Nebraska Sales and Use Tax on Short-Term Rentals: New Guidance by the Nebraska Department of Revenue

By Ryan Coufal

Earlier this year Nebraska LB 284 passed into law requiring remote sellers—those without a physical presence—whose retail sales exceeded $100,000 in the previous year or current calendar year or if the seller made 200 or more separate Nebraska retail sales transactions in that same time frame, to obtain a sales tax permit from the Nebraska Department of Revenue (DOR) and begin collecting and remitting Nebraska and local sales tax.  Included with the online retail sales were sales made Multivendor Marketplace Platforms (MMP), or online marketplace facilitators.  Remote sellers selling through MMP’s must file sales tax returns reporting all of their Nebraska sales, but are relieved of the duty to collect and remit the sales tax on sales facilitated by the MMP if the MMP reports and remits the tax to the DOR.

Recently, the Nebraska DOR provided guidance on sales and use tax collection for remote sellers and MMPs which transact sales regarding Short-Term Lodging and Rentals in General Information Letter (GIL) 1-19-1.  The GIL clarifies that beginning on April 1, 2019, MMPs which facilitate short-term rentals must obtain sales and lodging tax licenses and begin collecting and remitting these taxes on the sales they facilitate, much like MMPs facilitating retail sales.  Additionally, the MMP is to complete the MMP Lodging Tax Worksheet-Breakdown by County with the Nebraska and County Lodging Tax Return (Form 64) to report the lodging tax by each county for sales facilitated in Nebraska.  Hotel or tourist home owners who provide short-term lodging and rentals are relieved of the duty to collect and remit the sales and lodging taxes on sales facilitated by an MMP if the MMP reports and remits the taxes themselves to the DOR, however, any sales and lodging not facilitated by an MMP must still be reported by the short-term rental provider themselves.

Per the Nebraska Revenue Act, a retailer or seller of lodging is defined as any person who, directly or indirectly, rents or leases property for a profit or gain when the transaction is subject to the sales tax, including sales facilitated by an MMP.[1]  The GIL indicates that travel agents who do not publish room availability and rates on behalf of hotels or tourist homes are generally not considered MMPs. This helps clarify a travel agent from a more well-known MMPs, such as Airbnb.

[1] Neb. Rev. Stat. §§77-2701.07, 77-2701.13, 77-2701.16, 77-2701.32 and 77-2701.36; see also Neb. Rev. Stat. §§77-2701.25, 77-2701.31, and Nebraska Sales and Use Tax Regulations 1-004.02C.

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U.S. Supreme Court Expands Rights of States to Collect Tax on Internet Transactions

by James S. Pieper

Since the dawn of the Internet, online sellers have benefited from a line of United States Supreme Court precedent that prevented states from requiring out-of-state businesses to collect and remit sales tax on sales in states where the seller has no “physical presence.”

On June 21, 2018, the Court discarded its longstanding “physical presence” test, thus opening the door for state governments to impose a broader range of duties on remote sellers, including the duty to collect and remit sales tax.

In South Dakota v. Wayfair, Inc., South Dakota sought to defend its statute that imposed a duty on all retailers with more than $100,000 of sales or 200 transactions within the state to collect sales tax on transactions and remit the tax to the state.  For retailers with no physical presence in the state, the statute was clearly in violation of the historic interpretation of the Commerce Clause of the United States Constitution, which limits the ability of states to regulate “interstate commerce” unless there is a “substantial nexus” between the state’s interests and the commercial activity.

Prior court decisions concluded that a state could have no “substantial nexus” with a seller that had no “physical presence” in said state.  As a result, online sellers with no “brick-and-mortar” presence or employees working in a state were free from the obligation to collect tax on their sales.

In South Dakota v. Wayfair, the Court rejected its prior interpretations of the Commerce Clause and held that a “substantial nexus” could be created by online sales alone despite the lack of “physical presence.”  The decision was decided with a bare 5-4 majority.

