Session Review: Revenue
After several public hearings across the state during the 2013 interim, the Legislature’s Tax Modernization Committee identified property and income tax relief as top priorities for the 2014 legislative session.
Tax relief
The committee introduced LB987, which will adjust for inflation the minimum and maximum dollar amounts for each individual income tax bracket. The changes will prevent a cost of living wage increase from bumping a taxpayer into the next higher tax bracket.
The bill also reduces the amount of Social Security benefits that are included in the federal adjusted gross income (AGI) for state income tax purposes. The adjustment applies to taxpayers with an AGI of $58,000 or less for married persons filing jointly and $43,000 or less for all other returns.
The reduction in state General Fund revenue is estimated to be:
• $8.3 million in fiscal year 2014-15;
• $24.9 million in FY2015-16;
• $37.3 million in FY2016-17; and
• $51.6 million in FY2017-18.
The bill incorporated provisions of LB75, introduced by Fremont Sen. Charlie Janssen, which allow an individual to make a one-time election to exclude a portion of his or her military retirement income from state income tax within two years of retirement. The individual can choose to exempt 40 percent of military retirement income for seven consecutive years or 15 percent for each year, beginning with the year he or she turns 67.
The exemption applies only to individuals retiring after Jan. 1, 2015.
Senators passed the bill on a 44-0 vote.
LB986, also introduced by the committee, changes the Nebraska homestead exemption program by increasing the maximum eligible income from $28,500 to $46,900 for partial exemptions to married claimants older than 65. The maximum eligible income for partial exemptions to single claimants older than 65 is increased from $24,200 to $39,500.
The percentage of tax relief provided under the homestead exemption will now decrease by 10 percent at each income level instead of 15 percent, so as one’s income increases, a smaller portion of the exemption is lost.
The Nebraska homestead exemption program gives property tax relief to homeowners who are more than 65 years old or who are totally disabled veterans or their surviving spouses. The bill incorporates provisions of LB850, introduced by Syracuse Sen. Dan Watermeier, which also allow qualified individuals with developmental disabilities to apply for the homestead exemption.
Senators passed the bill on a 43-0 vote.
Omaha Sen. Pete Pirsch introduced LB1087, passed 48-0, which provides a 100 percent property tax exemption for a veteran with an honorable or general discharge who is drawing compensation for a 100 percent disability but is not eligible for the existing total homestead exemption.
The bill also provides a 100 percent exemption to the single widow or widower of any honorably or generally discharged veteran who died due to a service-related disability. The single widow or widower of a veteran killed while on active duty also is eligible for the exemption.
The bill decreases General Fund revenue by an estimated $406,000 in fiscal year 2015-16 and $416,000 in FY2016-17.
Senators approved several state sales tax exemptions on agricultural and business inputs.
LB96, introduced by Fullerton Sen. Annette Dubas, exempts from state sales tax the sale of repairs and replacement parts for agricultural machinery or equipment. Any qualifying purchases made prior to Oct. 1, 2013, remain eligible for refund.
Senators passed the bill on a 40-0 vote.
Tax incentives
An effort to encourage communities to restore historic properties to service was approved by lawmakers.
Omaha Sen. Jeremy Nordquist introduced LB191, passed 45-0, which allows property owners returning a historically significant property to service to apply for a nonrefundable tax credit equal to 20 percent of eligible expenditures, up to $1 million. The total amount of credits available per year is limited to $15 million. Taxpayers are eligible for the credit beginning Jan. 1, 2015, and applications will be accepted until Dec. 31, 2018.
In order to be eligible for the credit, an application must be filed with the state historic preservation officer prior to beginning work. Within 12 months of the project’s completion, a final approval request must be made, after which the final credit will be awarded.
The bill incorporates provisions of LB885, originally introduced by Omaha Sen. Burke Harr.
In counties of at least 150,000 people, two or more vacant or unimproved lots owned by the same person in the same tax district and held for sale or resale now can be included in one parcel for property tax purposes. The measure directs county assessors to use the discounted cash-flow analysis method, in addition to the income approach, when determining property taxes.
Kearney Sen. Galen Hadley introduced LB1067, passed 49-0, which extends the date for first claiming the credit for Tier 1 and Tier 3 projects under the Nebraska Advantage Act from Dec. 31, 2015 to Dec. 31, 2017. The date for Tier 6 projects under the Act is extended from Jan. 1, 2016 to Jan. 1, 2018.
