Discussion of taxes in Nebraska typically centers on property, income, and sales taxes. The state sales tax, along with corporate and personal income taxes, provide approximately $4 billion to the state General Fund annually. Local option sales taxes and property taxes are levied and spent by local governments, totaling another $4.3 billion. However, in addition to the “big three”, nearly $1 billion in taxes are collected through over 20 distinct miscellaneous taxes collected by state and local governments.
Almost $600 million is collected by the Motor Vehicle Fuel Tax, Motor Vehicle Registration Tax, and the Motor Vehicle Registration Fee. The Motor Vehicle Fuel Tax, commonly known as the “gas tax”, is determined by three components. The fixed portion is a two-thirds/one-third split between the Highway Cash Fund, used by the state, and the Highway Allocation Fund, which is used by local cities and counties. The wholesale portion, which is 5% of the 6-month average wholesale fuel price, is split between state and local government in the same proportion. The third component, known as the variable rate, is adjusted semi-annually to meet the funding needs of the state Highway Cash Fund. It runs around 2.5 cents per gallon. Motor Fuel Taxes generate over $330 million annually to fund state and local road construction and maintenance.
When you renew your motor vehicle registration every year, two separate taxes are assessed. The Motor Vehicle Registration Fee is spent by the cities and counties, and is typically the smaller of the two taxes. The fee you pay is the product of a fraction based on the age of your vehicle and a base fee determined by the type of vehicle you own. Over $20 million is distributed to cities and counties from this fee.
The Motor Vehicle Registration Tax is calculated based on the manufacturer’s suggested retail price (MSRP) for you vehicle when sold new, regardless of what you paid. Each $2,000 interval has a base tax, which is fully assessed when new, with a declining proportion assessed each year until the vehicle is 14 years of age or older. For a $30,000 MSRP vehicle, the first year tax would be the full base of $500. The next year, the tax would be $450, the third year $400, and so on. The almost $250 million collected annually is distributed to and spent by local governments. Regardless of where you live, 60% is distributed to your school district. If you live in a city, 22% is distributed to the county, while 18% is distributed to the city. If you live outside a city, the entire 40% remaining is distributed entirely to the county.
Taxes assessed on vehicle ownership and use are only but three of the additional taxes. Often called “sin taxes”, almost $100 million is annually collected on the sale of alcohol, cigarettes, tobacco products, and gambling, including charitable gaming, keno, and pari-mutuel wagering. The revenue generated is distributed among a wide variety of funds, including the state General Fund and cash funds to support an array of different programs.
Nebraska is one of only six states that charges an Inheritance Tax on the transfer of assets to beneficiaries after death. The rate of the tax and the amount of property exempt from taxation is dependent upon the relationship of the beneficiary to the deceased. The tax is assessed based on the current market value of the property and is paid directly to the county. Over $70 million is collected annually by counties from the Inheritance Tax.
Additionally, any time real estate is sold in Nebraska, a tax of $2.25 per $1,000 of value is assessed. Known as the Documentary Stamp Tax, the revenue collected is distributed among a number of funds. The County General Fund in which the real estate is located receives 50 cents of the $2.25, while the remainder is split among four state funds: the Affordable Housing Trust Fund, the Site and Building Development Fund, the Homeless Shelter Assistance Trust Fund, and the Behavioral Health Services Fund. For example, the sale of a $100,000 home would be assessed a $225 “Doc Tax” upon transfer of the legal title of the property.
Accounting for all of the various taxes assessed by state and local government is essential for any discussion of changes in tax policy. Unless spending is decreased or held static, reducing one tax typically results in an increase in another. Shifting the source of the revenue can eliminate inequities, but can also exacerbate them. Isolating one tax from the comprehensive list fails to consider the full implications of any change in tax policy.