LINCOLN — Nebraska lawmakers are officially set to debate a tax relief package Tuesday that will include consideration of ending nearly 70 sales tax exemptions to provide funding for property tax cuts. 

One month ago, a draft property tax plan indicated lawmakers might begin taxing sales of 120 more goods or services. That number has been incrementally reduced in successive rewrites, and at this point has been cut nearly in half. 

The proposal

Some of the main components of the tax plan include:

• Lowering the maximum school district tax rates for operational expenses to 40 cents per $100 of valuation for fiscal year 2025-26; 35 cents in 2026-27; and 30 cents in 2027-28 and beyond. The current maximum rate is $1.05.
• Capping the annual increase in property tax collections by municipal and county governments at the rate of inflation or at 0% in times of deflation.
• Crediting taxpayers for property taxes paid to their natural resources district (beginning at 50% in the next fiscal year).
• Reimbursing county jail expenses (beginning at 25% in the next fiscal year).

Revenue Committee advances NE property tax relief package, with debate to start Tuesday

Most funding will come from retooling existing property tax reduction programs, such as tax credits and the portion of homestead exemptions no longer needed as school tax rates come down.

The other major area of financing will come from the newly taxed goods and services and increases to “sin” taxes, such as on spirits, cigarettes, oral nicotine pouches, vapes, cigarettes, keno and cash devices.

Legislative Bill 34, as originally introduced by State Sen. Tom Brewer of north-central Nebraska, would freeze property valuation increases over four years. He has described it as a “backup plan” or “fail-safe.”

‘They don’t fix the problems’

State Sen. Brad von Gillern of Elkhorn, vice chair of the Revenue Committee, said he is “cautiously optimistic” heading into Tuesday’s floor debate after he and the committee chair, State Sen Lou Ann Linehan, and others “listened to parties on all sides.” Von Gillern said committee members tried their best to build the bill around concerns raised.

State Sen. George Dungan of Lincoln, the lone “no” committee vote on LB 34, said the package remains “inherently regressive” and would hurt low-income residents. He said it would also not provide relief to renters, who live in about 50% of the housing units in Dungan’s district.

“I understand there are certain parts of it that are intended to help low-income individuals, but on the whole, when you balance those against the other portions of the bill, I simply think they don’t fix the problems,” Dungan said.

State Sen. Eliot Bostar of Lincoln, who was “present, not voting” on Monday’s committee vote, said afterward: “It’s just not there yet for me.”

The Legislature is officially nonpartisan, but votes sometimes split along ideological lines. On Monday, the six Republican committee members supported the package. Dungan and Bostar are Democrats.

Municipalities have raised concerns about the proposed sales tax changes on two fronts. One is with the state collecting an additional 12% in local sales tax revenue each year. The other involves how businesses can request future refunds for economic development and workforce incentive programs, such as the Nebraska Advantage and ImagiNE Nebraska Acts.

Those tax incentive programs utilize local sales taxes, but with the municipalities not collecting the full tax base, some have said it could further complicate planning for those future refunds.

Von Gillern pointed to a provision of LB 34 ensuring that cities or villages do not collect less sales tax revenue than they did in 2023-24, plus a 1% annual increase.

“There is a floor built into the bill, so they’re not going to get hurt on any of that,” he said.

‘We’ve got to get to 30’

Von Gillern also pointed to an independent study from Ernie Goss, a regional economist and professor at Creighton University, contending that all taxes are regressive but that high property taxes are the most detrimental to economic growth.

“We’ve done as much as we can to take as much out that would have impacted the lowest income people, and I think we’ve done a good job of that,” von Gillern said. “We listened to the opponents, and we tried to modify as much as we could.”

He also pointed to internal legislative modeling, which was done on a previous tax package, where families with modest income would see a net benefit. He said that “seems to be forgotten in this discussion.”

Linehan said she thinks she has 31 votes but that getting to 33 votes on some bills to break a filibuster, particularly on proposals related to taxation, is “very, very partisan.”

“We’ve got to get to 30,” Linehan said. “I think we’re at about 31 right now.”

Many provisions of LB 34, if passed, would take effect Oct. 1. That would require 33 votes not only to end debate but also to pass the bill to take effect within three calendar months. Sales tax exemptions or repeals can only occur at the start of a calendar quarter.

First-round debate on the package will begin at 9 a.m. Tuesday and can last up to eight hours.