Errors in Pillen's plan could lead to $139 million shortfall

As introduced, Gov. Jim Pillen’s core property tax relief proposal could fall short by $139 million in annual estimated revenue needed.

Pillen’s main proposal, introduced through Legislative Bill 1 in the special session, includes placing a sales tax on more than 100 currently tax-exempt goods and services. It would also raise seven “sin” taxes, on candy and soft drinks, vapes, cigarettes, keno gambling, spirits, consumable hemp and games of skill.

In total, the new or increased taxes would raise an estimated $1.15 billion in the first full fiscal year on state tax rolls. If passed, Pillen’s office is targeting an Oct. 1 effective date, which is not yet included in LB 1.

Those values rely upon estimates provided to lawmakers last Wednesday, one day before State Sen. Lou Ann Linehan introduced LB 1 on Pillen’s behalf.

However, the tax rates as introduced varied from the ones provided to reporters and lawmakers in the days leading up to the session, which a spokesperson said was likely the result of bill drafting errors.

For example, four currently exempt goods and services were suggested to be taxed at higher rates than were ultimately included in the bill:

• Agricultural machinery and equipment, at 2 cents per dollar purchase instead of 4 cents.

• Manufacturing machinery and equipment, and repairs or labor, at 2 cents instead of 4 cents.

• Home improvement or maintenance — carpentry services, at 4 cents instead of 5.5 cents.

• Home improvement or maintenance — electricians, at 4 cents instead of 5.5 cents.

The statewide sales tax rate is 5.5 cents per dollar purchase, plus any municipal or county sales tax rates, which range from an additional 0.5 cents to 2 cents.

According to an analysis from the Nebraska Examiner, the Pillen-led proposal would fall short of his revenue goal by $139 million, largely because the projected machinery and equipment revenue was half of what was projected earlier.

That would complicate the governor’s main tax relief pursuit: the state taking on 80% of local K-12 funding paid for through property taxes.

A spokesperson for Pillen said the intention is to tax machinery and equipment at 4 cents and the change “was just a drafter’s situation.” No amendments have yet been introduced to fix that drafting error. She said she was unaware of what happened with carpentry services and electricians’ services, which make up a much smaller portion of the revenue that could be lost.

LB 1 as introduced would also more broadly end some sales tax exemptions that multiple lawmakers who had been working with Pillen said were off the table:

• Leases or sales of dark fiber.

• Net wrap, bailing wire and twine.

• Catalysts, chemicals and materials used in producing ethanol, not just natural gasoline used as a denaturant by a Nebraska ethanol facility.

LB 1 was scheduled to be first up in a Revenue Committee hearing at 9:30 a.m. Tuesday. Two lawmakers on the Executive Board switched their votes Monday to send the bill there instead of the Government Committee.

The Revenue Committee, which Linehan chairs, is usually the designation for bills addressing taxation. Members could be more open to Pillen’s proposal than those on the Government Committee, where only one of eight members supported a previous Pillen-backed proposal in the spring. In contrast, seven of eight Revenue Committee members supported the previous bill.

At the Nebraska Examiner site, https://nebraskaexaminer.com/2024/07/29/drafting-errors-could-leave-gov-pillens-property-tax-relief-plan-up-to-139-million-short/, a breakdown of the sales and use tax exemptions that would fall as part of LB 1, as well as projected revenue, courtesy of the governor’s office, can be accessed.