Session Review: Revenue

The Revenue Committee made a number of changes to laws regarding taxation to provide additional funds and promote economic development.

State Aid

State aid programs to municipalities, counties and natural resources districts (NRDs) were discontinued under LB383, introduced by Bellevue Sen. Abbie Cornett at the request of the governor. The bill passed 36-9.

A retooled Local, Civic, Cultural and Convention Center Financing Fund will provide larger grants with reduced local match requirements under LB297, introduced by Fullerton Sen. Annette Dubas. Passed 46-0, the bill reduces the cash match required of local funds from 80 percent to 50 percent and adds libraries to the list of eligible projects.

The bill also will adjust the maximum grants awarded under the act if the balance of the fund reaches $2.5 million.

The Legislature delayed until next year consideration of a bill providing state assistance for certain sewer projects. During select file debate, the bill’s sponsor, Omaha Sen. Heath Mello, offered a motion to bracket LB682 until Jan. 4, 2012. His motion was approved by unanimous consent.

LB682 would offer state assistance to finance the construction, acquisition or improvement of sewer infrastructure to address combined sewer overflows. Assistance would be calculated based on the amount of state sales tax collected from increased fees and charges to complete such projects.

Roads

The committee advanced two bills that will affect revenues for roads projects.

LB84, introduced by Valentine Sen. Deb Fischer and passed 33-10, directs 0.25 cents of the state’s 5.5-cent sales tax to roads projects from fiscal year 2013-14 through FY2032-33. Eighty-five percent of these funds will be deposited in a new State Highway Capital Improvement Fund. The remaining 15 percent of the new revenue will go to the Highway Allocation Fund.

At least 25 percent of the revenue directed to the State Highway Capital Improvement Fund must be used for the Nebraska Expressway system and federally designated high-priority corridors. The remainder of the fund will be dedicated to roads projects prioritized by the state Department of Roads.

LB81, introduced by Cornett and approved 37-4, prohibits municipalities from levying a motor vehicle fee on nonresidents. Nonresidents include those who use or store a vehicle no more than six months in a city or village and those who do not have a primary residence or own a place of business within city limits. Full-time college students attending school in a city other than the one in which their vehicle is registered also are considered nonresidents.

The bill phases out motor vehicle taxes for those living in an extraterritorial zoning jurisdiction of a city or village on Jan. 1, 2013.

Sales tax

Additional uses for county sales tax revenues and a sales tax exemption for Lincoln’s Wyuka Cemetery were passed by the Legislature this session.

Current law permits counties to enact sales taxes up to 1.5 percent to support public services provided by a public safety commission or an agreement executed under the Interlocal Cooperation Act or Joint Public Agency Act.

LB106, introduced by Ogallala Sen. Ken Schilz and passed 43-3, clarifies that public safety services may be funded with county option sales tax revenues. The bill defines public safety services to include firefighter, police, medical, ambulance or other emergency services.

LB252, introduced by Cornett and passed 42-4, exempts Wyuka Cemetery from sales and use tax and designates the state Auditor of Public Accounts as the state official who receives itemized reports of receipts and expenditures incurred by the cemetery board of trustees. The bill changes the deadline for such reports from the second Tuesday in March to the second Tuesday in June.

A bill remains on select file that would permit cities to ask for an additional 0.5 percent in local option sales tax. Cities currently are allowed 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.

Property taxes

Select NRDs will have more time to levy a special property tax.

LB400, passed on a 47-1 vote, contains provisions of LB528, introduced by Holdrege Sen. Tom Carlson. The bill extends to FY2017-18 the expiration of a property tax offered to NRDs in overappropriated or fully appropriated basins. The 3-cent per $100 of taxable value property tax is used for costs of administering and implementing ground water management activities and integrated management activities under the Nebraska Ground Water Management and Protection Act that exceed the amount budgeted for such activities in FY2005-06.

LB400 was amended to include changes proposed by Cornett in LB430 to state statute governing property tax levies and exceptions, specifically a subsection addressing bonds secured by a property tax levy. The bill replaces bonded indebtedness with a definition of bonds that includes any bonds, notes, interim certificates, evidences of bond ownership, bond anticipation notes, warrants or other evidence of indebtedness.

The Legislature also adopted changes to the Tax Equalization and Review Commission (TERC).

LB384, introduced by Cornett, eliminates the at-large commissioner of the four-member board. Commissioners’ terms will expire on July 1, 2011, and the terms of the appointed commissioners will be staggered so that one ends every biennium. The governor will set commissioners’ salaries.

