Legislation streamlines property tax credit process

The legislature concluded the special session that was called to relieve property taxes on Aug. 20. After a contentious start, senators agreed to compromise on legislation that will frontload the Nebraska Property Tax Incentive Act credits from LB1107 (2020) directly onto taxpayer’s property tax statements, trim and adjust the state budget by $185 million and tighten existing property tax levy caps for counties, cities and villages to the greater of inflation or 0%. Of the 81 bills and 24 resolutions introduced, only four became law. All four bills given final approval will go into effect upon the governor’s signature.

In terms of impact, current projections indicate that legislation passed in this special session will offset about 3% of property taxes statewide. For people who have not taken the 1107 credit, they will receive anywhere from a 20 to 30% reduction in property taxes. For people who do take the 1107 credit, they will only see a property tax decrease of roughly 3 to 5%. The work done in this special session will also streamline the existing property tax credit system for everyone since roughly 46% of the money set aside for property tax credits continues to be unclaimed. Doing it this way also makes much more sense for taxpayers who should not have to climb through hoops to try to figure out how to claim a property tax credit on state income tax return months later in April.

One idea I did have concerns with, however, was LR2CA by Sen. Brandt. Under the state constitution and current statutes, ag land is valued at 75% of market value. Residential and commercial property is valued at 92% to 100% of market value. LR2CA would allow owner-occupied housing to be assessed at a special valuation enacted by the legislature. I think there is merit to the idea, but I am likewise concerned that LR2CA could result in a property tax shift to ag land in a manner that is detrimental to the economy of rural Nebraska. I feel this proposal needs additional time for discussion before being placed on the ballot, and as such, I voted to adjourn sine die prior to debate on LR2CA. LR2CA ultimately failed to receive enough votes for cloture to be invoked.

In my mind, Nebraskans, both rural and urban, lost out on a significant opportunity to receive meaningful property tax relief in this special session. There will be some property tax relief, especially for those who did not claim the LB1107 credits, but what ultimately became the tax package is nowhere near enough to deal with our state’s high property taxes. While I thought that the governor’s proposal had problems with the funding mechanism to schools and allowing certain goods and services to be taxed, many of those issues could have been worked around to where everyone could have gotten something. For example, several versions of the governor’s tax proposal would have doubled the Earned Income Tax Credit and repealed the sales tax on residential electricity, both of which would have provided some relief to renters or low-income earners. Other transformative ideas left behind in the Revenue Committee included the EPIC Option consumption tax and the Colorado Taxpayer Bill of Rights constitutional amendments. I anticipate many of these ideas will return.

The bottom line is that while this special session contained some good ideas, it did not deliver the kind of property tax relief that Nebraskans really need. More should have been done, but various factors, including bill scheduling, opposition from lobbyists and the presence of several senators in the body who were unwilling to consider any broadening of the sales-tax base hindered progress in this special session. I do believe, however, that the floor debate was productive in identifying many of the issues senators and groups had with various sales-tax exemptions. It is likely that the next session will bring back some of the exemptions that were discussed as possible revenue sources to reduce property taxes with more of an emphasis on discretionary goods and services instead of essentials or agricultural or business inputs. Instead of transformative change to property taxes, the legislature merely kicked the can down the road, and I fully expect that the subject of property taxes will return in the 2025 legislative session.

After these last couple of weeks in Lincoln, I will be back in Niobrara most of the time until the next legislative session begins on Jan. 8. My Capitol office telephone number is 402-471-2801 while my email is [email protected]. My mailing address is: Senator Barry DeKay, District #40, P.O. Box 94604, State Capitol, Lincoln, NE 68509.