Session Review: Revenue

The Legislature’s Revenue Committee considered bills this session to provide property tax exemptions, tax incentives for high-tech businesses and an incremental gas tax increase.

Fuel tax

Papillion Sen. Jim Smith introduced LB610, which increases the tax allocated to the state Department of Roads by one-half cent per gallon annually for four years and to cities and counties by one cent. The department currently receives an appropriation of 7.5 cents on each gallon of gasoline, while cities and counties are allocated 2.8 cents.

The increase to cities and counties totals $4.2 million for fiscal year 2015-16, $16.9 million for FY2016-17, $29.6 million for FY2017-18 and $42.3 million for FY2018-19.

The increase to the department totals $2.1 million for FY2015-16, $8.5 million for FY2016-17, $14.8 million for FY2017-18 and $21.2 million for FY2018-19.

The bill passed on a 26-15 vote but was vetoed by Gov. Pete Ricketts, who said it was too large of an increase.

Senators voted 30-16 to override the governor’s veto. Thirty votes were needed.

Tax relief

LB259, introduced by Grand Island Sen. Mike Gloor, exempts the first $10,000 of personal property for each personal property tax return filed with a county assessor.

The bill also creates a compensating exemption factor to determine the tax exemption for companies that are centrally assessed by the state. These include railroads, telecommunications and public utilities.

The bill passed on a 47-0 vote.

Lincoln Sen. Kate Bolz introduced LB591, adopted 47-0, which establishes Achieving a Better Life Experience (ABLE) accounts for individuals with disabilities that developed prior to age 26. ABLE accounts offer tax-free savings options for education, housing, assistive technology and other needs.

Under a qualified program, any person may make contributions to an account to meet the qualified disability expenses of the designated beneficiary of an account.

The state investment officer will have fiduciary responsibility to make all decisions regarding the investment of money in the administrative fund, expense fund and program fund including selection of all investment options.

The bill includes provisions of LB76, originally introduced by Columbus Sen. Paul Schumacher, which require taxpayers reducing taxable income using net operating loss carry forwards to add back the net operating loss carry forward amount to their taxable income for purposes of claiming the Nebraska earned income tax credit.

The provisions also require taxpayers to report the net operating loss carry forward amount as household income when claiming a homestead tax exemption.

Tax exemptions and incentives

Senators passed legislation that increases the amount of tax exemptions and incentives available to Nebraska businesses while also increasing the legislative oversight of such programs.

Currently, investors can apply for up to $3 million in annual refundable tax credits for investments made in a business with at least 51 percent of its workforce and payroll in Nebraska and 25 or fewer employees primarily engaged in researching, developing or using products and services in the high-tech field.

LB156, introduced by Gering Sen. John Stinner, increases the annual maximum available amount of the angel investment tax credit to $4 million.

According to state statute, the high-tech field includes aerospace, agricultural processing, renewable energy, energy efficiency and conservation, environmental engineering, food technology, cellulosic ethanol, information technology, materials science technology, nanotechnology, telecommunications, biosolutions, medical device products, pharmaceuticals, diagnostics, biologicals, chemistry and veterinary science.

To qualify for tax credits, an individual must invest at least $25,000 in a calendar year and qualified funds—composed of three or more investors—are required to invest at least $50,000.

Refundable credits equaling 35 percent of the investment are granted to investors with caps of $350,000 for married couples filing joint returns and $300,000 for all other filers.

Refundable credits of 40 percent are offered for investments made in a business located in a distressed area, which is defined as a city, a county with a population of fewer than 100,000 residents, an unincorporated area within a county or a census tract that has an unemployment rate that exceeds the statewide average, a per capita income below the statewide average or a population decrease between the two most recent censuses.

The bill passed on a 46-0 vote.

The Performance Audit Committee introduced LB538, passed 46-0, which creates an ongoing evaluation process for all current and future tax incentive programs enacted for the purpose of recruiting or retaining businesses in Nebraska.

The Legislature’s Performance Audit Office will develop and publish a schedule for conducting the evaluations, ensuring that each program is reviewed at least once every three years.

Each evaluation of a tax incentive program will analyze program-specific goals and economic and fiscal impacts of the program and recommend changes to evaluation procedures that will allow for easier evaluation in the future.

