RevenueSession Review 2023

Session Review: Revenue

The Revenue Committee advanced proposals this session to cut Nebraska’s top individual and corporate income tax rates, provide additional property tax relief, create a refundable tax credit for certain parents and provide a tax credit for those who donate to organizations that grant scholarships to students to attend private school.

Income tax cuts

LB754, introduced by Elkhorn Sen. Lou Ann Linehan at the request of Gov. Jim Pillen, passed on a vote of 39-2. The measure will cut Nebraska’s top individual and corporate income tax rates to 3.99 percent by tax year 2027.

The bill also will cut the rate on the third individual income tax bracket incrementally to 3.99 percent by the same year.

Lawmakers amended LB754 to include provisions of LB318, introduced by Sen. Eliot Bostar of Lincoln, which authorizes the state Department of Revenue to approve up to $25 million each year in income tax credits for child care in Nebraska.

The bill provides $15 million annually to help parents and legal guardians pay for child care. Parents or legal guardians may apply for a refundable credit of $2,000 per child if their household income is no more than $75,000 and $1,000 per child if their household income is more than $75,000 but no more than $150,000.

In addition, the measure allows individuals, estates, trusts and corporations to apply for a nonrefundable state income tax credit of up to $100,000 for contributions they make to eligible child care programs. The credit is 100 percent of the qualifying contribution if the program is in an opportunity zone or serves at least one child who is enrolled in the state’s child care subsidy program and 75 percent for all other contributions.

The department may approve $2.5 million in credits under the program each year.

LB754 also increases the amount of tax credits available for qualifying child care providers and employees under the School Readiness Tax Credit Act from $5 million to $7.5 million annually.

Providers may qualify based on their qualification level and the number of subsidized children they serve and providers and employees may receive a refundable credit based on their qualification level.

Also included in the bill are the provisions of:
• LB38, introduced by Bellevue Sen. Carol Blood, which allow federal retirees to exclude the amounts received as annuities under the Federal Employees Retirement System or the Civil Service Retirement System from their federal adjusted gross income;
• LB206, sponsored by Sen. R. Brad von Gillern of Elkhorn, allowing a partnership to pay taxes, interest and penalties owed on its tax return or amended return on behalf of the partners rather than requiring each partner to file an amended return; and
• LB641, introduced by Omaha Sen. Kathleen Kauth at the request of the governor, which exempts 100 percent of Nebraskans’ Social Security income from state income tax beginning in tax year 2024 rather than 2025.

Property tax relief, school revenue cap

The committee also advanced a bill that provides additional property tax relief to Nebraskans while limiting increases in the amount of property taxes public school districts may collect.

LB243, introduced by Sen. Tom Briese of Albion and passed 44-0, gradually will increase the minimum amount of relief granted under the Property Tax Credit Act from the current $275 million to $475 million by tax year 2028.

The following year, it will grow by the percentage increase in the total assessed value of all real property statewide over the prior year, plus an additional $75 million. The amount then will continue to grow by the percentage increase in statewide valuations.

As amended, LB243 contains provisions of several other bills considered by the committee this session, including LB589, sponsored by Briese at the request of the governor.

Under the bill, a school district’s property tax request — the amount of taxes requested to be raised through its levy — may not exceed its property tax request authority, which the state Department of Education will calculate annually.

The measure limits a district’s overall revenue growth to 3 percent per year, with some exceptions for growth in student enrollment, the number of limited English proficiency students and the number of students in poverty.

A district may exceed its property tax request authority by an amount approved by a 60 percent majority of voters at a special election. The bill also allows a school board to exceed a district’s property tax request authority by 4 to 7 percent — depending on the number of students enrolled — if at least 70 percent of its members approve.

The provisions of LB242, also introduced by Briese, eliminate the 5 percent cap on the school district tax credit’s allowable growth percentage under the Nebraska Property Tax Incentive Act, allowing the credit amount to increase at the same rate as valuations.

For tax year 2029, the total amount of credits will equal the prior year’s maximum amount increased by the allowable growth percentage plus an additional $75 million.

Also included are provisions of LB783, introduced by Glenvil Sen. Dave Murman, which end Nebraska’s community college area levy after fiscal year 2023-24. Beginning the next year, the state will distribute funds to community colleges to offset the lost property tax revenue.

