The Revenue Committee advanced bills this session that update the state’s tax code to reflect federal changes, expand a tax credit for volunteer emergency responders and index for inflation the thresholds used when calculating the income tax liability of Nebraskans who receive Social Security benefits.
The committee also considered several measures to reduce or offset property taxes. The one proposal advanced by the committee stalled on the first round of debate.
Credits and exemptions
Congress made several changes to the federal tax code in December with the Tax Cuts and Jobs Act. Because Nebraska’s tax law is tied to the federal code in several places, automatic changes to the state’s tax code would have generated more than $220 million in additional revenue this year.
The repeal of the federal personal exemption effectively repealed Nebraska’s personal exemption credit, which is tied to the federal exemption. To offset this change, LB1090, sponsored by Papillion Sen. Jim Smith, creates a new $134 state personal exemption credit that individuals may claim for themselves and each of their dependents beginning in 2018.
The bill establishes a Nebraska standard deduction to offset changes Congress made to itemized deductions, exemptions for capital expenditures and the federal standard deduction.
It also adjusts individual income tax brackets, the personal exemption credit and the standard deduction based on the Consumer Price Index for All Urban Consumers instead of the new federal indexing method.
The state Department of Revenue estimates that the bill will reduce state tax revenue by $326 million in fiscal year 2018-19 and a further $257 million in FY2019-20.
LB1090 passed on a vote of 44-0.
Another bill intended to offset the federal changes did not advance from committee.
LB1048, introduced by Omaha Sen. Burke Harr, would have created a state personal exemption credit that some Nebraskans could have used to reduce their state income tax liability for years in which personal exemptions are not allowed on the federal tax return.
Income thresholds the state uses when adjusting the federal AGI of those receiving Social Security benefits will be indexed for inflation under a bill advanced by the committee.
Under current law, federal AGI for state tax purposes is reduced by the amount received as Social Security benefits if AGI is $58,000 or less for those married filing jointly or $43,000 or less if filing as an individual.
LB738, introduced by Omaha Sen. Brett Lindstrom and passed 44-2, indexes those thresholds for inflation in the same way the state’s income tax brackets are indexed, beginning with tax year 2020.
Also passed was a bill that extends a tax credit to volunteer emergency responders serving a county.
In 2016, the Legislature created a $250 refundable income tax credit for volunteer emergency responders, rescue squad members and firefighters who serve a city, village or rural or suburban fire protection district. A point system determines whether a volunteer qualifies for the credit each year.
Sen. Dan Hughes of Venango, sponsor of LB760, has said the 2016 law inadvertently left out county volunteers. LB760, which passed on a vote of 46-0, includes those volunteers and provides retroactive eligibility for 2016 and 2017 for those who meet the criteria.
A bill that would have created an income tax credit for those who donate money to nonprofits that grant scholarships to students to attend a private elementary or secondary school did not advance from general file.
Under LB295, introduced by Smith last session, individuals, pass-through entities, estates, trusts and corporations could have received a nonrefundable income tax credit equal to the contributions they make to scholarship-granting organizations. The scholarships could have been used to pay for tuition and fees for attending a nongovernmental, privately operated elementary or secondary school in Nebraska.
A Revenue Committee amendment would have capped the total amount of credits available in 2019 at $2 million instead of the original bill’s $10 million. The amendment also would have allowed an annual 20 percent increase in subsequent years if most of the credits are claimed, but it would have limited the amount of credits available per year to $10 million.
Only students who are Nebraska residents and whose household income does not exceed twice the qualifying income for the federal reduced-price lunch program could have qualified for the scholarships.
The Legislature adjourned before voting on the committee amendment or the bill. Per a practice implemented last year by Speaker Jim Scheer, the sponsor of a bill facing a potential filibuster was required to demonstrate sufficient support for a cloture motion for the measure to be scheduled for additional debate.
Property and income taxes
A proposal to provide income tax credits to partially offset the amount that Nebraskans pay in property taxes failed to advance from general file.
As introduced by Smith on behalf of Gov. Pete Ricketts, LB947 would have eliminated the state’s current property tax credit program and instead would have provided Nebraska homeowners and agricultural and horticultural landowners a refundable state income tax credit equal to 10 percent of their property taxes paid.
A Revenue Committee amendment would have replaced the bill, instead providing a refundable state income tax credit for agricultural and horticultural landowners equal to 2 percent of their property taxes paid beginning this year. The credit would have increased in annual increments until reaching 20 percent in 2027.
Homeowners would have received a 1 percent income tax credit on their property taxes paid in 2018, with a $25 cap. The credit would have increased to 20 percent by 2030, when it would have been capped at $500.
The amendment would have maintained funding for the current property tax credit program at $224 million annually, decreased the state’s top corporate income tax rate and provided job training funding from the state’s cash reserve.
LB947 was passed over in accordance with the three-hour policy and did not return to the agenda.
