(the following is word for word from the Governor's website)
By Governor Pete Ricketts - March 5, 2016
Tax policy is a big area of focus for Senators this legislative session for a good reason: It is key to building a pro-growth climate in our state.
Right now, Nebraska's tax system is in need of an overhaul. According to the Tax Foundation, Nebraska has the 11th highest property taxes in the United States and the 26th highest income taxes. When you look at it another way on a per capita basis, we do not do any better. Local property tax collections rank 12th highest at $1757 per capita and state income tax collections rank 16th highest at $1128 per capita. This makes us uncompetitive with surrounding states.
This legislative session there has been a lot of discussion on tax policy. While some Senators have been putting forward proposals that would raise taxes on some Nebraskans to cut taxes for others, I have worked with Revenue Committee Chairman Jim Smith on a proposal that focuses on property tax relief without raising taxes. Other bills would help address the impact of federal tax reform on our state tax code. The flurry of proposals can be very confusing, so here's a brief guide to tax policy before the Legislature right now:
LB1090
(Federal tax reform adjustments) - Like many other states, Nebraska's tax code has many references and ties to the federal tax code. In December, President Trump signed the Tax Cuts and Jobs Act. When the federal tax code changes, many states have to adjust their tax code to avoid unintended consequences. That is why Senator Jim Smith, numerous other Senators, and I are working together to get LB 1090 passed. This bill preserves our state's personal exemption, which was tied to a now obsolete provision in the federal tax code. Without LB 1090, a family of four will potentially pay $536 more in state taxes this year. If the Legislature does not enact this bill this year, Nebraskans will incur a state income tax increase of over $200 million. LB 1090 is a must-pass bill.
LB947
(Property Tax Cuts and Opportunities Act) - This is the major tax relief proposal that I am working with Senators on to deliver. This proposal delivers major property tax relief over 10 years along with modest income tax rate reductions to make Nebraska more competitive. Because tax relief in LB 947 grows as our economy grows, taxpayers will see true relief. Some other tax plans proposed this year simply shift taxes around or actually raise taxes to facilitate lots of new government spending. Neither of these approaches deliver tax relief, and I oppose efforts to raise taxes on Nebraska's hardworking families.
LB44
(Out-of-state online sales tax collection) - This week, Senators will do a second round of debate on LB 44, which seeks to collect sales tax on internet purchases made from businesses located outside of Nebraska. Enforcing the collection of sales tax on out-of-state internet purchases will help level the playing field for Main Street Nebraska. LB 44, however, is based upon a South Dakota law, which was just declared unconstitutional last year. Right now, there is a case pending before the Supreme Court on the South Dakota law. Nebraska has joined the case to understand the state's ability to enforce our tax laws.
Senators should wait for guidance from the Supreme Court before enacting a Nebraska law. This will allow them to make sure they get it right and not pass something that is unconstitutional. A Supreme Court decision can give clarity to the state's ability to enforce collection of out-of-state online sales tax. The Legislature should not pass LB 44, and should wait until the Supreme Court acts.
Tax hikes and tax shifts - Senators have proposed a number of bills that would raise taxes on Nebraska families. There are a couple of proposals that directly raise taxes or have the effect of raising taxes to purportedly achieve property tax relief. In actuality, they do not lower taxes. You cannot raise taxes to lower taxes. This would be a step back for Nebraska families who are already taxed too high. There is one proposal, LB 1022 (Irrigation Tax Act), which is particularly egregious. This proposes to tax water used for irrigation, which would set a terrible precedent for our state. I strongly oppose the bill.
If you want to make your voice heard on taxes, I hope you'll take time to reach out to your Senator. You can find their contact information at www.NebraskaLegislature.gov. If you'd like to contact my office, we can be reached at pete.ricketts@nebraska.gov or 402-471-2244.
On Tuesday of this week, lawmakers advanced LB44, a bill to require out of state retailers that do not collect and remit Nebraska sales tax to notify Nebraska purchasers that use tax is due.
In addition, out of state retailers would be required to send Nebraska purchasers a notice by January 31st of the following year showing the total amount of purchases that were made in the prior year. Retailers who do not comply with these provisions would be subject to a $10,000 penalty.
