Much has been written about the Governor’s property tax reduction goals and how changes in sales tax can play a role in funding the cost of the reduction. I would like to review once again how taxes are currently collected in Nebraska and who collects them.

There are three major taxes currently assessed in Nebraska: income, sales, and property. Income tax is collected only at the state level. Sales taxes are collected at the state level (currently 5.5%) on various goods and services, and municipalities are entitled to assess an additional sales tax at the local level. Property taxes are collected exclusively by local governing entities.

In 2023, the state collected approximately $4 billion in income taxes and $2.3 billion in sales taxes. Meanwhile, local political subdivisions assessed $5.308 billion in property taxes to support their public school districts, counties, cities, NRDs, ag societies, airport authorities, etc. This total includes both personal property taxes as well as property taxes on real estate. The largest portion of local property taxes (approximately 60%) goes to support public schools. However, the state does provide some support to local public schools through the Tax Equity and Educational Opportunity Support Act (TEEOSA) formula. In Legislative District 42, only North Platte Public Schools is an “equalized” district that receives TEEOSA funding. All other public schools in the District receive $1,500/student in state aid, some support for special education students, and school lunch program subsidies. The balance of the funding comes from local property taxes.

When you receive your property tax statement in December of each year, there is a line item on the statement labeled “tax credit.” That credit comes from the state and, in 2023, amounted to $345.6 million statewide. Additionally, the state refunds back to each county the amount of their total “Homestead Exemptions” granted that year. In 2023, those refunds amounted to $142.1 million statewide. So, in 2023, the net property taxes paid by local property taxpayers amounted to $4.82 billion.

The Governor’s current property tax relief plan assumes local budget increases will result in a $150.6 million increase in local property tax assessments in 2024 prior to any state-funded offset. He would like to provide a new property tax credit (funded by sales tax and cigarette tax increases) amounting to $975 million. Additionally, the state will provide direct funding to community colleges in the amount of $226.6 million in 2024 since we passed the 2023 bill to take them off the property tax rolls. This will reduce the gross property tax bill to $4.2568 billion in 2024. The existing property tax credit would increase to $413 million when new gambling receipts are added to the total. After applying the Homestead Exemption of $149 million and converting the current “Income Tax Rebate” (tied to the amount of property taxes paid to public schools) of $748.9 million to a front-end credit, the net property tax would drop to around $2.9 billion. This would bring property taxes, sales taxes, and income taxes all in the $3 billion range.

The $975 million credit would be funded by a 1% increase in the state sales tax rate ($279.4 million), a $1 dollar increase in the cigarette tax ($54.3 million), and a broadening of the sales tax base by taxing or increasing the tax on the following: business legal services ($49.2 million), candy and soda ($30 million), certain advertising ($26.8 million), ag parts ($23.1 million), vaping products ($19 million), games of skill ($14.6 million), lottery ($10.3 million), storage and moving services ($9 million), accounting services ($6.8 million), data center sales ($5.9 million), clothes cleaning services ($3 million), and funds generated from the compounding effect of existing sales taxes ($25.6 million). Each of the items listed above has bills introduced in the Revenue Committee to authorize the funding, and the Revenue Committee will likely propose a committee priority bill that includes portions of some or all of those bills. However, if every bill were included, the total taxes generated only be just over $557 million. The balance of the funding still needs to be identified. The original plan was to take the sales tax rate up by 2% instead of 1%, which would generate another $279 million, taking the total to $836 million. I have issues with a few of the proposed items, but I wanted you to know what was out there.

Many have criticized this plan as a tax shift, and some have called it a tax increase. I think that it is important to remember that the Legislature has fully eliminated the state income tax on Social Security income for 2024 and will continue to phase down the maximum income tax rate to 3.99% over the next few years. Meanwhile, local property tax assessments have risen by $1.3 billion over the past six years. It seems to me that we have already been shifting our tax load over the past few years. Those in the metro areas have suggested that they don’t want to increase sales taxes because it will do more to reduce property taxes in the rural areas of the state.

In the end, it is important to remember that property taxes are spent and assessed locally because they are funded locally. If the source of funds becomes statewide, then the State will also control how the funds get spent. I would ask anyone supporting an effort to only allow the state to collect taxes if they also would be willing to give the state Legislature total control of how the funds are distributed. If that should happen, I would not look for nearly as much funding to make it back to western Nebraska.

Now that you know the basics of the plan, I would invite your responses. When I was campaigning, there was one message I heard loud and clear: LOWER MY PROPERTY TAXES.

I look forward to continuing to hear from you regarding issues that are important to you. It is a privilege to serve as your State Senator, and I will continue to give my full effort to make a positive difference for the District and the State. You can reach me at mjacobson@leg.ne.gov or by calling my legislative office at 402-471-2729.