No sales tax hike in Jim Pillen's scaled-back property tax plan for Nebraska (2024)

LINCOLN — A scaled-back version of Gov. Jim Pillen’s property tax plan, without a sales tax increase, moved forward Wednesday in the Nebraska Legislature.

But the measure may not be enough to keep the governor from calling a special session later this year to enact more significant property tax reductions, according to the governor’s staff.

Pillen started the year by pushing for a 40% property tax cut. Legislative Bill 388, as amended and advanced to the final round of consideration, would fall far short of that goal. The bill cleared the second round of consideration on a 28-14 vote.

LB 388 would replace an existing property tax relief program with new property tax credits, bringing down property tax bills by about 22%. Property owners who use the current program, which offers income tax credits to offset school property taxes paid, would see no net savings. They would, however, pay less property tax upfront and avoid the hassle of claiming the income tax credits months later.

Kenny Zoeller, head of the governor’s policy research office, called the amended bill “the first step” toward more significant tax reduction. The changes adopted on Wednesday were negotiated by the Governor’s Office and various lawmakers after it became clear the bill would not survive with the sales tax increase proposed during first-round debate.

Zoeller said the governor will weigh demands from the public for more significant property tax relief in deciding whether to call senators back for a special session to keep working on the issue.

State Sen. Danielle Conrad of Lincoln questioned the need for lawmakers to advance the amended bill during the last few hours of the session. She raised concerns about the idea of raising some taxes so others can be reduced.

“If there’s going to be a special session regardless, why are we rushing forward?” she asked.

As advanced, LB 388 dropped the 1-cent sales tax increase included in the first-round version of the bill. But it would still add taxes to several goods and services, bringing in an estimated $200 million annually, according to Lee Will, state budget officer.

That revenue would be added to money that the state now allocates for the income tax credits, which are based on the amount of school property taxes that individuals have paid. If the bill passes in its current form, the combined total of about $750 million would be distributed to property owners as credits on their property tax statements — reducing the amount of their property tax bills.

The program would be similar to the long-standing property tax credit program. The school property tax credit total would be increased by $30 million every year.

The new tax credits would be based on a percentage of school property taxes paid, which would ensure that taxpayers who have been claiming the income tax credits get the same amount of benefit. Those who have not claimed the income tax credits would see a benefit for the first time.

Some tax hikes to offset property tax cuts

The current version of LB 388 would add taxes to pop and candy, lottery tickets, veterinary care for pets and other pet services, storage services, dry cleaning, games of skill, vaping products, cigarettes, CBD and hemp products and digital advertising services offered by businesses with gross revenues of more than $1 billion.

Revenue from those tax increases would be used for the new school property tax credit. The bill also would add to the new credit fund in years when year-end state tax revenues come in 3.5% higher than projected.

The revised LB 388 also would increase the state’s earned income tax credit from the current 10% to 15%, aimed at helping lower-income Nebraskans who may not benefit from the property tax credits. A previous version of the bill would have exempted residential utility bills from sales taxes, but that provision was scrapped.

The bill also would put new property tax revenue caps on counties and cities, which are intended to control future increases in property taxes.

The changes made in LB 388 from its earlier version were not enough to win support from some lawmakers.

Sen. Julie Slama of Dunbar objected to the tax on digital advertising services. She argued that the tax was unconstitutional and would open up Nebraska to multiple lawsuits. Sen. Megan Hunt of Omaha also criticized that tax, saying it would end up falling on small businesses that use digital advertising.

Sen. Jen Day of Omaha raised concerns about the caps on city and county governments. She argued that they needed more flexibility to accommodate rapidly growing communities, like Sarpy County and its cities.

But Sen. Mike Jacobson of North Platte urged lawmakers to adopt the amendment and keep moving on the agenda.

“We’re not looking for perfection this year,” he said. “Let’s recognize there could be a special session but even if there isn’t, there is next year.”