As a practical matter, the majority of online sales already entail the collection of sales tax due to either requirements that were valid under prior law or voluntary compliance by larger online retailers (including amazon.com).  Some retailers with no physical stores, however, will lose the advantage of being able to undertake transactions without collecting tax (including the respondents in the case, wayfair.com, overstock.com and newegg.com).

It will be up to each state to set the parameters of which remote sellers might be exempt from collecting tax due to a lack of significant sales, and the Court did not set a constitutional standard for what level of sales would constitute a sufficient “substantial nexus” to allow a state to impose duties (only that South Dakota’s standards were more than sufficient).

Perhaps more importantly, by jettisoning the “physical presence” standard as inappropriate in an era of “substantial virtual connections,” the Court has raised the prospect of greater opportunity for individual states to tax and regulate the actions of businesses whose only connection to said state is via online presence.

All businesses that connect with customers in other states via online connections will need to have heightened awareness that state tax and regulatory requirements in those other states may now apply to those interactions due to the Court’s new reading of the scope of a state’s authority under the Commerce Clause.

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Changes in Local Sales and Use Tax Rates – Nebraska

Effective January 1, 2017, certain Nebraska cities and villages will increase sales and use tax rates. The village of Meadow Grove enacted a new local sales and use tax rate of 1.5%. Elmwood, Weeping Water, and Wilber will increase sales and use tax rates to 1.5% and the city of Papillion will increase its local sales and use tax rate to 2%.

Consumers should be aware that there will be additional sales tax on purchases in these areas. Retailers should be ensure that they are prepared to appropriately collect and remit the increased sales tax beginning January 1, 2017.

For more information regarding the sales and use tax rate increases, sales and use tax compliance, and related information, visit the Nebraska Department of Revenue’s website, available at http://www.revenue.nebraska.gov/salestax.html.

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2015 Changes to Nebraska Sales and Use Tax

The Nebraska Legislature has made several changes to the sales and use tax. Starting in 2016, zoo admissions and memberships will be exempt from sales tax. The Nebraska Legislature enacted LB 419, a sales and use tax exemption primarily to support Nebraska’s nationally accredited zoos and aquariums. There are four nationally accredited zoos in Nebraska—Omaha’s Henry Doorly Zoo and Aquarium, Lincoln’s Children’s Zoo, Lee G. Simmons Conservation Park and Wildlife Safari, and Riverside Discovery Center. Zoo purchases and gross receipts from the sale of daily admission and memberships will no longer be subject to sales and use tax. Gross receipts derived from sales other than admissions or memberships, such as concessions, will still be subject to tax. The intent of the new law is to allow these zoos to reinvest the funds to further attract visitors and boost local tourism.

Also starting in 2016, purchases by sanitary drainage districts will be exempt from sales and use tax.

Lastly, the Legislature also passed a law which prepares Nebraska for the use of funds that would be generated if Congress expands the states’ authority to tax transactions with out-of-state retailers. If the federal government passes this type of legislation, LB 200 authorizes the funds to be credited to the Property Tax Credit Cash Fund—a fund for reducing property taxes. LB 200 was passed in anticipation of federal legislation such as the Marketplace Fairness Act, which would grant states the additional power for taxing transactions with out-of-state retailers. At this time, no federal legislation has made it through the House of Representatives. We will provide additional updates as this issue and pending federal legislation develops.

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Nebraska Department of Revenue Issues Guidance on Market-Based Sourcing Method for Sales Tax Collection

The Nebraska Department of Revenue issued guidance on the market-based sourcing method for sales tax collection. For the year-end 2014 and subsequent years, the market-based sourcing method replaces the previously used costs of performance method. This guidance applies to the sale of intangible property or services, but not to tangible personal property.

The market-based sourcing method focuses on the receipt or use of the product. This method allocates Nebraska taxes based upon the proportion of the sale received or used within the state of Nebraska. In contrast, the previous rule applied the tax based upon the location where the costs of the income producing activity were incurred.

