Nebraska Revenue Department clarifies local sales tax distribution responsibility

LINCOLN — The Nebraska Department of Revenue has confirmed it is the entity responsible for administering state and local sales taxes under state law as a state senator alleges wrongdoing by Lincoln city officials.

The state agency made the clarification Thursday in response to questions from the Nebraska Examiner. Local taxes are determined by some municipalities and a couple of counties, up to 2 cents per dollar. State sales taxes are set by the Legislature, currently at a 5.5-cent rate.

“Retailers collect and remit city sales tax to the DOR,” the statement read. “The DOR in turn remits the sales tax to the city minus any applicable refunds. The DOR does not itself collect sales and use taxes. It is the responsibility of the retailer to collect the appropriate tax.”

State senator accuses Lincoln of improperly taxing non-city residents, demands refunds

State Sen. Beau Ballard of Lincoln blasted Lincoln officials this week after he said constituents alerted him that they were being taxed 7.25% for purchases made outside city limits but within a 3-mile zoning buffer around Lincoln. He said that included deliveries and services at their homes. Lincoln’s sales tax rate is 1.75%. 

Ballard said the city should refund any improperly assessed local taxes.

Nebraska Attorney General Mike Hilgers, who lives in the “extraterritorial zoning jurisdiction” around Lincoln, wrote on social media Wednesday: “I have heard/seen this. Very bad for the city to be collecting sales taxes from ETJ citizens. Taxation without representation!”

University of Nebraska College of Law professor Anthony Schutz responded to Hilgers and said it could be intermediaries out of line. Hilgers agreed.

“You are right — lots of mechanics involved in collecting and remitting taxes — so hard to pin any blame without knowing more,” Hilgers wrote. “That said, no matter the mechanism, the city is getting (at least some?) amount of $$ to which it is not legally entitled.”

Both Ballard and Hilgers are supporters of a 2026 ballot measure to allow residents in the 3-mile buffer zone to vote in city elections. Ballot Question 6 is on Lincoln’s Nov. 3 ballot.

Lincoln City Council Chair Brodey Weber, who lives in the legislative district that Ballard and previously Hilgers represented, said Wednesday it was “unfortunate” Ballard didn’t reach out to the city before issuing a news release accusing the city of malfeasance. Ballard announced he would seek 2027 legislation forcing Lincoln to issue refunds plus interest. He said he was also considering imposing an additional penalty for any delay.

Weber said Ballard made “no attempt” to work with the city and didn’t detail supposed evidence.

“If there is any evidence, I strongly encourage him (Ballard) to present it to the Nebraska Department of Revenue as well as to the city so any potential issue has the opportunity to be rectified immediately,” Weber wrote.

“With there being no collaborative approach, I fear that this is a hyper-partisan attempt to advocate for a political campaign that seeks to let non-Lincoln citizens, who do not pay city property taxes, vote in our Lincoln city elections.”

Weber ran against Hilgers for Legislative District 21 in 2020. Hilgers was elected attorney general in 2022, and Ballard was appointed to the seat in 2023. He previously worked for Hilgers while he was in the Legislature. Weber was elected to the City Council in 2023.

Ballard said Thursday night he stands by his frustrations with the city and argued that Weber is “more than happy in accepting this windfall.”

“I understand that. That’s his prerogative,” Ballard told the Examiner. “Willing to have a conversation with Brodey, I’ve known him for a long time, and a collaborative approach, I think, is good to try to put more money back in Nebraskans’ pockets that was, again, wrongfully taken from them.”

The Revenue Department said if a customer learns they have overpaid any state or local sales and use tax, they can file a Claim for Refund of Sales and Use Tax, Form 7.

The agency said retailers can use the department’s Nebfile system to file their sales tax returns (Form 10) to report gross Nebraska sales and turn in required taxes. But the department said it does not maintain the actual details of each individual sale that makes its way to a tax return, documents Ballard argued would help determine refunds over 20 years.

Between January 2006 and July 2026, the Department of Revenue returned $1.72 billion in local sales tax revenue to Lincoln, according to data from the department. In the past year, the city has received $132 million in sales tax revenue, an average of $11 million each month.

Businesses can use free tools to assist them in determining the appropriate tax to charge Nebraska customers based on the location of the sale, the department said. Sales made in person, at a store, are taxed based on the location of the business, but sales shipped to a customer are based on the location the item is shipped to.

The department’s suggested tools are:

• Sales and Use Tax Rates and Boundary Files, available for download.
• Sales Tax Rate Finder, for retailers to determine the appropriate jurisdiction and tax rate.

Ballard said he understands the department might not have the documentation but that the issue needs to be corrected going forward. He said he has heard from more Nebraskans since Wednesday who have faced similar problems. He said Nebraskans are busy with work, raising families and getting dinner on the table and don’t want to fill out a form for a refund.

“I think the state and the city have a responsibility to get it right on the first time and not wrongfully take this money from hardworking Nebraskans,” Ballard said.

Said the agency: “The DOR is willing to work with local city officials or state senators to review and discuss the process of collecting and remitting state and local sales and (use) taxes.”

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