Session Review: Revenue

The Revenue Committee advanced bills this session that would require a political subdivision to hold a public hearing before increasing its property tax request, require out-of-state internet retailers to collect state sales tax on purchases made by Nebraska residents and allow a county to impose a sales tax to pay a federal judgment against it.

Several property tax relief measures and a bill that would create a new business tax incentive program failed to pass this session.

Property tax

The committee advanced a bill that requires political subdivisions such as counties and school districts to hold a public hearing before collecting additional property taxes generated by valuation increases.

Under LB103, introduced by Elkhorn Sen. Lou Ann Linehan and passed on a vote of 47-0, if the annual assessment of property within a political subdivision would result in an increase in the total amount of taxes levied using the previous year’s tax levy, the levy will decrease so that the political subdivision’s property tax request is no more than in the previous year.

If a governing body wishes to increase its property tax request, it may do so only after holding a public hearing called for that purpose and by passing a resolution or ordinance.

The committee also advanced a bill intended to provide tax relief to those whose property has been destroyed by a natural disaster.

LB512, also introduced by Linehan and passed on a vote of 45-0, makes several technical changes to state tax law requested by the state Department of Revenue.

The bill includes provisions of LB482, introduced by Bayard Sen. Steve Erdman, under which the owner of destroyed real property must file a report with the county assessor and county clerk before July 15 of the current assessment year.

The county board of equalization then will adjust the assessed value of the property to its assessed value on the date it suffered significant damage and the county assessor will correct the current year’s assessment roll. Any change in the assessed value of destroyed real property is for the current assessment year only.

LB289, a bill introduced by Linehan that is intended to reduce property taxes by raising the state sales tax rate and directing the additional revenue to Nebraska’s public schools, did not advance past the first round of debate.

The proposal—contained in a pending committee amendment that would replace the bill—would be funded by a state sales tax rate increase; a sales tax on bottled water, candy, soft drinks, ice and approximately 20 services; a documentary stamp tax increase; and a cigarette tax increase.

The amendment would direct the new tax revenue to the state’s Property Tax Credit Cash Fund. The amendment would use a portion of the fund for school aid, but it also would require the Legislature to grant at least $115 million in property tax credits each year.

Beginning with school fiscal year 2019-20, each local school system would receive foundation aid. If total aid through the state’s school funding formula totaled less than 33.33 percent of a district’s total formula need, the district also would receive guaranteed funding aid to make up the difference.

After three hours of debate, the Legislature adjourned before voting on the committee amendment or LB289. Per a practice implemented by Speaker Jim Scheer, the sponsor of a bill that is facing a potential filibuster must demonstrate sufficient support for a cloture motion before the measure will be scheduled for additional debate.

The bill remains on general file.

A scaled-down version of LB289 remains on select file after a failed cloture vote.

As introduced by Sen. Tom Briese of Albion, LB183 would reduce the valuation of farm and ranch land for the purpose of school bond issues. Briese introduced an amendment that would replace the bill.

The amendment contains several provisions also found in LB289, including a sales tax on bottled water, candy, soft drinks and certain services. The proposal would direct the state treasurer to credit sales and use tax revenue generated by the bill’s changes to the Property Tax Credit Cash Fund.

After three hours of select file debate, Briese filed a motion to invoke cloture, or cease debate and vote on any pending amendments and the bill. The motion failed 23-7. Thirty-three votes were needed.

The committee advanced a proposal to value farmland for property tax purposes based on the income it can produce, but it stalled on general file.

Under LB483, introduced by Erdman, agricultural and horticultural land would be assessed based on its agricultural productivity value, which in turn would be based on that land’s capitalized net earning capacity.

Beginning with tax year 2020, county assessors would determine capitalized net earning capacity using an agricultural land valuation manual created by a new Agricultural Land Valuation Board.

After three hours of debate, the Legislature adjourned before voting on LB483. Per the speaker’s three-hour policy, the bill was not scheduled for additional debate this session. It remains on general file.

Business tax incentives

The committee advanced a bill to create a new business tax incentive program to replace the Nebraska Advantage Act, but it stalled on select file after a failed cloture vote.

LB720, introduced by Sen. Mark Kolterman of Seward, would create the ImagiNE Nebraska Act, under which qualifying businesses would receive a varying combination of incentives based on their level of capital investment and the number of employees they hire at a minimum qualifying wage.

The proposal includes provisions of Omaha Sen. Brett Lindstrom’s LB605, which would create a tax credit for companies that produce sustainable materials and renewable chemicals using agricultural products.

It also includes provisions of LB527, introduced by Lincoln Sen. Kate Bolz, which would create a program to provide job training grants to employers.

As amended on select file, the bill would require the director of the state Department of Economic Development to submit to the Legislature an estimate of the amount of sales and use tax refunds to be paid and tax credits to be used under the act for each of the next three calendar years.

