Session Review: Revenue
The Revenue Committee this session advanced bills to roll back recently enacted tax incentives, add guardrails to a program intended to incentivize retail development and raise the documentary stamp tax to provide housing assistance to sex trafficking and domestic violence survivors.
Incentive programs
LB650, introduced by Elkhorn Sen. R. Brad von Gillern at the request of Gov. Jim Pillen, eliminates, scales back or postpones certain tax credits and exemptions to help balance the state budget.
Among other changes, the bill:
• decreases the annual limit on livestock modernization or expansion credits under the Nebraska Advantage Rural Development Act;
• decreases tax credits for qualified shortline railroad maintenance expenditures from $1 million to $500,000 per year;
• decreases annual credits for biodiesel retailers from $1.5 million to $1 million beginning with fiscal year 2025-26; and
• eliminates a food donation tax credit.
LB650 also creates the Community Development Assistance Act. Under the program, individuals and businesses may apply for a tax credit for contributions they make to certain programs offered by community betterment organizations. Up to $350,000 in credits may be approved annually beginning with tax year 2026.
As amended, LB650 also includes provisions of five other bills considered by the committee this session:
• LB270, sponsored by Sen. Victor Rountree of Bellevue, allows an individual certified by a municipality to notify the Auditor of Public Accounts of suspected irregularities or discrepancies in local option sales and use tax records;
• LB458, introduced by Lincoln Sen. Eliot Bostar, updates notice and other requirements related to the tax sale certificate process;
• LB494, sponsored by Sen. Myron Dorn of Adams, clarifies current law requiring transfers to the School District Property Tax Relief Credit Fund and the Cash Reserve Fund based on state General Fund net receipts;
• LB495, introduced by Blair Sen. Ben Hansen, removes Nebraska community colleges from the list of political subdivisions that must participate in a joint public hearing before increasing their property tax request by more than a certain percentage; and
• LB547, sponsored by Rountree, updates the definitions of disabled veteran and blind veteran for purposes of state tax exemptions on motor vehicles and mobile homes.
LB650 passed on a vote of 40-7 and took effect immediately.
Senators also approved a bill intended to create additional investment in affordable housing and child care programs in Nebraska.
Individuals, businesses and other entities subject to state income tax may apply for a nonrefundable credit of up to $100,000 for contributions they make to eligible child care programs.
Under LB182, introduced by Bostar and passed 46-2, insurance companies and financial institutions also qualify for the credit and may use it to offset premium and related retaliatory taxes and franchise taxes.
Additionally, the bill makes certain nonprofit corporations eligible for Nebraska affordable housing tax credits and allows a taxpayer without an ownership interest in a qualified project to transfer, sell or assign the credits to another taxpayer.
The committee also advanced a measure intended to bolster a program that helps Nebraskans pay for disability-related expenses.
LB391, sponsored by Sen. Dave Murman of Glenvil and passed on a vote of 45-3, creates the Give to Enable Support Act and an associated cash fund. Under the new program, the state treasurer will use private contributions to open Enable Savings Plan accounts for qualifying applicants who do not already have one.
The tax-advantaged accounts, authorized by the Legislature in 2015, may be used to pay for beneficiaries’ qualifying disability-related expenses, including education, housing, transportation and personal support services.
Under LB391, the treasurer will determine the minimum amount to place in each new account and may approve as many applications as funding allows each year.
Contributions may be deducted from federal adjusted gross income for state income tax purposes, within certain limits.
Correctional and youth detention officers will qualify for a tuition waiver under another bill passed by lawmakers.
Under the First Responder Recruitment and Retention Act, law enforcement officers, professional firefighters and their legal dependents are entitled to a full tuition waiver at a Nebraska state university, state college or community college if they meet certain requirements.
Under LB608, introduced by Bostar and passed 36-12, civilian firefighters at Offutt Air Force Base and individuals who are disabled as a result of injury or illness that resulted from or is connected to employment as a first responder — as well as their qualifying children — now qualify for a waiver.