The bill was amended to include provisions from LB405, a Cornett bill that authorizes single-commissioner hearings for appeals regarding parcels valued less than $1 million. If the TERC chair designates an appeal for a single-commissioner hearing and both parties agree, an informal single-commissioner hearing may be held. The usual common-law or statutory rules of evidence do not apply at single-commissioner hearings. Either party may request a rehearing before the entire commission.

Finally, beginning Jan. 1, 2014, the bill requires counties with a population of at least 150,000 to mail or post on the county assessor’s website a preliminary notice of valuation by Jan. 15 each year and provide an opportunity for real property tax protesters to meet in person with the assessor or staff. Taxpayers who do not request an in-person meeting with assessor staff by Feb. 1 waive their opportunity to do so. Real property tax protesters who protest their valuation must be given an opportunity to meet in person with the county board of equalization or a referee. These provisions were amended into LB384 from LB457, a bill introduced by Lincoln Sen. Kathy Campbell.

Technical corrections provided by LB363, another Cornett bill, also were amended into the proposal.

LB384 passed 36-11.

Energy

Two proposals heard by the committee relating to wind energy taxation and renewable energy tax credits were combined and passed 45-0.

LB360, introduced by Cornett, clarifies that depreciable tangible personal property used to generate electricity from wind is exempt from property taxes, but real property is not exempt. The bill also limits nameplate capacity tax credits to property taxes paid on depreciable personal property that exceed what would have been required under the nameplate capacity tax. The provisions affecting wind energy taxation have a retroactive implementation date of Jan. 1, 2010.

LB360 also includes provisions of LB359, introduced by Malcolm Sen. Ken Haar, which strikes language limiting renewable energy tax credits to zero-emission facilities, which are facilities whose operation results in no pollution or emissions certified as harmful to the environment by the state Department of Environmental Quality. Finally, the bill decreases the maximum amount of renewable energy tax credits from $750,000 to $50,000.

The final energy-related bill advanced by the committee suspends a program that offers grants to public and nonprofit electric utilities that provide matching funds to complete energy conservation improvements for Nebraska homeowners whose income is at or below 150 percent of the federal poverty level.

LB385, introduced by Hastings Sen. Dennis Utter at the request of the governor, suspends the Low-Income Home Energy Conservation Act until July 1, 2014, at which point the Legislature will appropriate $250,000 to the program each biennium. Participating utilities may dedicate up to $50,000 per fiscal year to be matched. The bill was passed 46-0 and will terminate the act on July 1, 2019.

Tax Incentives

The Legislature approved refundable income tax credits for investments in high-tech business with the passage of LB389 on a 49-0 vote.

Introduced by Cornett at the request of the governor, the bill provides up to $3 million in annual tax credits for investments made in a business with at least 51 percent of its work force and payroll in Nebraska and 25 or fewer employees primarily engaged in researching, developing or using products and services in the high-tech field.

To qualify for tax credits, an individual must invest at least $25,000 in a calendar year and qualified funds are required to invest at least $50,000. Refundable credits equaling 35 percent of the investment are granted to investors with caps of $350,000 for married couples filing joint returns and $300,000 for all other filers. Refundable credits of 40 percent are offered for investments made in a business that is located in a distressed area. Credits may not exceed $1 million per taxable year for any one business.

The bill funds the tax credits by reducing the amount of credits offered under the Nebraska Advantage Rural Development Act from $4 million to $1 million. The new limit will be imposed in 2012, and the program will expire after 2017.

Other taxes

Senators voted 42-1 to approve a bill that will cap telecommunications occupation taxes.

LB165, introduced by Fischer, will restrict telecommunications occupation taxes to telecommunications services and cap the tax rate at 6.25 percent, unless city voters approve a 0.25 percent increase. The bill has an effective date of Jan. 1, 2013.

Senators passed a bill to authorize the state Department of Revenue to contract with businesses to identify uncollected revenue.

LB642, introduced by Cornett and approved 37-4, allows the department to use revenues identified by such businesses for fees associated with revenue identification services. Ten percent of revenues collected as a result of the revenue identification contracts will be deposited in the Department of Revenue Enforcement Fund for purposes of identifying nonfilers, underreporters, nonpayers and improper or fraudulent payments.

LB590, introduced by Grand Island Sen. Mike Gloor and passed 48-0, changes laws regulating tobacco licenses, tobacco sales, cigarette taxes, the state directory of cigarettes, escrow deposits under the Master Settlement Agreement and reporting requirements.

In addition to several enforcement measures, the bill authorizes the state to negotiate a compact with Native American tribes regarding tobacco products. Agreements must include provisions to require that tribal taxes are imposed equally on all cigarettes and other tobacco products. Agreements also must require that all cigarette packages bear the state stamp or a tribal stamp and prohibit the sale of cigarettes not included in the state directory unless the cigarettes include a tribal stamp and the tribe makes escrow deposits.

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