The Revenue Committee heard testimony Feb. 25 on a proposal to cut the state’s top corporate income tax rate.
Corporations currently pay an income tax rate of 5.58 percent on the first $100,000 of taxable income and 7.81 percent on all taxable income in excess of that amount.
LB680, introduced by Sen. Lou Ann Linehan of Elkhorn, would set the top rate at 6.84 percent, the same as the state’s top individual income tax rate, beginning Jan. 1, 2022.
The state Department of Revenue estimates that the bill would reduce general fund revenue by $5 million in fiscal year 2021-22, $20 million in FY22-23 and $36 million in FY23-24.
Linehan said most Nebraska businesses are formed as passthrough entities that distribute income to partners and shareholders, who pay personal income taxes on those distributions.
She said LB680 would create tax parity for businesses regardless of their legal form and make Nebraska less reliant on tax incentives that “everybody knows we have to have but nobody seems to love.”
Sarah Curry, policy director for the Platte Institute, testified in support of the bill, saying Nebraska’s current tax code puts it at a disadvantage to other states in the region. South Dakota and Wyoming do not levy a corporate income tax, she said, and Missouri and Colorado have some of the nation’s lowest corporate tax rates.
Bryan Slone testified in support of the bill on behalf of the Nebraska Chamber of Commerce and Industry and the Lincoln and Omaha chambers. He said reducing the corporate tax rate is essential for Nebraska to compete with other states in the region for new business investment.
Additionally, Slone said, the current tax code results in situations where businesses in the same industry with similar taxable income are taxed at different rates based on how they were formed.
Renee Fry, executive director of OpenSky Policy Institute, testified in opposition to LB680. She said the proposed tax cut mostly would benefit a small number of individuals who live outside Nebraska while cutting revenue used to fund state services.
The committee took no immediate action on the bill.