LINCOLN — It was “deja vu all over again” at the State Capitol on Thursday.
Groups ranging from accountants to farmers, veterinarians to lawyers, owners of self-storage units and amusement game distributors, lined up to oppose attempts to remove long-running tax breaks for their industries.
It was a replay of full-court presses in past years against legislative attempts to relieve property taxes by “broadening” the sales tax base by eliminating exemptions. And it marked the third straight day of rocky receptions for Gov. Jim Pillen’s plan to reduce property taxes by 40%.
At one point on Thursday, chuckles erupted in the hearing room of the Legislature’s Revenue Committee after it was pointed out that one of the tax relief proposals drew letters from 115 opponents and only three supporters.
At another point, State Sen. Lou Ann Linehan, who chairs the committee, called out for testifiers who would speak in favor of one of the other proposals. There were none.
“That’s kind of how the day has gone,” said Linehan, a key supporter of the tax relief plans.
Pillen, who proposed a massive tax shift to reduce local property taxes by $1 billion, testified Thursday for the first time in support of his proposals, which includes consideration of a 1-cent increase in state sales taxes.
Governor urges ‘courage’
He urged state lawmakers to have “courage,” ignore the doubters and support tax changes he has labeled as “bold” and “transformational.”
“We have to sort through the noise and have the fortitude for a significant attitudinal change,” Pillen said. “This is absolutely, without a shadow of a doubt, the No. 1 issue in our state.”
The Republican governor said his plan would solve Nebraska’s historically high property taxes “once and for all” by shifting more of the tax load onto sales taxes and off property.
According to estimates made by the Nebraska Association of County Officials, the average property tax bill for a single family home worth $170,000 is $2,844 now in the state, which would drop to less than $1,606 if Pillen’s 40% reduction went into effect.
‘Winners and losers’
But opponent after opponent complained that removing sales tax exemptions on their industries would increase costs to businesses, pick “winners and losers” by targeting certain industries and signal that Nebraska wasn’t business friendly.
Several groups, including the Nebraska Chamber of Commerce, said that while they recognize there’s a property tax problem in the state, a “tax shift” is not the answer.
“We must reject the nonsense that tax reform can only happen by raising taxes,” said John Gage of Americans for Prosperity, a leading conservative group. “Long term, prudent tax reform will only come through government limiting its spending on all levels of government….”
Another normally conservative ally, the Lincoln Independent Business Association, also testified against the tax shift proposals, saying they would hurt small businesses and hit heaviest on low-income Nebraskans, who can least afford it.
Pillen’s proposal for a “hard cap” on spending increases did get support from business groups during Thursday’s hearing.
“But a tax shift does nothing to lower our overall tax burden,” said Jason Ball of the Lincoln Chamber of Commerce.
‘Where is the data?’
Carter Thiele of LIBA also asked “where is the data” that shows elderly Nebraskans are leaving their homes “in droves” due to high property taxes.
Stacy Watson, an Omaha certified public accountant, told senators that only three states tax business spending on professional services, such as those provided by accountants and lawyers.
She added that sales taxes are the most regressive form of tax, because low-income people spend a higher portion of their income on purchases, while property taxes were more “equitable” because the greater the worth of your property, the higher your taxes.
Property taxes more ‘equitable’
“We’re going from an equitable form of taxation to a more regressive form of taxation,” Watson said.
Even a couple of the supporters, the county officials group and the League of Nebraska Municipalities, couched their support as being “in concept only” since the exact mix of tax proposals has yet to be determined.
It was also pointed out that Nebraska’s cities would reap tens of millions of dollars of new sales tax revenue by removing the tax exemptions proposed.
Linehan, at the end of the day, told her fellow members of the Revenue Committee that she had set aside a bill, Legislative Bill 1317, as the vehicle to carry all of the property tax relief proposals, which have yet to be crafted by the committee.
“Maybe it will become famous,” she added, like another well-known bill, LB 775.
That referred to Nebraska’s first business tax incentive law, which was passed in 1987 and helped persuade Union Pacific Railroad and, for a time, ConAgra, from moving their headquarters out of the state.
Several tax proposals were considered Thursday:
The bill from Sen. Kathleen Kauth of Omaha would eliminate sales tax exemptions on soda pop, candy and hemp products containing CBD and THC. It would generate an estimated $36 million to $42 million a year in nee blw tax revenue for the state, and $9 million to $12 million for cities that levy sales taxes.
Kauth argued it was a “choice” to purchase such products.
Opponents said that many soft drinks have no sugar and that some candy bars would continue to be exempt as food.
Thurston Sen. Joni Albrecht’s proposal would place a 20% tax on sales of state lottery tickets and on proceeds from money deposited in so-called “skill” video games.
Nebraska would become the only state that charges sales tax on lottery tickets, opponents said. They added that skill games should not be compared to video slot machines in casinos, which get about 10 times as much play a day.
Since an amendment was introduced on the bill Thursday, an updated fiscal impact statement had not yet been prepared.
This bill, also from Albrecht, would tax advertising services, including digital ad services, on companies with more than $1 billion in revenue, such as Google, Facebook and Amazon. It was estimated to generate an extra $56 million to $72 million in tax revenue a year.
Opponents, which included the Nebraska Broadcasters Association and a former president of the National Council of State Legislatures, said the new tax would impact all kinds of businesses and their ability to market their wares.
It would increase business costs, they added, and damage Nebraska’s reputation as a “great place to do business.”
The proposal from St. Paul Sen. Fred Meyer would impose new taxes on veterinary services (mostly for pets), and bills from moving companies and self-storage units.
Meyer said the new proceeds from eliminating the tax breaks, estimated at $33 million to $39 million a year, could help alleviate high property tax bills.
Foes of the bill said the tax would hit lower-income Nebraskans the hardest because they use storage units and struggle already to afford vet bills.
Offered by Sen. Dave Murman of Glenvil, the bill would eliminate tax exemptions on dry cleaning charges and single-day admission to the state’s zoos, including the state’s top tourist attraction, the Henry Doorly Zoo & Aquarium. It would generate only $4 million to $5 million a year in extra revenue.
Murman said it only made sense to gather taxes from the 40% of visitors to the Omaha zoo who come from outside the state. But Louis Padilla, president and CEO of Henry Doorly, said that taxing zoo admission sent a bad message to zoo donors, and that the attraction generates $200 million a year in economic impact.
This bill, from Omaha Sen. Brad von Gillern, would eliminate tax exemptions on farm repair parts and business accountant expenses. The new revenue was estimated at $30 million to $35 million.
Von Gillern said it was “odd” that agriculture got a tax exemption on repair parts for equipment, while his former industry, construction, did not.
Several representatives of farm repair businesses said that taxing repair parts would force business across state lines, and that such parts were a business input that shouldn’t be taxed.
Accountants argued that it would inspire “border bleed” by forcing business to other states.
This bill from Linehan would eliminate a sales tax exemption for data centers on equipment purchases. It would bring an estimated $5.9 million to $6.7 million in tax revenue to the state and $1.5 million to $1.9 million to cities that levy sales taxes.
The measure from Omaha Sen. Justin Wayne would tax legal services purchased by businesses. It would bring an extra $53 million to $61 million a year in additional revenue.
Wayne, a lawyer, said that he opposed the bill but that lawyers in South Dakota have survived despite having to charge the tax. The Nebraska Bar Association and others said it would increase costs for businesses.