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A number of voters in District 38 have inquired about the various exemptions and credits that exist within the property tax system. There are certain classes of taxpayer status that are exempt from taxes, as well as certain types of real property and tangible personal property that is exempt from property taxes. The Property Tax Credit Fund was begun in 2007 to provide direct property tax relief to taxpayers.
One of the most significant exemptions is the Homestead Exemption. Eligible homeowners have a portion of their “homestead” exempt from property taxes based on their income and value of their home relative to the county average. Homeowners can apply for the Homestead Exemption if they are 65 years or older, have a developmental or certain permanent physical disability, or are qualifying veterans. Unlike exemptions based on taxpayer status which simply remove that class of property from the revenue of a political subdivision, the revenue not paid by eligible homeowners who receive the Homestead Exemption is compensated from the state General Fund to the local government. In the 2015-2017 budget $144 million of revenue to local political subdivisions will be reimbursed.
Other exemptions include the increased value of real property due to planting of trees along a highway and of preserving historically significant property. Property owned by state or local governments, agricultural and horticultural societies, educational organizations, religious groups, charitable organizations, and cemeteries is exempt from tax. Those lost revenues are not reimbursed by the state. Non-depreciable tangible personal property, household and personal items, business inventory, livestock, wind generation personal property, and certain data center parts are also exempt from property tax.
The use of Tax Increment Financing, known as TIF, is also a frequently asked question regarding property tax policy. TIF allows cities to issue bonds to cover public costs for private development of residential or commercial projects in areas determined to be “blighted”. The increased value of the redeveloped property generates higher property tax revenue, which in theory is used to pay the costs of the bonds. The statutes regulating the TIF program have evolved significantly since the original adoption of the law authorizing TIF in 1979. The number and cost of TIF projects have risen dramatically over the past decade, from 393 projects costing $25 million in 2004 to 655 projects totaling $55 million in 2014. TIF projects are locally initiated and managed, and the costs and benefits are borne locally. The use of TIF has allowed many communities to promote significant local redevelopment and community improvement. Accusations of inappropriate use of the program have also been made. I encourage taxpayers to engage in local community discussions about TIF projects to understand the benefits as well as the costs of specific projects, as projects vary greatly within and between communities.
The Property Tax Credit Fund uses state General Funds generated primarily from income and sales tax to provide a direct credit to property owners. Each taxpayer receives a credit based on the valuation of their property. In the coming year, $204 million of General Funds will be paid to political subdivisions to cover the credit. That will amount to over $90 of credit for every $100,000 of property value, or about a 5.5% of the typical property tax bill in tax year 2015. The existence and continued growth of the Property Tax Credit Fund is recognition of the imbalance in Nebraska’s tax system.
I have appreciated all of the great questions, conversation, and engagement of constituents regarding property taxes, and look forward to continuing the discussion. Please do not hesitate to contact my office by email at firstname.lastname@example.org or 402-471-2732. For daily updates, please follow me on Twitter @JohnKuehnDVM.
Senator John Kuehn, District 38