Lost in the switcheroo: Loophole in new law allowed some taxpayers to get money back while many lost chance

Justin Harris could use the money.

The McCook farmer and businessman is already behind on last year’s property taxes, and still owes $3,200 that’s growing with interest.

And Harris is also missing out on a tax rebate thanks to a much-misunderstood change that Nebraska lawmakers made earlier this year. It’s costing him $1,300 – money he could have nabbed had he paid his property taxes by Dec. 31, 2023.

“There was no chance for us to be able to take advantage of that discount because we're living paycheck to paycheck,” he said.

The vast majority of Nebraska property owners may not realize it, but they’re in the same boat as the Harris family. In total, Nebraskans who didn’t pay their 2023 property taxes in 2023 will lose out on as much as $570 million.

At the tailend of this year’s special session, the Nebraska legislature – after failing to agree on greater property tax cuts – changed how the state offers relief on property taxes paid toward public schools. Previously, the state delivered a 30%, “back-end” refund to those who applied. Lawmakers switched to a “front-loaded” system meant to guarantee every Nebraska homeowner and landowner gets relief.

But in doing so, they retroactively eliminated the back-end credit for the 2023 tax year if you paid your property taxes after Jan. 1, 2024 – something the vast majority of property owners did.

In fact, owners of only 15% of taxable properties paid their 2023 property taxes in 2023, a Flatwater free press analysis shows.

Gov. Jim Pillen, who called the special session, was among the few who took advantage of the old credit before the legislature took it away.

Some lawmakers, including Sen. Lou Ann Linehan, a Republican and chair of the Revenue Committee, say the law was intended to offer relief to more property taxpayers each year and effectively does so.

People like Jane and Jerry Mann, who live in Papillion with their cat and a goldendoodle. The Manns started claiming the old property tax credit in 2022, and got back $1,747 from the state.

The retired couple, like most Nebraskans, always pays their property taxes the following calendar year. They assumed they would continue to receive the back-end refund, but didn’t expect the legislature to “yank it away” without warning.

“It’s just so confusing. And the way I look at it is, we're losing out on a year and that we are not going to recoup that,” said Jane Mann.

The legislature has been discussing such a switch for more than a year, Linehan said, and shifting to the new “front-loaded” tax relief was built on a wide consensus. For example: Public policy experts say the automatic credit will help regular Nebraskans get their fair share.

“If you read a paper in Nebraska in the last 24 months, and you didn't know this is a possibility, you weren't paying much attention,” she said.

The state could only pay for the new credit by rolling over money appropriated for the old credit, and laid out the plan in the fiscal note, Linehan said. She also said that Nebraska Farm Bureau executives like McHargue knew about the state’s plan all along.

“The Farm Bureau was in every meeting we had on this for two years,” Linehan said. “So would (McHargue) know that this was a possibility? Yes, he would. Would Steve Erdman know this was a possibility? Yes, he would.”

Whether intended or not, the new law creates inequality, said Sen. Julie Slama, Republican from Dunbar.

Slama voted for the bill, which passed 40-3, and says she didn’t realize it had a problem until after the special session ended.

Those who paid their 2023 property taxes in the calendar year 2023 tend to be wealthy landowners who have tax planners and accountants, said Slama. Some pay their property taxes early at year’s end to offset their taxable income.

Most homeowners with mortgage payments have no control over when escrow accounts paid their 2023 property taxes, said Brian Klintworth, chair of the Nebraska Society of CPAs. Those payments typically came in 2024.

So richer Nebraska landowners, Slama said, were far more likely to receive their 2023 tax refund.

“You have multimillionaires who got the free pass and got a double dip, but then you have average tax-paying Nebraskans, working-class Nebraskans stuck with a missing year of relief and half a billion dollars of relief that should be in their pockets gone,” she said.

Pillen, and the company he founded, are among the small group of Nebraska taxpayers who paid early and will receive their 2023 refund.

Pillen’s personal trust and his family members were eligible to claim credits on two years of payments on a handful of properties on their most recent returns, according to a Flatwater free press analysis. His family business, Pillen Family Farms, appears to typically pay property taxes for its hundreds of properties early every year.

Sarah Pillen, co-CEO of Pillen Family Farms, didn’t respond to questions.

Erdman himself also paid his 2023 property taxes last year and claimed the refund, he said.

“I think everybody should have the same opportunity that me and Pillen did,” Erdman said.

The legislature should find the money to fund property tax relief on 2023 taxes, Erdman said, even if it involves budget cuts.

But this push for a potential fix, Linehan said, is a “very political” move.

“It's easy to say there needs to be a fix, but until they show me how they're going to come up with the money, it's not a very serious conversation,” she said.

Nebraska taxpayers are receiving some form of relief every year, Linehan said. Even if you didn’t get the 2023 tax refund that you could have claimed on your 2024 return, you still get tax relief in 2024 – the “front-loaded” credit delivering money back automatically on your 2024 property taxes.

“A lot of this is not fair overall,” Linehan told the Flatwater free press. “But it is the best thing to do for the vast majority of Nebraskans who were getting nothing.”

Harris, the McCook farmer, encountered the new law for the first time this week, when he opened his first 2024 property tax bill and was happy to see that, on the front end, it’s $1,300 less than he used to pay.

“It feels good … Now we might actually have the money to pay that,” he said.

The Flatwater free press is Nebraska’s first independent, nonprofit newsroom focused on investigations and feature stories that matter.

But Sen. Steve Erdman, a Republican from the Nebraska Panhandle, has urged his colleagues to find money to fix it in the upcoming legislative session. The Nebraska Farm Bureau has called on the legislature to give Nebraskans back their refunds for the 2023 taxes they paid this year.

“We must find a fix that prevents the changes made in the special session from effectively raising taxes on most property owners by more than half a billion dollars,” said Farm Bureau President Mark McHargue in a statement. “...The state’s property tax burden should not have gone up. Yet, it did, and it did so in a big way.”

It’s important to note: The new law passed by the legislature and signed by Pillen will lower the taxes of many Nebraska property owners.

That’s because many Nebraskans never realized they needed to claim a tax refund under the old law. They never did, and never got the money owed to them.

The new, $750 million relief package will automatically deliver money to all Nebraska property owners.

But it won’t save those who applied for the old “back-loaded” refund a single dime. All the new law does for them is change when and how tax relief is delivered.

The switch will actually be a net negative for many of these Nebraskans, some accountants say, since they won’t receive any refund for 2023 property taxes they paid in 2024.