Beginning July 1, 2027, correctional and youth detention officers, disabled individuals who served in those roles and their qualifying children also qualify for a limited version of the waiver for attendance at the University of Nebraska only.
The bill requires the Coordinating Commission for Postsecondary Education to reimburse the university for 50% of the tuition waivers granted in the preceding year to those individuals. If state appropriations are not enough to pay all submitted claims, the commission will prorate the university’s total reimbursement.
A measure intended to encourage certain defense contractors to locate their highly skilled workers in Nebraska passed on a vote of 44-4.
The committee introduced LB649 as a shell bill. It was amended to include a proposal sponsored by Bellevue Sen. Rita Sanders that creates a wage credit for companies that employ qualifying workers “exclusively dedicated to supporting military defense efforts” in Nebraska.
If its application is approved by the state tax commissioner, a company will receive a wage credit equal to 5% of the total compensation paid to all qualified employees during the year. The credit may be used to reduce income tax withholding or payor tax liability.
If a company fails to maintain the required employment and wage levels, all or a portion of its credits will be recaptured or disallowed. The measure requires the state Department of Revenue to submit an annual report on the program to the Legislature.
The incentive is available beginning July 1, 2027. Total credits are capped at $40 million over 10 years.
Omnibus bill
Lawmakers approved a committee omnibus bill that includes a measure under which Nebraska educational savings plan trust accounts may be used to pay for private K-12 education.
The committee introduced LB647 as a shell bill. It was amended to include provisions of seven other bills considered by the committee this session.
Under the amended provisions of LB131, sponsored by Sen. Tony Sorrentino of Elkhorn, Nebraska educational savings plan trust accounts may be used to pay for private elementary and secondary school tuition, not to exceed $10,000 per beneficiary per taxable year, beginning Jan. 1, 2029.
The amended provisions of LB242, introduced by Ralston Sen. Merv Riepe, update a measure passed during last year’s special session that limits increases in city and county property tax request authority.
Among other updates, the measure:
• modifies the property tax request authority calculation to ensure that it accounts for a political subdivision’s growth;
• provides a one-time mechanism allowing cities and counties to carry forward unused restricted funds authority; and
• removes a revenue cap on local occupation taxes.
The amended provisions of LB314, also sponsored by Sorrentino, allow a political subdivision and nonprofit corporation to apply for temporary approval for state assistance under the Sports Arena Facility Financing Assistance Act if each has adopted a resolution authorizing either co-applicant to pursue financing or bonds to acquire, construct, improve or equip an eligible sports arena facility.
The approval becomes permanent if a building permit for the facility is issued within 24 months of the temporary approval. If a permit is not issued within that period, the temporary approval becomes void.
The amended provisions of LB401, introduced by von Gillern, clarify a provision allowing Nebraskans to pay their state income taxes through a passthrough entity such as an LLC.
The measure also requires notices of deficiency to include a written statement detailing the facts, circumstances and reasons the state tax commissioner used to determine that a taxpayer did not report the correct amount of tax on an income tax return.
The amended provisions of LB566, introduced by Sen. Dan Quick of Grand Island, extend the sunset date on an income tax credit for the purchase of a home in an extremely blighted area from Jan. 1, 2026, to Jan. 1, 2032.
Under the amended provisions of LB628, sponsored by Norfolk Sen. Robert Dover, a taxpayer who encumbers their property with a perpetual recreational trail easement may apply for a property tax exemption for the portion of the property that has been encumbered with the easement.
The provisions of LB709, introduced by Bostar, create a refundable state income tax credit equal to 10% of the federal adoption expenses tax credit allowed to a taxpayer in the same taxable year.
The bill passed on a vote of 35-13 and took effect immediately.
Sales and use tax
The committee advanced a bill to update the Good Life Transformational Projects Act. Passed by the Legislature in 2023, the act authorizes the state Department of Economic Development to create “good life districts” in which transactions are subject to a state sales tax rate of 2.75%, half the current rate of 5.5%.
