Nebraska Tax Reform Should Start With Property Taxes

Nebraska Notebook

Heineman saw the light and, fortunately, asked that the bills be killed.

Published on: February 20, 2013

Tax reform can is generally a good thing. But it wasn't such a good thing when Gov. Dave Heineman proposed at the start of the 2013 Legislature a plan to repeal individual and corporate income taxes and make up the difference by eliminating a myriad of sales tax exemptions.

Bills to accomplish the governor's plan were introduced by State Sen. Beau McCoy of Omaha. They were met with resounding opposition during a hearing of the Unicameral's Revenue Committee. And that opposition came primarily from farms and ranches and their organizations and from manufacturers.

Heineman saw the light and, fortunately, asked that the bills be killed. He still desires a reform package that lowers income taxes and provides some type of property tax relief.

More on that later. First, let's review what would have been the impact on farmers and ranchers of imposing sales taxes on ag machinery and inputs like seed, chemicals and fertilizers.

The Nebraska Farm Bureau conducted what it called a "non-scientific, back of envelope" survey of its membership. They were asked how much they paid in 2012 in income taxes and then what they would have paid if the sales taxes exemptions were eliminated. Farm Bureau found on average that members would experience a net increase in taxes paid of around $25,000 a year. That figure is based on new sales taxes of roughly $29,000 annually on average, minus the "average" $4,000 they would no longer pay if state income taxes were eliminated.
Jason Kvols is a farmer and Farm Bureau member from Laurel who farms 700 acres of corn and soybeans near Laurel. He and his wife, Kathy, have five children. He estimates the impact of this type of tax reform for him would be a net increase of $17,000, a burden he says he and his family can't afford with an operation their size.

Tax reform in Nebraska could take many forms, but it needs to start with property tax relief. Bruce Johnson, University of Nebraska ag economist pointed out in a late 2012 land values report that Nebraska agricultural land is "the heavy lifter" for local units of government across the state.

The Farm Bureau, several years back, studied property taxes paid by farmers and ranchers in seven states that neighbor Nebraska. Property taxes on ag land in Nebraska were the highest of seven neighboring states.

The study also found that the 10 counties in the region with the highest property tax burden were all in Nebraska. In 21 Nebraska counties, at the time the study was conducted, ag land comprised 75% or more of the property tax based. This leaves Nebraska producers at a competitive disadvantage with producers in neighboring states. One again, Johnson's statement of "heavy lifter" applies.

So now the Revenue Committee apparently will study tax reform ideas in the interim, potentially with new legislation introduced in 2014.

It will be a tall order to come up with a tax plan that lowers income tax rates, eliminates sales tax exemptions, lowers sales tax rates and provides property tax relief.

All of the above may be needed, but let's start on the local level with some serious property tax relief solutions.

There are those who believe Nebraska needs a new a motor vehicle license plate slogan—"The Tax Me State." It never gets any traction with folks in state government, but I think it's a valid point.