Proposal to cap telecommunications occupation taxes debated

A bill that would phase out municipal occupation taxes on telecommunications services was debated on general file Feb. 24 and 25.

LB165, introduced by Valentine Sen. Deb Fischer, would prohibit any municipality from imposing a new telecommunications occupation tax or increasing the rate of an existing tax without voter approval. The bill would cap telecommunications occupation taxes at 6 percent beginning on Jan. 1, 2012, with the rate decreasing by 1 percent annually until its elimination on Dec. 1, 2017.

The bill also would prohibit the application of telecommunications occupation taxes to total receipts for the purpose of sales tax computation.

The Legislature places limits on many local taxes, Fischer said, but no such limits apply to occupation taxes. Telecommunications occupation tax rates vary from 1.5 percent to 6.25 percent, she said.

Fischer said the Committee on State Taxation ranked Nebraska as worst in nation for state and local taxes and fees on wireless services, with taxes at 18 percent.

“To have the highest tax rate in the country for anything — in my opinion — is not where Nebraska wants to be,” she said.

Fischer also expressed concern about the inconsistent application of the telecommunications occupation tax. Localities differ on whether they tax land lines and cell phone lines, she said, and Lincoln even taxes equipment.

Discussion of the bill focused on a Revenue Committee amendment that would replace the bill. The amendment would restrict telecommunications occupation taxes to telecommunications services and cap the tax rate at 6.25 percent, unless city voters approve a 0.25 percent hike.

Lincoln Sen. Bill Avery offered an amendment, defeated 10-29, that would have deleted the emergency clause and tied telecommunications occupation taxes to receipts from the sale of equipment and services that are subject to state sales tax.

Avery said his amendment would have made the telecommunications occupation tax consistent with the state sales tax model. As Nebraska considers eliminating aid to cities and restricting other local revenue sources, Avery said, the Legislature risks “tying the hands” of local leaders by limiting telecommunications occupation taxes.

“If Lincoln is making a mistake with the occupation tax, let the voters of Lincoln decide that,” Avery said, adding that Lincoln’s telecommunications occupation tax ordinances were approved by the city council unanimously.

Lincoln Sen. Danielle Conrad spoke in support of Avery’s amendment. Local governments need revenue to provide services for their citizens, Conrad said, and the selection of funding sources should be left to localities, not the Legislature.

York Sen. Greg Adams opposed Avery’s amendment, saying the proposal in the Revenue Committee amendment would be a preferable compromise. Overextending application of the telecommunications occupation tax could threaten the tax’s existence, he said.

Ellsworth Sen. LeRoy Louden also preferred the version in the committee amendment. Extending the telecommunications occupation tax to equipment would be akin to permitting electric utilities charge an occupation tax on appliances due to their electricity use, he said.

Avery offered another amendment to strike the emergency clause and explicitly state that the telecommunications occupation tax does not apply to equipment. He said he offered the amendment to ensure the bill would not conflict with other occupation taxes.

“Let’s not restrict the definition of services to the point where Lincoln is thrown into budgetary chaos,” Avery said.

The Legislature adjourned before taking further votes on the bill.