An amendment to LB 388 (AM 3419) is scheduled to be debated on select file on Wednesday, Day 58 of the 60-day session. Here’s a few things to know about the evolving tax package.
No sales tax rate increase. The latest amendment does not include a change in the state sales tax rate. As originally proposed, the state sales tax rate would have increased from 5.5% to 6.5%, with the additional revenue being directed to reduce property taxes paid to fund local government services.
The Institute on Taxation and Economic Policy modeled the original proposal and, for all but Nebraska’s top earners, the sales tax increase would on average be greater than any property tax cut they may receive.
While the amendment does not include the rate increase, it still proposes to remove existing exemptions on pop and candy, lottery ticket sales, dry cleaning and pet-related services. It raises taxes on cigarettes and vaping products and creates a new tax structure on digital advertising services, hemp and CBD products and skill games.
The latest amendment does not include a prior exemption proposed for sales taxes paid on residential utilities.
Income tax credit vs. property tax credit. The amendment creates a new School Property Tax Credit Fund to reduce property taxes paid to fund local government services. The state would distribute $750 million to counties in tax year 2024 to reduce taxes to schools due on a taxpayer’s property tax statement. The School Property Tax Credit Fund would grow by $30 million a year.
Under the amendment, the School Property Tax Credit Fund would replace the existing LB 1107 state income tax credit on property taxes paid to schools and community colleges. In tax year 2023, $561 million was set aside for these income tax credits on taxes paid to K-12 schools.
The tax package no longer includes directly sending additional revenue to public schools for the purpose of lowering school district tax levies.
New revenue caps. The tax package, as amended, would subject cities and counties to new revenue caps similar to those placed on local school district budgets a year ago. The revenue caps would generally limit increases in property tax requests to 3% with adjustments for real property valuation growth, inflation, emergencies threatening public health or safety and pay increases for understaffed departments of police, fire and corrections.
The tax package provides for no increase in state funding to cities and counties. In the wake of property tax caps in other states, local governments shifted to a reliance on other revenue sources which disproportionately impact lower-income residents and Black, Indigenous and People of Color communities.
For school districts, the latest proposal refines last year’s revenue cap to limit the amount of unused property tax authority that can be carried forward from year to year.
New school privatization measure advanced
Late on Tuesday, senators advanced LB 1402, a bill creating an annual appropriation to the state treasurer for the purpose of funding private school scholarships. LB 1402, as amended, would obligate the state to spend $10 million on the program annually starting in FY 25.
LB 1402, if passed, would essentially replace a bill passed last year, LB 753, that created dollar-for-dollar state income tax credits for donations to organizations granting public school scholarships. That program, implemented on Jan. 1, is subject to a referendum vote in the general election after more than 117,000 Nebraskans signed petitions last summer.
LB 1402 is scheduled for debate on select file later on Wednesday.