Eight current programs also will be evaluated under LB538, including the:
• Angel Investment Tax Credit Act;
• Beginning Farmer Tax Credit Act;
• Nebraska Advantage Act;
• Nebraska Advantage Microenterprise Tax Credit Act;
• Nebraska Advantage Research and Development Act;
• Nebraska Advantage Rural Development Act;
• Nebraska Job Creation and Mainstreet Revitalization Act; and
• New Markets Job Growth Investment Act.

The bill establishes a sunset date of Dec. 31, 2019, for certain incentives under the Nebraska Advantage Act, Nebraska Advantage Rural Development Act and the New Markets Job Growth Investment Act.

LB419, introduced by Omaha Sen. Heath Mello, exempts the sale of zoo memberships and daily admission fees. It defines a qualifying zoo or aquarium as one that is operated by a public agency or nonprofit corporation primarily for educational, scientific or tourism purposes.

The bill passed on a 39-5 vote.

Omaha Sen. Burke Harr introduced LB414, passed 33-13, which exempts all fraternal benefit societies from property taxes. State statute defines a fraternal benefit society as any incorporated, not-for-profit society, order or supreme lodge without capital stock that is conducted solely for the benefit of its members and their beneficiaries.

Other measures

Lawmakers considered a number of bills pertaining to additional taxing authority, property and land valuation and tax credits for students and veterans.

Federal legislation to authorize states to collect sales tax on all Internet transactions is currently pending. LB200, introduced by Hyannis Sen. Al Davis, allocates the first year of sales tax revenue on such transactions to the state’s Property Tax Credit Cash Fund upon approval of the federal legislation.

The bill passed on a 47-0 vote and will terminate after three years.

Davis also introduced LB325, adopted 40-2, which allows a fire district levy authority only if it is located within a county that had a levy of at least 40 cents in the previous year or is located in a county that did not authorize any levy authority to the district in the previous year.

Fire districts could levy a maximum of 10.5 cents per 100 dollars of taxable valuation located within the fire district.

LB356, introduced by Harr, requires county assessors to use an income approach calculation for all rent-restricted housing projects to determine taxable valuation.

Rent-restricted housing project is defined as a project consisting of five or more houses or residential units that is financed, in whole or in part, with an allocation of federal low-income housing tax credits.

The bill creates the Rent-Restricted Housing Projects Valuation Committee, which will develop a market-derived capitalization rate to be used by county assessors when determining assessed value for qualified projects.

The committee will include the state tax commissioner, as well as the following members appointed by the commissioner:
• a representative of local government assessing officials;
• a representative of the low-income housing industry; and
• an appraiser from the private sector.

Owners of a rent-restricted housing project are required to file a detailed income and expense data statement with the committee and the county assessor by Oct. 1 of each year.

The bill passed on a 45-0 vote.

Schumacher introduced LB70, which would impose an additional tax of 10 percent of the gross revenue a business earns by operating a mechanical amusement device that has not been determined to be legal in Nebraska.

These devices include any machine that enables a person to play a game by inserting some form of currency, pays a prize and determines the results by chance.

Senators passed the bill on a 35-11 vote. It was vetoed by Gov. Ricketts, who said the bill represents an expansion of gambling—an issue that voters repeatedly have rejected.

Schumacher opted to not file a motion to override the veto, saying that he and the governor would work over the interim on the issue.

LB423, introduced by Omaha Sen. Jeremy Nordquist, would increase the available renewable energy generation credit from its current level of .05 cent per kilowatt-hour. A sliding scale would be used to determine the credit, beginning at .75 cents per kilowatt-hour during the first two years of operation and reduce by .01 cent every two years until the 10-year tax credit expiration.

The bill would add a second method of calculating the tax credit: a one-time credit equal to 30 percent of the total cost of construction of an eligible facility, not to exceed $1 million.

It also would assign annual reporting duties to the state Department of Revenue on the number of facilities receiving the credits and the amount of credits earned and claimed. The tax credit would have a sunset date of Dec. 31, 2021.

The state’s new tax credits would be limited to $75 million each year.

Nordquist introduced a motion to invoke cloture, or cease debate, which failed 30-12. Thirty-three votes were needed.

LB423 remains on select file.

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