The amount distributed to community colleges will increase by 3.5 percent each year or the percentage increase in a factor based on student enrollment growth, whichever is greater.

If the state fails to provide the full amount in a given year, a community college’s board of governors may, with a majority vote, levy an amount sufficient to generate enough revenue to cover the difference.

The bill also includes provisions of LB309, sponsored by Bostar, which increase the interest rate on property tax refunds from 9 percent to 14 percent.

Finally, an amended version of Bayard Sen. Steve Erdman’s LB28 reinstates a fourth, at-large member of the Tax Equalization and Review Commission. The measure allows a single commissioner to hear appeals when the taxable value of a parcel is $2 million — an increase from $1 million — and increases commissioners’ pay by tying it to the salary set for the chief justice and judges of the Nebraska Supreme Court.

Omnibus bill

Under LB727, introduced by Linehan, purchases made by a nonprofit corporation that is a party to a financial agreement with a governmental unit will qualify for a state sales and use tax exemption if the governmental unit’s expenditure toward the project is paid in whole or in part with redevelopment bonds or is approved by a public vote.

The bill was amended to include provisions of several other revenue-related measures, including LB692, also sponsored by Linehan. The bill creates the Transformational Projects Act, which is intended to support the development of Nebraska’s retail, entertainment and tourism industries.

The bill allows the state Department of Economic Development to approve applications for “good life districts.” Proposed projects within a district must meet certain thresholds related to development costs, job creation and economic impact metrics.

Transactions occurring within a district are subject to a reduced state sales tax rate of 2.75 percent to offset development and investment costs.

Also included in LB727 are the provisions of:
• LB4, introduced by Sen. Rita Sanders of Bellevue, requiring veterans with a 100 percent service-connected permanent disability who are applying for a homestead exemption to do so every five years rather than annually;
• LB74, sponsored by Linehan, which allows construction contractors to be appointed as purchasing agents that may purchase materials tax free based on the buyer-based exemption of the contractor’s client;
• LB96, introduced by Dunbar Sen. Julie Slama, under which state sales and use tax may not be imposed on the gross receipts from the sale, lease or rental of baling wire and twine purchased for use in commercial agriculture;
• LB97, introduced by Sen. Robert Clements of Elmwood, which modify a reporting requirement related to inheritance taxes;
• LB100, sponsored by Erdman, which allow certain waste treatment and disposal facilities to qualify for tax incentives under the ImagiNE Nebraska Act;
• LB118, introduced by Sen. Tom Brandt of Plymouth, which decreases from $50,000 to $10,000 the minimum required investment for livestock modernization or expansion projects under the Nebraska Advantage Rural Development Act;
• LB180, also sponsored by Brandt, allowing retail dealers that sell and dispense biodiesel to apply for a refundable state income tax credit equal to 14 cents per gallon sold;
• LB300, introduced by Linehan, under which state sales and use taxes may not be imposed on purchases by certain nonprofit organizations that provide community-based mental health or substance use services;
• LB344, introduced by Omaha Sen. Christy Armendariz, which exclude property taxes that, as of the time of payment, were delinquent for five years or more for purposes of tax credits provided under the Nebraska Property Tax Incentive Act;
• LB384, sponsored by Bostar, directing state sales and use taxes collected on the sale or lease of aircraft to a new fund that may be used to build, repair, renovate, rehabilitate, restore, modify or improve infrastructure at Nebraska’s public-use airports;
• LB407, introduced by Linehan, which extends the application deadline under the Nebraska Transformational Projects Act from Dec. 31, 2023, to Dec. 31, 2025;
• LB447, sponsored by Bostar, under which retired firefighters may qualify for a state income tax deduction on health insurance premiums paid during the taxable year and eligible first responders may qualify for state college tuition waivers for themselves and their dependents;
• LB491, introduced by von Gillern, under which businesses could claim credits under the Nebraska Advantage Research and Development Act until Dec. 31, 2033, allowing for accelerated expensing of certain capital expenditures;
• LB495, sponsored by Briese, under which Nebraska educational savings plan trust account distributions are not subject to penalty if they constitute a rollover to a Roth individual retirement account;
• LB505, introduced by Bostar and amended to include provisions of Omaha Sen. John Cavanaugh’s LB577, which updates Nebraska’s tax deed sale certificate process to improve notice requirements and help prevent “home equity theft”;
• LB524, introduced by Sen. John Fredrickson of Omaha, allowing grocery stores, restaurants and agricultural producers to apply for a nonrefundable state income tax credit equal to 50 percent of the value of food they donate to food banks, pantries or rescues;
• LB529, introduced by Blair Sen. Ben Hansen, which updates a law requiring some political subdivisions to participate in a joint public hearing before increasing their property tax request by more than a certain amount;
• LB580, sponsored by Bellevue Sen. Rick Holdcroft, under which agricultural or horticultural land that has an actual value reflecting purposes or uses other than agricultural or horticultural purposes or uses may qualify for special valuation if it consists of five acres or more;
• LB584, introduced by Sen. Jana Hughes of Seward, which imposes a tax on the selling or dealing of electronic nicotine delivery systems;
• LB622, sponsored by Omaha Sen. Mike McDonnell, the amended provisions of which change eligibility for grants under the Support the Arts Cash Fund and adjust minimum amounts to $100,000;
• LB623, also sponsored by McDonnell, under which concert venues of a certain capacity may qualify for state assistance under the Sports Arena Facility Financing Assistance Act;
• LB697, introduced by Sen. Danielle Conrad of Lincoln, which makes several changes to the Nebraska Job Creation and Mainstreet Revitalization Act and extend its sunset date from Dec. 31, 2022, to Dec. 31, 2030;
• LB704, introduced by Murman, under which the owner of an ABLE account or the representative of the account’s beneficiary may distribute the account balance to specified individuals if it is $5,000 or less on the date of the beneficiary’s death;
• LB706, sponsored by Sen. Mike Moser of Columbus, allowing the state highway commission to issue up to $450 million in bonds to accelerate completion of highway construction projects;
• LB732, introduced by Bostar, extending the application deadline for the Convention Center Facility Financing Assistance Act from 2012 to 2030; and
• LB809, introduced by Murman, increasing the credit amount for qualifying livestock investment projects from $1 million to $2 million per year under the Nebraska Advantage Rural Development Act.