If the estimate exceeds a “base authority” of $125 million for any calendar year from 2020 to 2023, the director could not approve any additional applications unless the Legislature’s Executive Board approves his or her request for additional authority.

After three hours of select file debate, Kolterman filed a motion to invoke cloture, or cease debate and vote on LB720. The motion failed 30-18. Thirty-three votes were needed.

The bill remains on select file.

Sales and income tax

Lawmakers voted 41-8 to override Gov. Pete Ricketts’ veto of a bill that allows a county to impose a sales tax to help pay a federal judgment against it. Thirty votes were needed.

LB472, introduced by Adams Sen. Myron Dorn and passed on a vote of 43-6, authorizes 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.

Internet retailers without a physical presence in Nebraska are required to collect and remit state sales tax on purchases made by Nebraska residents under a bill advanced by the committee and passed on a vote of 43-0.

LB284, sponsored by Omaha Sen. John McCollister, requires remote sellers exceeding certain sales thresholds in the previous or current calendar year to collect and remit state sales tax. The bill also requires “multivendor marketplace platforms”—online marketplaces such as Amazon or Ebay—to collect and remit state sales tax for the smaller sellers they serve if the marketplaces exceed the thresholds.

The committee advanced a proposal that would require out-of-state corporations selling digital products to customers in Nebraska to pay state income tax on those sales.

Elkhorn Sen. Lou Ann Linehan introduced LB288 as a placeholder that could be amended to include state income tax law changes needed to reflect federal tax code changes made in 2017.

The new proposal, contained in a pending committee amendment that would replace the bill, would expand the definition of “doing business in this state” to include the sale, lease or license of services, intangibles or digital products to customers in Nebraska that exceed $500,000 in the previous or current calendar year.

LB288 remains on general file.

College savings

The committee advanced several bills intended to expand the use of college savings accounts established under the Nebraska educational savings plan trust.

LB610, introduced by Omaha Sen. Brett Lindstrom and passed on a vote of 48-0, creates a cash fund administered by the state treasurer to provide incentive payments to employers that make matching contributions to employees’ NEST accounts.

Beginning in 2022, an employer may apply to the state treasurer to receive the incentive payments. An employer whose application is approved will receive an incentive payment equal to 25 percent of the matching contributions made during the preceding year, up to $2,000 per employee per year.

The bill includes provisions of LB547, introduced by Sen. Anna Wishart of Lincoln, under which the state will match contributions to NEST accounts made on behalf of beneficiaries who meet certain income requirements.

The treasurer may approve up to $250,000 in incentive payments and $250,000 in matching scholarships each year.

LB610 also includes provisions of Linehan’s LB544, which create a program under which each enrolled child will have a NEST account opened for him or her.

Under the program, the treasurer will send a notification explaining the program to the parent or legal guardian of each Nebraska resident born on or after Jan. 1, 2020. The parent or legal guardian may exclude his or her child from the program. Any child not excluded will be deemed enrolled.

Each year the treasurer will distribute the previous year’s investment income from an associated trust fund to the accounts opened during the previous year. The fund will consist of private contributions and any funds transferred or appropriated by the Legislature. The bill prohibits the transfer of state general funds to the trust fund.

A bill that allowed an income tax deduction on employer contributions to NEST accounts and exempted military housing units from property taxation passed 43-2, but was vetoed by the governor after the session ended.

As introduced by Gretna Sen. Andrew La Grone, LB470 would have allowed individuals to claim a state income tax deduction on contributions they make to any NEST account. The bill was amended to remove his proposal because of its implementation cost.

As amended, LB470 instead included provisions of two other bills: LB444, sponsored by Omaha Sen. Mike McDonnell, and LB545, introduced by Omaha Sen. Justin Wayne.

Under Wayne’s measure, an individual’s federal adjusted gross income would have been reduced by the amount contributed to the individual’s NEST account by his or her employer.

McDonnell’s proposal would have exempted military dwelling complexes from property taxation but required the owners of those dwelling complexes to make payments in lieu of taxes to local school districts, the county in which the complex is located and an infrastructure maintenance trust fund used for capital repairs, maintenance and improvement of the complex.

In his veto message, Ricketts said a state attorney general’s opinion indicated that the bill violated the state constitution by redefining real property as tangible personal property.

Credits and exemptions

LB218, introduced by Lindstrom and passed 48-0, adds electric generation, transmission, distribution and street lighting structures or facilities owned by a political subdivision to the definition of real property, thereby making those items exempt from state sales and use tax.

The bill also excludes from the definition of “gross receipts” the gross income received by political subdivisions for the lease or use of those structures or facilities, making that income exempt from state sales and use tax.

The committee also advanced LB222, introduced by Sen. Joni Albrecht of Thurston and passed on a vote of 46-0, which is intended to simplify administration of the Volunteer Emergency Responders Incentive Act.

Under the bill, a certification administrator will provide each volunteer member with notice of the total points he or she has accumulated during the first six months of the current calendar year no later than July 15 of each year.

