LB 388 makes school tax relief visible — but at a cost (2024)

For roughly one-third of Nebraska’s property owners, theoretical relief from school taxes would turn into reality if state senators pass a whittled-down tax bill Thursday.

They’re the home, farm, ranch and business owners who have failed to claim income tax credits for part of their K-12 tax bills since the Legislature authorized them in 2019.

If senators send a revised version of Legislative Bill 388 to Gov. Jim Pillen on the 2024 session’s last day, all property owners will begin seeing a second direct discount on their October gross property tax bills when they get 2024 tax statements next December.

A “School Property Tax Relief Fund” discount, based on a property owner’s share of county and state school tax bills, would join the older Property Tax Relief Fund discount founded in 2007.

The state would cover the cost, sending counties the money that had been going to the K-12 income tax credit while boosting it from 2023-24’s level of $560.7 million to $750 million in 2024-25 and $30 million more each fiscal year thereafter.

Had LB 388 been in effect this fiscal year, a Telegraph analysis shows net property tax relief would have at least tripled to about 22% for three North Platte homeowners and grown to 25% to 30% for three Lincoln County agricultural operations.

Those percentages assume, however, that they didn’t claim their K-12 income tax credit when they do their state income tax returns this past winter.

If they’ve claimed the K-12 credit each year, The Telegraph’s sample property owners already were getting at least that much net tax relief. A short-lived community college income tax credit disappears for the 2024-25 fiscal year as the state takes over almost all community college funding.

The adjoining charts show the differences the bill would have made compared with actual 2023-24 taxes and credits for the three North Platte homes, a sample ranch near Sutherland and farmer-feeder operations near Maxwell and Wallace.

But LB 388 depends on $189.3 million in additional tax-relief funding in 2024-25 for Nebraskans who claimed the K-12 income tax credit to at least keep the tax relief they now enjoy while others get it for the first time.

That’s because state funding levels for the K-12 credit the past couple of years have assumed significant numbers of Nebraskans wouldn’t claim it, state budget director Lee Will said.

He confirmed The Telegraph’s finding that LB 388’s School Property Tax Credit Fund wouldn’t have been worth as much as the income tax credit if it had been law for 2023-24 but had only the current K-12 credit’s $560.7 million pot to divide.

Nebraskans who claimed the income tax credit got back 6% of their school taxes for 2020-21 and 25% for 2021-22. Will said the Legislature provided enough money both years for every Nebraska property owner to take advantage.

Lawmakers raised the school income tax credit’s value to 30% in 2022-23 while adding $50 million for a 30% community college credit that in the end lasted only two years.

But the Legislature essentially left funding flat for the K-12 income tax credit, Will said, given the evidence that many Nebraskans weren’t using it.

“So we took a calculated risk in Year 3 (of that credit) after having had two years of utilization of the program,” Will said.

Though the state was offering a 30% credit for school taxes, senators only offset 24.2% of combined statewide K-12 taxes, he said.

“That’s why it costs you money to frontload it” now with LB 388, he added. “We didn’t want money to sit idly by and not be claimed for property tax relief.”

A version of LB 388 that received first-round Unicameral debate would have sent the K-12 income tax credit money not to counties but directly to schools through a doubling of the per-student “foundation aid” restored to Nebraska’s state school aid formula in 2023.

That idea never became part of the bill, however, as urban senators and various interest groups balked at paying for more property tax relief by increasing state sales taxes by up to 1 cent, eliminating select sales tax exemptions and raising some other types of state taxes.

LB 388’s final version, agreed to during second-round floor debate April 10, drops the general sales tax increase. But it still would end exemptions for pet veterinary services, candy, soda pop and increase taxes on cigarettes, vaping products, consumable hemp and digital advertisers with more than $1 billion in gross revenue.

In partial compensation, lower-income Nebraskans would see their state earned income tax credit grow from 10% to 15% of their state EITC starting in 2025.

Sen. Mike Jacobson of North Platte said Monday that he’s concerned the proposed tax on the largest advertising companies — such as Meta and Google — may run afoul of the Nebraska Constitution.

“But I will support the bill to keep the (tax relief) process going with the hope we can make further changes next year,” Jacobson said.

Will said the $750 million figure chosen to reset the K-12 property tax relief pot is slightly above the $740 million Nebraska’s K-12 schools are collecting annually in property taxes, not counting taxes to repay bonds.

That decision would add a slight amount of new tax relief — assuming they were claiming their K-12 income tax credits — for owners of The Telegraph’s sample homes and ag operations.

Had LB 388 been in effect last fall, net December tax bills would have been 22.1% lower for Home 1 north of North Platte’s Union Pacific tracks, Home 2 near Westfield Shopping Center and Home 3 south and west of Home 2.

Combined net taxes would have fallen by 29.8% for a seven-parcel ranch northwest of Sutherland, 25.2% for an eight-parcel operation of mixed types in typically irrigated land southeast of Maxwell and 28.4% for a similar operation in a more typically dryland area northwest of Wallace.