Half-percent increase in sales tax sought for cities

Cities could ask for an additional 0.5 percent in local option sales tax under a bill heard by the Revenue Committee March 9.

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. The bill also would require cities to include a description of the proposed use for local option sales tax revenues if a rate increase were proposed.

Ashford said the Legislature has not modified local option sales tax rates since 1979. In order to meet 21st century demands, he said, the state should grant cities flexibility to raise more revenue from sales taxes.

LaVista mayor Douglas Kindig testified in support of the bill, saying it could help alleviate financial constraints. City budgets are straining due to growing expenses and revenue losses due to recent legislative action to eliminate state aid to cities, he said.

LaVista is close to its maximum property tax levy rate, Kindig said, and each half cent of local option sales tax could generate between $600,000 and $800,000 for the community.

“Given the choice, we believe our residents do not want reduced services or an increase in property taxes,” Kindig said.

Lincoln finance director Don Herz said the city has reduced its workforce by 116 positions but still does not have adequate revenue to address needed infrastructure improvements. An extra 0.5 percent sales tax would generate $19 million that could be used for these projects, he said.

Omaha mayor Jim Suttle also testified in support of the bill, saying the added sales tax authority would allow Omaha to eliminate its restaurant tax. In addition, the voter approval required to implement the tax would give residents a choice, he said.

Pam Spaccarotella, finance director for the city of Omaha, said sales tax revenues grew only 2.2 percent from 2001 to 2009, compared to 6.4 percent from 1992 to 2000. Internet sales, exemptions, tax incentive refunds and shifts in consumer spending all have curbed sales tax revenues, she said, while operating expenses have risen.

Spaccarotella said sales taxes provide a way to tax nonresidents to fund city services and reduce reliance on property taxes.

Lynn Rex, representing the League of Nebraska Municipalities, testified in favor of LB357, saying additional sales taxes could help some of the 240 cities in Nebraska that are at their property tax levy lid.

“Local option sales tax has been the single most important way for localities in this state to reduce property taxes,” Rex said.

Richard Halvorsen of Lincoln opposed LB357, he said, because sales taxes are regressive. Unlike property taxes, sales taxes cannot be deducted from one’s income tax, so they will cost taxpayers more in the long run, he said.

Dacia Kruse, representing the Greater Omaha Chamber of Commerce, testified in a neutral capacity. A 0.5 percent increase in sales tax is more transparent than occupation taxes, she said, but the implementation of a higher sales tax should be offset by reductions in other taxes.

The committee took no immediate action on the bill.