If you are selling goods or products online and some of your customers are located in Nebraska, you need to be aware of the state’s Internet sales tax rules. Keep in mind that collection of sales tax on Internet sales has been a matter of ongoing debate both within individual states and at the federal level.
The General Rule: Physical Presence in the State
The current default rule throughout the United States is that you must collect sales tax on Internet sales to customers in those states where your business has a physical presence. The physical presence rule is based on a 1992 United States Supreme Court decision, Quill Corp. v. North Dakota, that addressed the obligations of mail order businesses to collect sales tax on out-of-state sales. The decision has been extended to include online retailers. Generally speaking, physical presence means having:
The corollary to the physical presence rule is that, if you do not have a physical presence in the state, you generally are not required to collect sales tax for an Internet-based sale to someone in that state.
Example 1: You are operating solely out of a warehouse in Denver, Colorado and make a sale to a customer in Kearney, Nebraska—a state where your business has no physical presence: You are not required to collect sales tax from the Kearney customer.
Example 2: You are operating solely out of an office in Lincoln, Nebraska and make a sale to a customer in Grand Island, Nebraska: You are required to collect sales tax from the Grand Island customer.
Example 3: After several years of operating solely out of a warehouse in Denver, Colorado, you open a one-room satellite office just outside of Omaha, Nebraska—a state where previously you had no physical presence. A day later, you make a sale to a customer in Bellevue, Nebraska: You are required to collect sales tax from the Bellevue customer.
For basic guidance on how physical presence is defined under Nebraska law, refer to Section 77-2701.13 of the Nebraska Revised Statutes and REG-1-004.02 of Title 36 of Nebraska’s administrative regulations, both of which define “engaged in business in this state.” (Title 36 covers the Nebraska Department of Revenue (DOR) regulations.) Note that both definitions include places of business that are controlled directly or indirectly, including through an agent, and, in the case of the statute, through a subsidiary.
DOR regulation REG-1-004.04 and REG-1-003.02 both state that an out-of-state seller is not required to collect sales tax “when he or she is not engaged in business in this state.” Keeping in mind the statutory and regulatory definitions just mentioned, this seems tantamount to stating that physical presence is required in order for a business to be required to collect sales tax.
In limited cases, items sold via the Internet to Nebraska customers may be exempt from sales tax under Nebraska law. For example, under Section 77-2704.24 of the Nebraska statutes, and as further explained in DOR regulation REG-1-087, food for human consumption other than meals is exempt from sales tax.
For more detailed information on tax-exempt items, you can check the helpful and very thorough online chart of exemptions published by the DOR, which includes links to relevant DOR administrative regulations and forms. You might also consider reviewing DOR regulation REG-1-012, which lists virtually all exemptions, including not only those based on the type of item sold, but also those based on the status of the seller or buyer, along with references to the specific DOR regulation for each exemption. Alternatively, you can review Sections 77-2704.36 through 77-2704.63 of the Nebraska Revised Statutes, which also cover many of the sales tax exemptions.
The Customer’s Responsibility
In cases where the online retailer does not have to collect sales tax, it is the customer’s responsibility to pay the tax—in which case it is known not as a sales tax but, rather, a use tax. The statutory and administrative statements on Nebraska’s use tax are in Sections 77-2704.30 and 77-2704.44 of the Nebraska Revised Statutes and REG-1-002 of the DOR regulations. In addition, the Nebraska Department of Revenue publishes a helpful FAQ page on sales and use taxes and a short PDF document on Internet and mail-order purchases. The document provides examples indicating that consumers need to pay use tax on Internet purchases where no sales tax is collected.
Proposed Federal Legislation
At the federal level Congress has repeatedly considered legislation that would affect large Internet retailers and how online sales taxes are collected in all states. The most recent form of a proposed federal law is the Marketplace Fairness Act of 2015. As in previous versions, the 2015 Act would allow states to require sellers not physically located in their state to collect taxes on online and catalog sales made to people in their state. Sellers that make $1 million or less in annual sales and have no physical presence in the state would be exempt from this requirement. States would have to meet certain criteria to simplify their sales tax laws and make sales tax collection easier before they could require sellers to collect the tax.
The issue of whether to require online retailers to collect sales tax in states where they have no physical presence has been a matter of significant debate in many states and at the federal level. However, at this time Nebraska has not enacted any law that would require out-of-state retailers to collect sales tax from Nebraska customers. However, because the issue is a subject of ongoing debate, you should consider checking in periodically with the Nebraska Department of Revenue to see if the rules have changed.
Updated: April 14, 2016