Specific details regarding the various rules for different types of sales may be found at the following link or by going to the Nebraska Department of Revenue website.

http://www.revenue.nebraska.gov/info/market_based_sourcing.html.

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Updates to Nebraska Local Sales Tax

By Joshua A. Diveley.

The Nebraska Department of Revenue announced that beginning April 1, 2015, the following locations will implement a local sales and use tax:

• Benedict (1.5%);
• Callaway (1.0%);
• Dakota County (0.5%);
• Decatur (1.0%);
• Elwood (1.0%);
• Stanton (1.5%);
• Upland (0.5%); and
• Utica (1.5%).

Beginning April 1, 2015, the following cities and villages will increase their local sales and use taxes as follows:

• Bancroft (1.5%);
• Bassett (1.5%);
• Burwell (1.5%);
• Duncan (1.5%);
• Fairbury (2.0%);
• Howells (1.5%);
• Minden (2.0%);
• Nebraska City (2.0%);
• Norfolk (2.0%);
• Rushville (1.5%);
• Wayne (1.5%); and
• York (2.0%).

Also, beginning April 1, 2015, municipal boundaries for the following cities will be modified: Beatrice, Fairbury, Kearney, Lincoln, Neligh, Plattsmouth, West Point, and York. Additional information is available at:   http://www.revenue.nebraska.gov/salestax.html.

© 2014 Parsonage Vandenack Williams LLC

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What Law Governs When a Customer in Another State Buys My Product Over the Internet?

A Business FAQ with Mary E. Vandenack.

If you sell products over the internet, it is important to be aware that you are going to be subject to the laws and regulations of the state that you are located in, the states that you are selling in, and certain federal laws. There are going to be laws that govern your relationship with the persons who are buying your product, and there will be laws impacting you from a tax perspective so you are going to want to become familiar with each. It’s extremely important to give a lot of attention to your website terms and conditions. There are certain things that you can cover in those terms and conditions. You cannot get out of the application of different federal and state laws in those terms and conditions, but you can engage in certain aspects of control.

© 2014 Parsonage Vandenack Williams LLC

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Do I Have to Collect Taxes for Sales Made Over the Internet?

A Tax FAQ with Mark A. Williams.

If you make a sale over the Internet, generally, if sales tax apply you do have to collect the sales tax. The complication is you might be a business in the state of Nebraska and you might make one sale in the state of Louisiana. If you’re not advertising in that state and you don’t have a business location in that state, generally you wouldn’t be required to collect sales tax there. There is a legal concept called “nexus.” If you don’t have sufficient nexus, you usually don’t have to pay sales tax; however, some states are adopting laws that just require on every sale in that state you do have to pay sales tax. So it’s a very complex set of rules right now that are changing every day because of the growth of the Internet and you need to make sure you have good tax advisers to help you through that process.

© 2014 Parsonage Vandenack Williams LLC

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Does an Out-of-State Retailer Have to Collect Sales Tax?

A Tax FAQ with Mary E. Vandenack.

As a generality, an out-of-state retailer is subject to collecting tax in another state if they have nexus with the state in which they are making a sale. The definition of nexus varies state to state so it’s really important that a business look at what nexus means in a particular state.

In addition, different states tax different types of things so you have to really understand the nature of the business to determine whether you’re going to be subject to sales tax in another state.

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What Is Nexus?

A Tax FAQ with Mary E. Vandenack.

Nexus is simply the connection, usually considered in the business context, to another state. So what that is looked at for is that a business might be formed and do its primary operations in the state of Delaware, but it also engages in business in Colorado or sends employees into Colorado. We begin to look at what is called nexus to say how much connection that business has with the state of Colorado for purposes of being subject to Colorado laws and Colorado taxes.

Another nexus issue in the employment tax arena is when you send employees into another state, you look at their connection to that state to determine whether they are subject to that state’s payroll tax laws.

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