A bill that would have used the state’s property tax credit cash fund to direct more state aid to schools also stalled on the first round.
As introduced last session by North Platte Sen. Mike Groene, LB640 would have decreased the maximum levy for school districts and used money in the state’s property tax credit cash fund—which is funded by state income and sales taxes—to increase state aid to districts that lose funding as a result.
A Revenue Committee amendment would have replaced the bill, reducing the maximum levy for school districts from $1.05 per $100 of taxable valuation of property in a district to 98.7 cents per $100.
Groene introduced an amendment, adopted 25-8, that replaced the committee amendment. It would have decreased the maximum levy by the same amount beginning in FY2019-20 but would have used the entire $224 million in the state’s property tax credit fund for school aid.
A district could have qualified for the property tax relief aid if its property tax receipts exceed 55 percent of its total revenue. A school district that receives property tax relief aid would have decreased the amount of property taxes it collects by the same amount.
LB640 also was passed over in accordance with the three-hour policy and did not return to the agenda.
A bill that would have provided Nebraskans with an income tax credit against the amount of property taxes they pay to schools did not advance from committee.
Introduced by Bayard Sen. Steve Erdman, LB829 would have provided a refundable state income tax credit equal to 50 percent of the property taxes paid to school districts during the taxable year beginning in 2019.
The committee also did not advance a bill that would have increased the state sales tax rate and eliminated several sales and use tax exemptions to pay for additional property tax credits and school aid.
LB1084, sponsored by Albion Sen. Tom Briese, would have increased the state sales tax rate from 5.5 percent to 6 percent. Among other provisions, it also would have imposed sales and use tax on more than a dozen services and would have taxed soft drinks, candy and bottled water.
The bill would have imposed a surtax on anyone who is subject to state income tax and has a federal AGI of at least $500,000, and it would have increased the excise tax on a pack of cigarettes from 64 cents to $1.64, directing the additional proceeds to the state’s property tax credit cash fund.
LB1084 also would have restored cuts to state aid to schools made last year and would have increased the amount of allocated income taxes to schools from the current 2.23 percent to 20 percent. However, it would have limited the amount that school districts can request in property taxes each year.
A bill that would have required some retailers without a physical location in Nebraska to collect and remit state sales and use tax stalled on the final round of debate.
As introduced last session by Sen. Dan Watermeier of Syracuse, LB44 would have applied to retailers outside the state if their sales to Nebraska purchasers exceed a certain amount.
As amended on select file, the bill would have required a retailer that does not collect state sales or use tax to notify Nebraska purchasers that the tax is due and to send them an annual notice showing the total amount paid for taxable items. A non-collecting retailer also would have been required to send an annual report to the department showing the total amount paid for taxable items by Nebraska purchasers.
The requirements would have applied to retailers with more than $100,000 in total annual sales of taxable items or 200 or more separate transactions to Nebraska purchasers.
Watermeier filed a motion on final reading to return the bill to select file for an amendment that would have removed the notice and reporting requirements.
He then filed a motion to invoke cloture, or cease debate and vote on the bill. The motion failed on a 31-13 vote. Thirty-three votes were needed.
A bill that would have extended a levy authority for certain natural resources districts failed to advance from general file.
Introduced by Sen. Curt Friesen of Henderson last session, LB98 would have extended the three-cent levy authority for NRDs located in fully or over-appropriated river basins from FY2017-18 to FY2025-26. The levy may be used only for ground water management and integrated management programs under the Nebraska Ground Water Management and Protection Act.
Friesen filed a motion to invoke cloture, or cease debate and vote on the bill. The motion failed 27-14. Thirty-three votes were needed.
The committee did not advance a bill that would have moved up the end dates of several of the state’s current business tax incentive programs.
Under LB1023, introduced by Columbus Sen. Paul Schumacher, the Nebraska Advantage Act, the New Markets Job Growth Investment Act, the Nebraska Advantage Rural Development Act, the Nebraska Job Creation and Mainstreet Revitalization Act, the Community Development Assistance Act and the Beginning Farmer Tax Credit Act would have expired on Dec. 31, 2018.
Additionally, no credits could have been claimed under the Nebraska Advantage Research and Development Act after Dec. 31, 2018. No applications for the Nebraska Advantage Microenterprise Tax Credit Act could have been approved for calendar years beginning after Dec. 31, 2018, and no credits could have been allocated for the Angel Investment Act for calendar years beginning after that date.
The programs currently are set to end Dec. 31, 2022, except for the Nebraska Advantage Act, which is set to end Dec. 31, 2020.
Two additional bills also failed to advance from committee.
LB798, sponsored by Omaha Sen. Mike McDonnell, would have created a state sales and use tax exemption for feminine hygiene products.
LB804, introduced by Bancroft Sen. Lydia Brasch, would have allowed contributions to Nebraska’s educational savings plan to be used to pay tuition at private and parochial elementary and secondary schools.