Nebraska property tax relief plan is pared back more, advances to final reading

Nebraska property tax relief plan is pared back more, advances to final reading
COURTESY/ State lawmakers worked into the night on Wednesday, debating major tax proposals. (Paul Hammel/Nebraska Examiner)
April 12th, 2024 | By: Paul Hammel - Nebraska Examiner April 10, 2024

Bill now reduces local property taxes by 22%, which falls short of Gov. Jim Pillen’s goal of a 40% decrease

LINCOLN — Nebraska lawmakers further slimmed down a property tax relief plan sought by Gov. Jim Pillen before advancing it to final reading Wednesday evening.

The 28-14 passage of Legislative Bill 388 came after a long debate over the idea of raising some taxes to reduce others, namely property taxes, and whether a portion of the bill was unconstitutional.

New amendments announced Wednesday reduced some of the tax increases called for in LB 388, which offers about a 22% reduction in local property taxes, according to Pillen’s budget director, Lee Will.

Senators expect special session

But with the governor calling for an overall reduction of 40%, several senators said that almost assuredly, the Legislature will be back in special session this summer to seek new revenue sources to provide a greater shift away from local property taxes.

 State Sen. Danielle Conrad of Lincoln  (Zach Wendling/Nebraska Examiner).

State Sen. Danielle Conrad of Lincoln, who opposed LB 388, suggested that lawmakers should wait until then, so they can craft “a more thoughtful approach than rushing forward at this late stage.”

Conrad pointed out that major amendments to the bill weren’t released until late Tuesday night — the 57th day of the 60-day session — giving senators little time to digest them.

“How does this shake out for the average working person? Has anyone run the numbers?” Conrad asked. “If we don’t know, we shouldn’t move forward (tonight).”

State Sen. Lou Ann Linehan, the main sponsor of the Pillen plan as chair of the Revenue Committee, pushed back on the idea that amendments to LB 388 were drawn up in the Capitol hallways.

She said that her committee had worked hard on property tax ideas this session.

Sales tax increase abandoned

Linehan portrayed the newest version of LB 388 as removing the most controversial aspect — a 1-cent increase in sales taxes — and reaching compromises on other provisions.

Proposed excise taxes on skill games and hemp edibles were pared back to 5% and 25%, respectively, from initial increases of 20% and 100%.

During debate, an extra tax on vaping products was raised to 20% on all products. Seward Sen. Jana Hughes argued that vaping taxes needed to be more in line with those on another harmful product, tobacco, although a 20% tax was still far smaller than the proposed $1 a pack tax on cigarettes.

LB 388 continues to include new sales taxes on soda pop and candy, lottery tickets, self-storage fees and veterinary services on pets.

The bill removed a proposed tax exemption on residential utility bills, but, in a compromise, provided an increase in the state’s Earned Income Tax Credit, from 10% to 15%.

Dunbar Sen. Julie Slama mounted a challenge to one proposed new tax, on digital adversing, which is aimed at major websites such as Facebook and Amazon.

Slama, an attorney, said the proposed 7.5% tax would hurt small businesses that rely on social media ads to sell their goods and services. Slama contended it was also likely unconstitutional,  because it targeted digital ads but not local broadcast and print ads.

 State Sen. Julie Slama of Dunbar. (Zach Wendling/Nebraska Examiner)

Twenty lawsuits, the senator said, had been filed against a similar tax in Maryland, the only other state to adopt such a tax on digital ads.

“I don’t think we’ll collect any dollars from this tax before a (court) injunction is filed,” Slama said.

Omaha Sen. Megan Hunt, who runs a boutique that relies on online sales, said several small businesses would have to close given the higher taxes.

She cited the example of eCreamery in Omaha’s Dundee area, which was one of the first in the country to sell custom-churned ice cream via the internet. (The business recently wrote a commentary published in the Examiner.)

The Nebraska Chamber of Commerce also opposed the tax on digital ads.

But an amendment to toss out the tax failed on an 18-18 vote, seven votes short of the 25 needed.

Revenue caps retained

There were also failed efforts to relax the 3% cap on revenue for fast-growing cities and counties so they could purchase law enforcement equipment, and to pare back LB 388 to remove all tax increases and instead include only the cap and “front loading” of the state’s existing income tax credit on property taxes paid.

Fewer than half of Nebraskans, in some areas, don’t claim the income tax credit. Front loading the credit on property tax statements that go out in the fall, Pillen has argued, is fairer and ensures that people get their tax credit.

Given the lack of time at the end of the session, a companion bill to LB 388 that would use the revenue from the tax measure to lower tax levies in local school districts will not advance during the regular session. It might come up in a special session, however,

Bayard Sen. Steve Erdman said he did the math and concluded that LB 388 provided only a 2% decrease in property taxes on a home in his Panhandle district, which he called a “band-aid on an amputation.”

He also argued for putting off a major debate over tax policy until a special session could be called.

“Then we can have a real conversation,” Erdman said.

Final-round consideration of the bill is scheduled on April 18, the final day of the 2024 session.

Varied reactions

Comments on advancement of the plan:

OpenSky Policy Institute: LB 388 is more transparent in that it “front loads” an existing state tax credit, instead of requiring taxpayers to claim it while filing income taxes. While 160,000 Nebraskans would be helped by the increase in the state’s earned income credit, cites and counties would be less able to respond to local needs because of the 3% revenue cap.

Platte Institute: A “sunset” provision should be applied to end, in five years, an aspect of the bill that devotes any state revenue above 3.5% to the new School Property Tax Credit Fund. That would “bind the hands” of future legislatures, preventing them from reducing sales and income taxes.

Americans for Prosperity: It was a “rushed and last minute” attempt to raise some taxes, while “punting on the worst tax hikes.” The proposal still raises costs for struggling families and businesses.


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