Debate on bill targeting city wheel taxes on nonresidents continues

Cities and villages would be prohibited from levying municipal motor vehicle registration fees — commonly referred to as wheel taxes — under a bill receiving general file consideration Jan. 28.

LB81, introduced by Bellevue Sen. Abbie Cornett, would prohibit metropolitan class cities from levying a motor vehicle registration fee on nonresidents. Cities and villages also would be prohibited from levying a tax on nonresident motor vehicles.

Much of the discussion on the bill centered on an ordinance enacted by the city of Omaha in 2010. The ordinance requires individuals to pay a $50 fee if their vehicle is used more than 30 times a year to travel to a place of work within Omaha. The fee is collected and — after subtracting 4 percent for processing — remitted to the city by an individual’s employer.

As introduced, LB81 would limit municipal licenses or occupation taxes to only those businesses and individuals living within city limits. This provision would be removed by a pending Revenue Committee amendment.

Cornett said existing law could position cities against each other as they enact reactionary fees. LB81 would limit a city’s ability to reach outside its municipal boundaries to tax people in another jurisdiction, she said.

“If this statute is allowed to stand the way it is, you could see cities abutting against one another imposing a wheel tax,” Cornett said. “So, an individual or a home could end up paying two or three wheel taxes or, theoretically, paying a wheel tax twice on the same vehicle.”

Omaha Sen. Heath Mello said a patchwork of city motor vehicle registration fees could lead to an “arms race,” in which communities impose fees to counter fees enacted in other communities.

Omaha Sen. Brad Ashford urged senators to delay the Jan. 1, 2011, operative date of LB81, which coincides with Omaha’s fiscal year. The state has a precedent of not taking away local funding sources in the middle of city budget cycles, he said, and Omaha’s budget woes due to the recession and pension liabilities would make the bill especially burdensome right now.

“Let’s not put the city of Omaha in any more jeopardy than it already is,” Ashford said. “If you are going to change the wheel tax, don’t do it in the middle of a budget year. Give the city of Omaha time to react.”

Omaha’s fiscal problems are a burden, Cornett said, but not one that should be placed on people who do not live in the city, especially given the city’s relatively low property tax rate and generous use of tax increment financing, which she said has depleted its property tax base.

York Sen. Greg Adams said taxes should be fair and easy to administer. In the case of nonresident motor vehicle registration fees, he said, their collection poses challenges.

“For the life of me, I don’t know how you’re going to collect this,” Adams said.

Concern over fee collection is not a reason to vote for LB81, according to Omaha Sen. Brenda Council. She said Omaha has been collecting motor vehicle registration fees since 2006 from those living within three miles of the city limits.

The Legislature adjourned before voting on either the committee amendment or the bill’s advancement.