LB727 passed on a vote of 46-0.

Other measures

LB753, introduced by Linehan at the request of the governor, allows individuals, passthrough entities, estates, trusts and corporations to claim a nonrefundable income tax credit of up to 50 percent of their state income tax liability on contributions made to nonprofit organizations that grant scholarships to students to attend private school.

Contributions from individuals, passthrough entities and corporations are capped at $100,000, and contributions from estates or trusts are limited to $1 million.

Only Nebraska residents are eligible for the scholarships, which may be used to pay tuition and fees at a privately operated elementary or secondary school that fulfills the applicable accreditation or approval requirements set by the State Board of Education.

A scholarship granting organization must provide the state Department of Revenue with sufficient information to show that it will use a tiered system that prioritizes certain students.

The department may grant $25 million in credits in 2024, 2025 and 2026. After that, if at least 90 percent of the credits in any given year are claimed, the annual limit will increase by 25 percent. Annual increases may continue until the total credit amount reaches $100 million.

If the annual limit is less than $35 million, a scholarship-granting organization may use no more than 10 percent of its revenue for administrative costs. No more than 5 percent of revenue may be used for administrative costs if the annual limit is more than $35 million.

LB753 passed 33-11.

The committee advanced a bill intended to incentivize private contributions to organizations that assist women in carrying their pregnancies to term, but it was not scheduled for first-round debate.

LB606, sponsored by Thurston Sen. Joni Albrecht, would allow individuals, passthrough entities, corporations, estates and trusts to claim a nonrefundable income tax credit of up to 50 percent of their state income tax liability on contributions they make to qualifying pregnancy help organizations beginning in calendar year 2024.

Eligible organizations would have to provide the department a written certification that they meet certain criteria. Among other requirements, an organization would have to be a nonprofit located in Nebraska that does not provide, pay for, provide coverage of, refer for, recommend or promote abortions.

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