LB707, sponsored by von Gillern, repeals the current rate reduction Oct. 1 and instead imposes a state sales tax rate that is 50% of the current rate on transactions by good life district applicants or retailers that physically occur in a district. Sales of motor vehicles, motorboats, ATVs and certain other vehicles are excluded.
A good life district applicant or retailer will be eligible for a refund of 50% of the state sales tax paid on development costs for a new business, an additional good life district retailer or a relocated good life district retailer, within certain limits.
Once a city has established an economic development program for its good life district, the state tax commissioner is required to allocate 50% of the state sales taxes from qualifying transactions to the city. The allocated taxes will be a local source of revenue for the program.
The bill also:
• limits the amount of allocated state sales taxes that may be generated by existing retailers;
• requires good life district applicants to provide evidence of a project’s financial viability;
• allows for the creation of up to six project areas within a good life district;
• eliminates a city’s ability to adopt a local option sales tax to fund district development;
• accounts for the relocation of existing businesses to a good life district; and
• defines new-to-market retailers as those that did not exist within 40 miles of a district prior to its creation.
LB707 passed 49-0 and took effect immediately.
Lawmakers also passed a bill intended to help municipalities better track and predict local option sales tax receipts.
The state tax commissioner is required to provide a municipality that has adopted a local option sales tax with a list of the names and addresses of local retailers that have collected the tax. Previously, the municipality could request the information annually.
Under LB613, introduced by Sen. Bob Andersen of Omaha and passed 45-3, a municipality may make the request three times per year and also ask for certain additional information as long as it does not include data on the specific revenue, expenses or operations of any particular business.
The bill also allows a municipality to request from the state Department of Revenue a list of businesses that have applied to receive tax incentives under certain programs. That request may be made annually.
A proposal to impose state sales and use tax on certain services to fund additional property tax relief remains on general file after a failed cloture motion.
LB170, as introduced by Plymouth Sen. Tom Brandt, would impose sales tax on soft drinks and candy. Brandt introduced an amendment that would replace the bill with a narrowed version of his LB169, which would impose the 5.5% state sales and use tax on nearly two dozen currently exempt services.
The new sales tax revenue would be used to provide an additional $100 million in property tax relief per year under the School District Property Tax Relief Act. Enacted by lawmakers during last year’s special session, the program distributes funds to counties, which then credit taxpayers against the amount of property taxes owed to school districts.
The pending amendment would tax 18 “discretionary” services — including dry cleaning, swimming pool maintenance and golf lessons — increase the excise tax on cigarettes from 64 cents to $1.36 per package and impose sales tax on soft drinks and energy drinks.
Also included in the amendment are the provisions of LB712, sponsored by Sen. Jana Hughes of Seward, which would increase the excise tax on vaping devices to 40% of the wholesale price.
After eight hours of debate, Brandt filed a motion to invoke cloture, which ends debate and forces a vote on the bill and any pending amendments.
The motion failed on a vote of 30-15. Thirty-three votes were needed.
Other measures
Senators approved a bill meant to address an unintended consequence of a recent change in the way community colleges are funded.
Owners of private renewable energy generation facilities pay a nameplate capacity tax in lieu of personal property taxes on equipment used to generate electricity. Counties where the infrastructure is located distribute the revenue to local political subdivisions based on the amount of property taxes they levy.
In 2023, lawmakers eliminated most of community colleges’ property tax levy authority and replaced the lost revenue with state funding. In doing so, however, they inadvertently reduced nameplate capacity tax revenue to community colleges.
LB50, introduced by Niobrara Sen. Barry DeKay and passed 45-3, requires counties to allocate 5% of nameplate capacity tax revenue to the community college area in which the renewable energy generation facility is located before distributing the rest to other political subdivisions.
