible for companies of every size to build relationships with buyers nationwide. Historically, state sales tax laws only impacted businesses with a physical presence in that state. However, a new decision by the US Supreme Court is expected to prompt changes in Nebraska sales tax laws that will affect any organization selling to Nebraska residents.
The Court Decisions That Shaped Tax Regulations
Until recently, the standard for state sales tax collection was shaped by the precedent-setting 1992 US Supreme Court decision in Quill v. North Dakota. In brief, the decision prevented states from collecting sales tax on purchases made through e-commerce, unless the company selling the products had a physical presence in the state.
The logic for this decision was based on the Dormant Commerce Clause, which interprets the US Constitution as prohibiting any interference in interstate commerce by individual states unless expressly authorized by Congress. Of course, at the time of this decision, e-commerce was in its infancy. For perspective, the first commercial sales website launched that year, and Amazon didn’t come along until 1995.
E-commerce has grown exponentially since 1992. In 2017, more than 10 percent of US retail sales were made online, and that figure is expected to grow by 15 percent each year. For decades, traditional brick-and-mortar businesses have complained that out-of-state e-commerce companies had an unfair competitive advantage, and states protested the loss of tax revenue from these transactions.
The 2018 US Supreme Court decision in South Dakota v. Wayfair overturned the Quill v. North Dakota decision, and e-commerce companies are scrambling to adjust. The new ruling permits states to charge sales tax, regardless of a company’s physical presence in that state.
The Impact for Companies Doing Business in Nebraska
The South Dakota v. Wayfair case was only concerned with whether companies must have a physical presence in the state to be charged sales tax, so the nuances of individual state tax laws have not yet been tested. However, there are some important takeaways. For example, it appears that e-commerce companies will only be liable for state sales tax if they exceed a certain transaction threshold. As a result, businesses that only sell in a state occasionally will not be impacted.
Once the dust has settled and states have passed appropriate legislation in response to this new development, e-commerce companies should consider the following points before offering goods for sales in each state:
- What do I sell?
- How much do I sell to a state?
- Who are my customers?
- Risk vs Reward
With this information, you can make business decisions that protect your bottom line profits – and you can be sure you stay on the right side of the law, so you don’t face heavy fines.
Nebraska is one of the states that has not yet created a legislative response to this decision. While the state did attempt to pass a bill establishing tax for e-commerce sales in the most recent legislative session, it was unsuccessful. Now that the South Dakota v. Wayfair decision has been announced, there is a sense of urgency for getting a law passed in the next session. By some estimates, the additional taxes could add anywhere from $30 million to $40 million to Nebraska’s revenue. The Nebraska Department of Revenue has taken a position that a law change is not necessary and they will begin enforcement on January 1. 2019.
There is still a long list of questions on how these policy changes will be applied, and both states and businesses are hoping for answers over the next few months. In the meantime, if you do any volume of business in Nebraska, keep a close watch on legislative developments to ensure you are fully prepared to comply with relevant regulations.
ABOUT THE AUTHOR
STACY WATSON + TAX & CONSULTING SHAREHOLDER
Stacy Watson is a Tax and Consulting Shareholder at Lutz with over 20 years of experience in taxation. She has in-depth experience in providing state and local, income, franchise, sales, use and escheat taxes.
AFFILIATIONS AND CREDENTIALS
- Nebraska Society of Certified Public Accountants, Member
- Certified Public Accountant
- BSBA in Accounting, Creighton University, Omaha, NE
- Junior Achievement Heartland Family Services, Past Member
- St. Stephen the Martyr, Various Boards
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