Proposal to permit cities to ask for additional half-cent of sales tax advances

Cities could ask voters for an additional 0.5 percent in local option sales tax under a bill that narrowly advanced from general file April 12.

Current law permits cities to impose a local option sales tax of 0.5 percent, 1 percent or 1.5 percent with voter approval.

LB357, introduced by Omaha Sen. Brad Ashford, would permit cities to levy a 2 percent local option sales tax. A description of the proposed use for local option sales tax revenues would be provided on the ballot if a rate increase were proposed.

Ashford said the Legislature has not allowed municipalities to increase their local option sales tax for 33 years. Over that period of time, the state has “eroded” the sales tax base with exemptions and incentives, he said.

LB357 would give city voters the opportunity to decide whether to fund local services with property taxes or sales taxes, Ashford said, adding that cities would have to present a plan to voters to receive additional sales tax authority.

“Local voters, local taxpayers are prudent,” Ashford said. “They are going to agree to utilize their sales tax base and expand that sales tax base if they see a plan.”

Bellevue Sen. Abbie Cornett supported the bill, saying citizens of a municipality should have the ability to choose how they fund infrastructure needs.

“If the people choose to pass this half-cent sales tax rather than incur a property tax increase, then that is their decision,” Cornett said.

Kearney Sen. Galen Hadley said sales taxes are an efficient way to collect revenue, as a dollar generated from sales tax results in only 17 cents of economic damage. Meanwhile, he said, each dollar of revenue generated by corporate income taxes produces $1.55 in economic damage and every dollar from individual income tax costs 56 cents in economic activity.

Hastings Sen. Dennis Utter opposed the bill, saying it would give up the state’s sales tax base. In addition, if the state experiences a robust economic recovery, he said, political pressure could prevent the local option sales tax authority from being reduced.

North Platte Sen. Tom Hansen also spoke in opposition to the bill. Many of the larger communities that would take advantage of the extra sales tax authority have property tax levies that are less than half the municipal lid, he said, so they should explore that as an option first. Furthermore, voters in cities that have large trade areas would have an incentive to enact a higher sales tax because people from surrounding towns would help pay it, he said.

Elk Creek Sen. Lavon Heidemann offered an amendment to restrict the additional local option sales tax authority to municipalities with city property tax levies of 40 cents per $100. He said the amendment would replicate provisions of state aid to education that reduce assistance to school districts with property tax levy rates that are below 95 cents per $100.

Omaha Sen. Bob Krist opposed Heidemann’s amendment. With current levies, he said, only cities that encompass 15 percent of the state’s population could enact a higher local option sales tax.

“We cannot rely on property taxes and we cannot give that as the only opportunity for political subdivisions to solve their problems,” Krist said.

After Heidemann’s amendment failed on a 10-25 vote, lawmakers considered an amendment offered by Omaha Sen. Heath Mello. It proposed that at least 5 percent of the additional half-cent local option sales tax authority be deposited in a fund to provide property tax relief. Mello later withdrew the amendment.

LB357 advanced from general file on a 27-14 vote.