Tax exemption for residential water service considered

The Revenue Committee heard testimony Feb. 24 a proposal that would exempt residential water service from state sales and use tax.

Omaha Sen. Justin Wayne, sponsor of LB26, said Nebraska does not impose sales tax on bottled water but does tax residential water service, unlike many states. He said a substance that is essential to life should not be subject to tax.

The state Department of Revenue estimates that LB26 would reduce state general fund revenue by $4.6 million in fiscal year 2021-22, $7.8 million in FY2022-23 and $8.6 million in FY2023-24.

Doug Kagan of Nebraska Taxpayers for Freedom testified in support of the bill. He said Nebraskans pay the tax in question on a government service, not on their consumer purchases or private services.

Kagan said businesses can claim a tax exemption if more than 50 percent of the water they use is consumed in manufacturing, processing, refining or the irrigation of farmland.

“Adding this exemption to residential property seems only fair,” he said.

Jack Cheloha testified in opposition to the bill on behalf of the city of Omaha. If LB26 passes, he said, the city would lose between $1.6 million and $2 million per year in sales tax revenue that it uses to balance its budget.

Also in opposition was Lash Chaffin of the League of Nebraska Municipalities. He said LB26 would cut revenue to the more than 200 Nebraska cities that impose a local option sales tax.

Cities would have to increase water rates or their property tax levies to offset that loss, Chaffin said.

The committee took no immediate action on the proposal.