County sales tax to pay certain federal judgments advanced

A county could impose a sales tax to help pay a federal judgment against it under a bill advanced from general file April 4.

<a href='http://news.legislature.ne.gov/dist30' target='_blank' title='Link to the website of Sen. Myron Dorn'>Sen. Myron Dorn</a>
Sen. Myron Dorn

Introduced by Adams Sen. Myron Dorn, LB472 would authorize a county board to adopt a resolution to impose a sales and use tax of 0.5 percent on transactions within the county to pay a qualified judgment, which the bill defines as a judgment rendered against a county by a federal court for a violation of federal law.

Dorn said the proposal is intended to help the residents of Gage County. In 2016, a federal judge awarded more than $28 million in damages to the six men and women wrongfully convicted of the rape and homicide of a Beatrice woman in 1985. The individuals, commonly known as the “Beatrice Six,” had sued Gage County in federal court after DNA evidence exonerated them.

Dorn said the county increased its property tax levy for the 2018-19 fiscal year from approximately 38 cents per $100 of valuation to the statutory 50-cent limit, as required by law. Gage County will use the additional revenue to pay the judgment, he said, but that will take at least eight years under current valuations and budget conditions.

The state Department of Revenue estimates that LB472 would generate $526,000 in sales and use tax revenue for Gage County in fiscal year 2019-20 and approximately $1.3 million in each of the three subsequent fiscal years.

Although he does not relish asking the Legislature to approve the proposed tax, Dorn said, the additional revenue could help the county pay the judgment within six years.

“The county does not have a choice in paying the federal judgment,” he said. “This judgment is a bill—it has come due, it is owed.”

The state tax commissioner would administer the proposed tax and would collect any sales and use tax imposed under LB472 in the same way that state sales and use tax is collected. The commissioner would remit the monthly proceeds to the county after deducting a 3 percent administrative fee. The tax would end after the judgment is paid.

Counties currently may impose a sales and use tax to pay for public safety services and interlocal agreements. LB472 would prohibit a county from imposing that tax if it imposes the one proposed by the bill.

Dorn introduced an amendment, adopted 47-0, that would require any county that imposes a sales and use tax in order to pay a qualified judgment to set its property tax levy at the 50-cent maximum for each year it imposes the sales and use tax. It would require the county to use revenue from that levy to pay the judgment.

Under the amendment, the sales and use tax could be imposed for no more than seven years and only to pay judgments of more than $25 million. The amendment also would terminate the act on Jan. 1, 2027.

Bellevue Sen. Sue Crawford supported the proposal even though she said it would set a concerning precedent of allowing a county to impose a sales tax that overlays a municipal sales tax. Crawford said she supports limiting the use of such a tax to narrow cases when a county must pay an extremely high federal judgment.

“I realize that this is a very specific situation that Gage County finds itself in and that these kinds of drastic times call for measures we might not otherwise approve of,” she said.

Sen. Tom Briese of Albion also supported LB472, saying it would be a more equitable way to pay the judgment than relying solely on property taxes. Agricultural land comprises approximately 72 percent of Gage County’s property tax base, he said, but only 13 percent of the county’s residents are farmers, meaning they would pay a disproportionate share of the judgment.

“Without this bill, ag producers already struggling from pathetic market prices, onerous property taxes and the devastating impact of a flood will be further called upon to bail out Gage County,” Briese said. “Folks, that’s not right.”

Omaha Sen. Steve Lathrop, chairperson of the Legislature’s Judiciary Committee, also supported the bill. Lathrop said the committee will not advance a bill Dorn introduced that would require the state to help pay the judgment because no direct relationship between the state and the judgment exists. However, he said, the Legislature has the responsibility to give Gage County the tools it needs to pay the judgment.

Sen. John Lowe of Kearney said authorizing a county board to impose the tax, rather than requiring a vote of a county’s residents, concerned him.

“I view this new tax much the same way that I would view a levy override,” he said. “And so I believe this bill should be amended so the taxing decision goes to the vote of the people [of] the affected county.”

Another Dorn amendment, adopted 45-0, would clarify that adoption of the resolution to impose the tax would require the affirmative vote of at least a two-thirds majority of all elected county board members.

Senators voted 40-1 to advance LB472 to select file.

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