Nebraska Legislature panel puts more exemptions on chopping block, disagrees on which tax to cut | State & Regional

By broadening the state’s sales tax base, new revenue could be used to lower tax rates. But the committee was split over whether to lower the state sales tax rate or local property taxes — which one senator called “the marquee issue” in the state.

State Sen. Lou Ann Linehan of Elkhorn, who chairs the eight-member committee, spoke Monday in support of using the new revenue to reduce the state’s sales tax rate, currently 5.5%, and any leftover funds to reduce property taxes.

It would be a change of focus for the committee after a bill pushed by Linehan, which would have raised the sales tax and repealed some exemptions to reduce property taxes, failed to pass this spring. Pushback from Gov. Pete Ricketts helped sink the proposal. The conservative Republican said that it didn’t make sense to raise taxes to lower taxes and that taxing things like pop and candy amounted to a ”reverse Robin Hood.”

Linehan’s new approach would not raise tax rates but would remove tax exemptions, which would increase tax revenues by millions of dollars so that the sales tax rate could be lowered.

“We gotta do something that the governor will support,” she said.

Not everyone on the committee agrees that lowering the sales tax rate is a priority. The No. 1 issue for farmers has been reducing property taxes, while business groups are seeking reductions in state income taxes.

Sen. Tom Briese of Albion, a farmer, said any new tax revenue should be used to reduce property taxes.

“We have to broaden the sales tax base to generate revenue for property tax relief,” Briese said. “That is the marquee issue in this state.”

Members of the Revenue Committee met Monday morning as part of an interim study on whether sales tax exemptions should be repealed. The committee’s final recommendations won’t come out until the end of the year.

Senators went line by line through an annual state report that lists the items that are exempt from sales taxes, and how much revenue is being foregone.

Currently, about 117 types of purchases are exempt from sales taxes, according to the 2018 report. They include some biggies like agricultural machinery and fertilizer ($203 million and $154 million a year, respectively), manufacturing components/ingredients ($1.6 billion) and groceries ($166 million).

There are also some relatively tiny exemptions, like that on bull semen ($661,000), mineral oil to suppress dust in grain bins ($455,000) and animal grooming ($254,000).

As the senators went through the list, they voted on which sales tax exemptions they could, at this time, support repealing. The ones that drew support to repeal included:

• Rental of dorm rooms at colleges, and rooms that are rented to family members at assisted living centers, hospitals and other licensed medical facilities ($70.7 million a year).
• Newspaper subscriptions ($3.2 million).
• Prepared food sold by schools ($8.9 million).
• Admission or membership at a Nebraska zoo, such as Henry Doorly ($1.8 million).
• Admission in organizations dedicated to healthy living and youth development, such as the YMCA ($3.5 million).
• Admission to school events ($591,000).
• Admission and food at political fundraisers (not estimated by the state).

The new exemptions targeted are on top of the repeal of exemptions on pop, candy and bottled water that were included in the failed bill this spring.

Linehan said one criticism of property tax relief proposals this spring was that the committee was picking “winners and losers” in selecting which sales tax exemptions to repeal. So, she said, the committee is broadening the scope of the targeted exemptions, and pairing them with a plan to reduce the overall sales tax rate.

Sen. Curt Friesen of Henderson said that with a sales tax hike off the table, the new approach should get more support. But he worried that with 2020 being an election year, passing a major tax reform bill would be difficult.

Also discussed on Monday was taking another look at the Build Nebraska Act. The measure, passed in 2011, earmarks ¼ cent of state sales taxes to new highway construction.

Linehan said it just makes sense to review whether that revenue — about $70 million a year — is still needed for roads, or could be used for tax relief.