A measure increasing taxes on Nebraska real estate transactions to help meet the immediate housing needs of sex trafficking and domestic violence survivors also passed this session.
LB78, sponsored by Bostar and passed on a vote of 49-0, increases the documentary stamp tax on the transfer of real estate from $2.25 to $2.32 for each $1,000 in value and directs the additional proceeds to a new fund administered by the state Department of Health and Human Services.
The department will use the funding to provide housing-related assistance, including rental and utility payments, for survivors of domestic violence and sex trafficking based on a formula it will create. The department may contract with qualifying nonprofit organizations to provide the assistance.
Included in the bill are the provisions of LB159, introduced by Sen. Dunixi Guereca of Omaha, under which Nebraska courts may consider a defendant’s status as a survivor of sex trafficking, domestic violence or abuse when determining sentences.
A bill intended to aid the development of a proposed convention center in Lincoln also received approval from lawmakers.
LB116, sponsored by Lincoln Sen. Beau Ballard and passed 43-2, updates the Convention Center Facility Financing Assistance Act, which turns back a portion of state sales tax revenue collected by convention centers, associated hotels and nearby retailers to political subdivisions to help finance the facilities.
Among other changes, the bill clarifies that the area used to determine associated hotels and nearby retailers is one or more contiguous or noncontiguous areas within the territorial boundaries of the political subdivision that applies for assistance.
The measure also expands authorized uses of a fund that counties use to make grants to expand and improve facilities at existing visitor attractions, build new visitor attractions and carry out certain other projects. Under LB116, counties also must use the fund to maintain visitor attractions and facilities.
Also approved was a bill intended to help additional rural fire protection districts qualify for state financial aid.
The Mutual Finance Assistance Act, funded by state insurance premium tax proceeds, provides aid to mutual finance organizations and rural or suburban fire protection districts for equipment, operations and training.
For an MFO or district to qualify for assistance, a certain percentage of the population of any county included in the MFO or district must reside outside the limits of any first, primary or metropolitan class city in the county.
LB399, introduced by Sen. Dave Wordekemper of Fremont and passed on a vote of 49-0, decreases the threshold from 80% to 60%.
The committee also advanced a measure intended to manage the impact of cryptocurrency mining operations on Nebraska’s electrical grid.
LB526, introduced by North Platte Sen. Mike Jacobson at the request of the governor, allows public power suppliers to impose requirements on certain cryptocurrency mining operations for the cost of infrastructure upgrades needed to serve them.
Under the bill, passed 49-0, a public power supplier may require direct payment or a letter of credit from a cryptocurrency mining operation or impose terms and conditions on an operation as long as the requirements are fair, reasonable and not unduly discriminatory.
The bill requires a public power supplier to conduct a load study before imposing any requirement. A supplier also must list the number and annual energy usage of cryptocurrency mining operations under its jurisdiction on its website.
Anyone intending to install a cryptocurrency mining operation is responsible for notifying the local public power supplier. Additionally, an operation must allow a supplier to interrupt its electric service according to the supplier’s established rate schedules and policies.
The requirements go into effect Oct. 1 and apply to operations of 1 megawatt in size or greater.
A proposal to cut county inheritance taxes while also distributing replacement revenue to counties remains on select file after a failed cloture motion.
LB468, sponsored by Sen. Robert Clements of Elmwood, would cut the rates paid by remote relatives — including uncles, aunts, nieces and nephews — and non-related beneficiaries while also increasing the applicable exemption amounts.
As amended on general file, the bill also would increase the exemption amount for immediate relatives, who pay a 1% rate.
To replace the lost revenue, the measure would increase the nameplate capacity tax paid by owners of renewable energy generation facilities and allow counties to retain a higher percentage of state motor vehicle taxes, among several other changes.
LB468 also would increase fees to cover more of what it costs counties to issue marriage licenses, inspect vehicles and provide other services.
After four hours of second-round debate, Clements filed a motion to invoke cloture. The motion failed on a vote of 31-11.
