Nebraska to enforce remote sales tax collection based on Wayfair decision

The Supreme Court of the United States ruled on June 21, 2018, that states can tax sales by out-of-state businesses. As a result, the Nebraska Department of Revenue will require certain remote sellers to collect and remit tax on their sales into Nebraska starting January 1, 2019.

Prior to the Supreme Court ruling in South Dakota v. Wayfair, Inc., states could tax sales by businesses with a physical presence in the state, but not those by businesses with no physical presence. In Wayfair, the Supreme Court found this physical presence rule to be “unsound and incorrect.” It determined the “economic and virtual contacts” between a state and a business to be a sufficient trigger for nexus, the connection between a business and a state that allows a state to tax a business’s transactions.

States are now grappling with the fallout of the decision; approximately 20 have adopted economic nexus provisions similar to the South Dakota law that triggered the repeal of the physical presence rule. Nebraska is taking a slightly different path. It intends to enforce existing use tax laws in a way consistent with the Wayfair ruling.

Doing business in Nebraska

Under current Nebraska law (Neb. Rev. Stat. § 77-2701.13), a business is “engaged in business” in the state if it engages in certain activities, including:

• Maintaining, occupying, or using, permanently or temporarily, directly or indirectly, or through a subsidiary or agent, by whatever name called, an office, place of distribution, sales or sample room or place, warehouse, storage place, or other place of business in this state;
• Having any representative, agent, salesperson, canvasser, or solicitor operating in this state under the authority of the retailer or its subsidiary for the purpose of selling, delivering, or taking orders for any property;
• Soliciting retail sales of property from residents of this state on a continuous, regular, or systematic basis by means of advertising which is broadcast from or relayed from a transmitter within this state or distributed from a location within this state;
• Soliciting orders from residents of this state for property by mail, if the solicitations are continuous, regular, seasonal, or systematic and if this retailer benefits from any banking, financing, debt collection, or marketing activities occurring in this state or benefits from the location in this state of authorized installation, servicing, or repair facilities.

According to a Nebraska Department of Revenue statement on the South Dakota v. Wayfair, Inc. decision, “If you are a remote seller who is engaged in business in Nebraska as defined under Neb. Rev. Stat. § 77-2701.13, you must obtain a sales tax permit on or before January 1, 2019, and must begin collecting and remitting sales tax on sales made to customers in Nebraska.”

The department is enforcing its law “consistently with the Supreme Court’s decision in Wayfair.” Thus, it’s allowing an exception for small sellers the way South Dakota’s law does, and it intends to enforce its law on a prospective basis only.

Small seller exception

South Dakota’s law requires a business without a physical presence in the state to obtain a South Dakota sales tax license and pay applicable taxes only if it meets one or both of the following criteria in the previous or current calendar year:

• Has gross sales into South Dakota exceeding $100,000; or
• Has 200 or more separate transactions into South Dakota

In keeping with the Supreme Court ruling, Nebraska “plans to administer the collection responsibility consistently with the Supreme Court’s decision in Wayfair, which looked favorably upon an exception for remote sellers with sales of $100,000 or less or with fewer than 200 separate transactions in the state annually.”

No looking back

Furthermore, the Department of Revenue “does not intend to pursue retroactive sales tax collection from remote sellers that did not have a physical presence in Nebraska for sales made to customers in Nebraska prior to January 1, 2019.”

Indeed, the department is putting a positive spin on its new enforcement measures: “The Wayfair decision presents a new climate for remote sellers, and we want to be mindful of that fact. Further, we do not take for granted the great service to Nebraska performed by businesses who collect sales tax on behalf of the state. Remote sellers seeking to comply with our laws will find a respectful, professional Department ready to assist them as partners.”

At this time, no new remote sales tax legislation is on the table in Nebraska. However, the department says it “may seek legislation in the 2019 legislative session as needed.” It wants to see what happens in South Dakota first.

Although the Supreme Court ruled in favor of South Dakota in South Dakota v. Wayfair, Inc., South Dakota is not yet enforcing its law. The case has been remanded to state court system for further proceedings not inconsistent with the decision. Until the court gives it the green light, the law remains under an injunction. Additional information is available at the South Dakota Department of Revenue.

Learn more about South Dakota v. Wayfair and its possible impact on your business at the Avalara resource page.