Broader issue may be lost amid online sales tax debate

Independent retailers say they are at a disadvantage when it comes to collecting state sales tax, and government and other officials decry the loss of tax revenue from online sales.

Gov. Pete Ricketts opposes the advancement of LB44, State Sen. Dan Watermeier’s priority bill, which would enforce the collection of online sales tax, saying it would put Nebraska’s budget on “shaky grounds.”

Both sides miss a broader point about Nebraska taxes made by the WalletHub organization — they are too high.

According to WalletHub’s newest tax survey, Nebraska ranks 50th in overall effective state and local tax rates — only Illinois has higher taxes, and the District of Columbia is included in the count.

Based on the median U.S. household income, Nebraskans pay taxes at a rate of 13.8 percent, or $7,493 in state and local taxes on the median U.S. household income.

That’s 28.75 percent more than the U.S. average rate. We pay $6,589 in annual state and local taxes based on the median state household income, and get a bit of a break based on the overall cost of living in Nebraska, but we’re still 38 places above the lowest state.

Nebraskans are already required to pay sales tax on online purchases, but a 1992 U.S. Supreme Court ruling prohibited sales taxes on Internet purchases.

“Enforcement of online state sales tax is an issue that must be addressed, but it can only be handled properly by Congress at the federal level or a change in direction from the Supreme Court,” Gov. Ricketts said. He said the state would continue to work to bring online businesses into voluntary compliance — and the biggest player, Amazon, already began collecting sales tax this January.

LB 44 attempts to put some teeth into collection of online sales taxes, assessing a $5 fine for each failure to notify buyers that sales tax is due, and a $10 penalty for sellers who fail to notify Nebraska purchases the total amount of purchases made the previous year.

Watermeier estimates LB 44 would increase revenue to the state by $30-$40 million conservatively, or as much as $100 million.

Ricketts noted that state-level measures like LB 44 have been found to be unconstitutional as recently as last week, with other cases pending.

Instead of scrambling to find new revenue like online sales tax, however, it would be more appropriate for Nebraska governments at all levels to find savings such as employing the same technologies online retailers use to increase efficiency and effectiveness.