Tax relief proposal amended to remove rate increase, advanced

A proposal to generate state revenue that would be used to provide additional property tax relief advanced to the final round of debate April 10 after senators amended it to strike a proposed sales tax rate increase.

LB388, as introduced by Elkhorn Sen. Lou Ann Linehan, would make a technical change to state law regarding the sales tax rate.

A Revenue Committee amendment would have replaced the bill with a proposal to increase the state sales tax rate, impose sales tax on the purchase of certain items and services and eliminate exemptions for others.

The additional revenue would have funded a companion proposal that would have ended the refundable income tax credit against school taxes paid that was created under LB1107 in 2020. It instead would have “front loaded” the funds allocated to the credit by increasing foundation aid to public schools, reducing their reliance on property taxes.

On select file, Linehan introduced an amendment, adopted 28-6, that replaced the bill with a proposal retaining many of the committee amendment’s provisions but leaving out the proposed rate increase.

The amendment would impose sales tax on candy and soft drinks and end exemptions for the cleaning and repair of clothing, lottery tickets and certain veterinary services.

One new provision would end the LB1107 credit and create the Property Tax Relief Act, which would apply beginning with tax year 2024.

Under the program, the state would disburse funds to counties, which then would credit each parcel based on the school district taxes levied. The credit would appear on the parcel’s property tax statement.

The total amount of relief granted for tax year 2024 would be $750 million. After that, the amount would increase by $30 million per year.

Another new provision would increase Nebraska’s refundable credit based on the federal Earned Income Tax Credit. The state credit would increase from 10% of the federal credit to 15% beginning with tax year 2025.

The Linehan amendment would raise the excise tax on a package of cigarettes from 64 cents to $1 and impose a 25% tax on consumable hemp products.

It also would increase the tax on electronic nicotine delivery systems containing 3 milliliters or less of consumable material from five to 10 cents per milliliter. The tax on systems containing more than 3 milliliters would increase from 10 to 20%.

Sen. Jana Hughes of Seward offered an amendment, adopted 25-12, that instead would impose a 20% tax on all electronic nicotine delivery systems.

Taxing vaping products at wholesale would bring Nebraska in line with the majority of states that impose a tax on those products, Hughes said.

Linehan’s amendment also would impose a 7.5% tax on companies doing business in Nebraska if their gross advertising revenue exceeds $1 billion.

Dunbar Sen. Julie Slama introduced an amendment to strike those provisions.

She said the measure would violate federal law by effectively taxing only digital advertising services and not comparable offline services. A similar Maryland law passed three years ago has been the subject of numerous lawsuits, Slama said.

Sen. Megan Hunt of Omaha supported Slama’s amendment, saying the tax would hurt small businesses that rely on large digital advertising companies to promote their products and services.

The amendment failed on a vote of 18-18.

Beginning July 1, 2024, Linehan’s amendment would limit the increase in a political subdivison’s property tax request to no more than 3% or the percentage change in the consumer price index, whichever is greater.

Several exceptions to the limit would apply, including increases based on real property growth and amounts approved by voters.

A political subdivision also could increase its property tax request authority by an amount needed to implement a 6% increase in compensation for understaffed law enforcement officer, firefighter or corrections officer positions.

Omaha Sen. Jen Day offered an amendment under which that exception also would have applied to the amount of property taxes budgeted for vehicles, equipment, capital improvements, technology and compensation requirements related to law enforcement, fire safety, corrections and public safety communications.

Day said the cap in Linehan’s amendment would be too restrictive for the state’s fastest growing communities, including Gretna.

The amendment failed on a vote of 10-20.

Sen. Danielle Conrad of Lincoln introduced an amendment that would have added county attorneys and public defenders to the exception for pay increases. It failed on a vote of 15-20.

Bayard Sen. Steve Erdman opposed Linehan’s amendment, saying it would provide only a small amount of additional property tax relief.

Erdman offered an amendment that he said would strike all of the Linehan amendment’s provisions except the taxing authority cap and the frontloading of the LB1107 funds. The latter would provide property tax relief to Nebraskans without requiring them to claim a credit, he said.

Conrad supported Erdman’s amendment, saying it would avoid a tax increase that disproportionately would affect low-income Nebraskans while more equitably distributing the LB1107 funds.

Even with the proposed increase to Nebraska’s credit based on the EITC, she said, Linehan’s proposal “puts more pressure on working families than it provides relief.”

Erdman’s amendment failed on a vote of 18-19.

Lawmakers then voted 28-14 to advance LB388 to final reading.