A bill that clarifies the number of rental agreements farmers and agricultural asset owners may make under the Beginning Farmer Tax Credit Act also advanced from committee and passed on a vote of 46-0.

Lincoln Sen. Suzanne Geist, sponsor of LB560, introduced the bill to address a Legislative Performance Audit Committee’s audit of the program. It was replaced on general file with a committee amendment containing provisions of LB623, introduced by Gothenburg Sen. Matt Williams.

Under those provisions, qualified beginning farmers or livestock producers and owners of agricultural assets who have participated in a three-year rental agreement are eligible to file subsequent applications for different assets. The bill clarifies that tax credits for an asset may be issued for a maximum of three years.

LB560 also defines a flex or variable rent agreement, in which a predetermined base rent is adjusted for actual crop yield or price.

A bill that would create an income tax credit for those who donate money to nonprofits that grant scholarships to students to attend a private elementary or secondary school stalled on general file.

Under LB670, introduced by Linehan, individuals, passthrough entities, estates, trusts and corporations could receive a nonrefundable income tax credit equal to the total amount of their contributions or 50 percent of their income tax liability for the year, whichever is less. The scholarships could be used to pay tuition and fees at a qualifying non-governmental, privately operated elementary or secondary school in Nebraska.

A pending committee amendment would add requirements for scholarship granting organizations.

After three hours of first-round debate, the Legislature adjourned before voting on the committee amendment or LB670. Per the speaker’s three-hour policy, the bill was not scheduled for additional debate this session. It remains on general file.

The committee advanced two bills that were not scheduled for first-round debate this session.

LB153, introduced by Gordon Sen. Tom Brewer on behalf of the governor, would replace the current options to exclude military retirement benefit pay from state income tax and allow an individual to exclude 50 percent of his or her military retirement benefit income to the extent included in federal AGI.

Under LB266, introduced by Lindstrom, self-employed individuals who provide child care and early childhood education would be eligible to claim a staff member credit available under the School Readiness Tax Credit Act. It also would allow tax credits awarded to eligible providers that are formed as pass-through entities to be distributed as income.

Other measures

LB86, introduced by Omaha Sen. Justin Wayne, requires the state Department of Economic Development to prioritize projects located in an area that has been declared extremely blighted when selecting projects for Affordable Housing Trust Fund assistance.

The bill requires the governing body of a city that intends to build workforce housing in an extremely blighted area under the state’s Community Development Law—or intends to declare an area as extremely blighted for purposes of funding decisions under the Affordable Housing Trust Fund—first to adopt a resolution that the area is extremely blighted after a public hearing.

The bill includes provisions of Wayne’s LB88 that will provide a $5,000 nonrefundable income tax credit to any individual who purchases a residence located in an extremely blighted area if it is his or her primary residence and was not purchased from a family member.

LB86, which passed on a vote of 47-0, also includes provisions of LB694 and LB737, both introduced by Omaha Sen. Tony Vargas.

Under those provisions, only for-profit entities are required to provide matching funds to receive assistance from the Affordable Housing Trust Fund. Political subdivisions, local housing authorities and nonprofit organizations are not required to provide matching funds.

The bill also requires the department to include more information in its annual status report on the fund.

A bill reinstating a commission that counties receive in return for collecting state motor vehicle tax also advanced from committee this session.

County treasurers may withhold 2.5 percent of the first $3,000 in state motor vehicle sales and use tax that they remit. Under LB237, introduced by Bellevue Sen. Sue Crawford and passed on a vote of 44-4, counties also may withhold 0.5 percent of all amounts in excess of $6,000 remitted each month.

Prior to Jan. 1, 2023, the amount withheld will be split between a county’s general fund and a county’s road fund. After that, 75 percent will be deposited in a county’s general fund and 25 percent will be deposited in a county’s road fund.

The bill also requires county treasurers in counties with a population of 150,000 or more to remit $1 of the collection fee for each of the first 5,000 motor vehicles, semitrailers or trailers registered on or after Jan. 1, 2020, to the state treasurer, who will credit the amount to the Department of Revenue Enforcement Fund.

The committee also advanced a bill meant to ensure that homeowners receive sufficient notice that they may lose their property due to unpaid taxes.

LB463, introduced by Gothenburg Sen. Matt Williams and passed on a vote of 47-0, requires tax sale certificate purchasers to make multiple attempts to notify those who occupy the property, as well as anyone listed on the property’s title, before applying for a tax deed to acquire the property.

The bill also specifies the documents that a tax sale certificate purchaser must provide before a county treasurer issues a tax deed. The bill applies to tax sale certificates sold after Jan. 1, 2017.

LB585, introduced by Sen. Curt Friesen of Henderson and passed on a vote of 49-0, creates a cost-share grant program under which owners and operators of retail motor fuel sites may install, replace or convert infrastructure used to store, blend or dispense certain gasoline-ethanol blends.