The state Department of Revenue’s deadline to approve applications under the Nebraska Advantage Microenterprise Tax Credit Act is extended from Dec. 31, 2015 to Dec. 31, 2017.
The Legislative Performance Audit Committee introduced LB836, passed 42-0, which adds language to the state’s tax incentive programs indicating the types of jobs and industries that the programs are meant to encourage.
The bill specifies that the goal of the Nebraska Advantage Rural Development Act is to make tax structure revisions that encourage businesses to locate in rural Nebraska in order to decrease unemployment, create new jobs and increase investment.
LB836 also specifies that it is Nebraska state policy to encourage modernization of livestock facilities, increase research and development and create quality jobs—specifically those related to research and development, manufacturing and large data centers.
Finally, the bill adds language to the Angel Investment Tax Credit Act stating that it is state policy to encourage entrepreneurship and increase investment in high technology industries in underserved areas of Nebraska.
LB836 passed on a 42-0 vote.
Other measures
Lincoln Sen. Bill Avery introduced LB814, which dedicates the state sales tax revenue derived from the sale or lease of motorboats and personal watercraft for state Game and Parks Commission infrastructure maintenance projects.
The bill incorporates provisions of LB841, introduced by Hadley, which also dedicates to the maintenance fund state sales tax revenue collected from all-terrain and utility-type vehicles titled in Nebraska.
Senators passed the bill on a 43-1 vote.
Omaha Sen. Bob Krist introduced LB474, passed 45-0, which prevents a municipality from levying an occupation tax on an item that is subject to a state excise tax, which includes alcohol, tobacco, groceries and motor fuel.
Hadley introduced LB33, passed 42-0, which authorizes the state Department of Revenue to contract with in-state financial institutions for an electronic levy pilot project.
The bill also makes a number of changes, including:
• allowing the department to waive the traditional three-year statutory lien period when a taxpayer has entered into an agreement to satisfy an overdue tax liability;
• repealing the individual income tax return checkoff for contributions to the Campaign Finance Limitation Cash Fund; and
• authorizing the imposition of a 25 percent penalty for filing a late tobacco products tax return.
LB867, introduced by Hadley, broadens current law to allow any person certified by a municipality to access sales and use tax information of permit holders within city limits. Currently, only a municipal employee is authorized to access such information. Confidentiality provisions already in statute still bind the certified person, who could include a financial or accounting contractor.
LB867 incorporates the provisions of several additional bills, including:
• LB159, introduced by Columbus Sen. Paul Schumacher, which exempts the sale, lease or rental of currency or bullion from sales and use taxes;
• LB783, introduced by Omaha Sen. Steve Lathrop, which changes the annual determination and certification of sales tax revenue under the Sports Arena Financing Act to a quarterly determination and certification;
• LB809, introduced by Lincoln Sen. Colby Coash, which exempts purchases made by historic automobile museums from sales and use taxes;
• LB829, also introduced by Schumacher, which exempts separately stated postage charges from sales and use taxes; and
• LB1043, introduced by Omaha Sen. John Nelson, which exempts charitable donations of land to nonprofits from the documentary stamp tax.
Provisions of LB150, originally introduced by Nordquist, also were incorporated into the bill. Currently, the Metropolitan Utilities District (MUD) remits the equivalent of 2 percent of the annual gross revenue derived from all retail sales of water and gas sold by MUD to Omaha. The provision exempts from the calculation the retail sale of natural gas used as vehicular fuel and the energy used in the compression of natural gas for sale as vehicular fuel.
Senators passed the bill on a 49-0 vote.
North Platte Sen. Tom Hansen introduced LB251, passed 43-0, which allows rental car companies to charge a fee of up to 5.75 percent to cover licensing costs for the cars in their fleets.
Currently, car rental companies are required to charge a 4.5 percent fee and remit excess funds to their county treasurers. Companies now may vary the fee to recover licensing costs but are not forced to collect the fee if it is not needed.
Finally, LB1092, introduced by Dubas, would have authorized the State Highway Commission to issue up to $200 million in bonds for highway construction projects. At least 25 percent of bond proceeds would have been dedicated to construction of federally designated, high priority corridors and the expressway system through Chadron, Alliance and Scottsbluff.
LB1092 failed to pass final reading on a 27-16 vote, three votes short of the number required.