Also include in the bill are requirements for non-collecting retailers to send an annual report to the Nebraska Department of Revenue showing the aggregate amount paid by Nebraska purchasers. Failure to comply with this provision is a $2,500 penalty.
The above requirements apply to out of state non-collecting retailers with more than $100,000 in aggregate Nebraska sales or those with 200 or more separate transactions annually.
After three hours of debate the bill successfully had a Cloture Vote (35-8 (33 needed)) and then was subsequently advanced from Select File by a 34-7 vote (25 needed).
The bill was place on Final Reading on March 7th where it awaits the final stage of debate. If successfully passed on Final Reading it will be sent to the Governor for his action. He can sign it, have it become law without his signature after 5 days (excludes Sundays), or veto it and send it back to the Legislature where they can decide if they wish to attempt a veto override, which takes 30 votes.
Governor Ricketts has on several occasions stated that the Legislature should wait until the Supreme Court renders it decision before Nebraska takes any further action on the collection of internet sales taxes.
He has also publicly stated that if LB44 is passed it could be looked at as a tax increase, as Nebraska consumers who have not been remitting the use tax on out of state purchases through their tax return would now be paying a tax they were not previously paying. This is despite the fact that Nebraska consumers are already required by state law to remit the use tax annually through their income tax return.
That said, it is expected that if passed on Final Reading the Governor will veto LB44. It will then take 30 votes in the Legislature to override the Governor's veto. While the bill garnered 34 votes to advance from Select File and one could anticipate that it could garner as many on Final Reading, it is also anticipated that in the attempt of a veto override some of the Governor's loyal followers may not vote for an override.
After the advancement of LB44 Governor Ricketts made the following comments.
(the following is word for word from the Governor's website)
Gov. Ricketts Comments on LB 44 Advancement - March 07, 2018
LINCOLN -
Today, Governor Pete Ricketts issued a statement following a vote by the Legislature to advance LB 44, a bill for the State of Nebraska to enforce online sales tax on out-of-state businesses.
"Tax policy in the Legislature should be driven by a desire to enact sound laws which will pass constitutional muster. LB 44 as advanced by the Legislature remains flawed and contains burdensome regulation and unnecessary red tape on companies doing business in Nebraska. We should be cutting red tape, not creating more of it."
Also, this week was the advancement from General File of LB1090 on a 38-0 vote after almost three hours of floor debate.
LB1090 was introduced to offset those federal changes by implementing credits, deductions and exemptions that would reduce state revenue by $326 million in FY2018-19, as estimated by the state Department of Revenue.
As you will recall, LB1090 works to restore the $134 personal exemption credit that was effectively repealed by the federal Tax Cuts and Jobs Act. It also establishes the Nebraska standard deduction as $6,750 for single taxpayers and $9,900 for head of household filers. Collectively approximately $326 million for Nebraska taxpayers.
The bill would also adjust the individual income tax brackets, the personal exemption credit, and the standard deduction based upon the Consumer Price Index - All Urban Consumers for tax years beginning or deemed to begin on or after January 1, 2018.
As reported in last weeks update, one issue that also needs to be included in the offset to the federal tax changes is the elimination of 1031 exchanges for personal property.
Personal property that is affected by changes in the federal tax code are assets like tractors, combines, pivots,
collectibles, aircraft, franchise rights, rental cars, trucks, heavy equipment and machinery, etc. will no longer be permitted beginning in 2018.
Just like the deferral gain on the sale of other assets, the most commonly known use was with real estate and "like kind exchanges", but this change in federal tax law will influence a broad range of businesses.
While this needed change was not included in LB1090 it is anticipated to be amended into the Revenue Committee's second priority bill, LB1089.
LB1089
is the annual clean-up bill introduced for the Nebraska Department of Revenue. Each year a bill is introduced by the Chairperson of the Revenue Committee, on behalf of the Department of Revenue to make adjustments to state revenue statues. These changes are usually and mainly noncontroversial and thus the bill should move through the legislative process without controversy.
As mentioned above, it is the intention of Senator Friesen to introduce an amendment to LB1089 that will restore the implementations of the federal tax law changes and the impact to 1031 exchanges in relation to personal property exchanges on the state level.
On Thursday of this week LB811 advanced to General File from the Judiciary Committee on a 7-0 vote.
As stated in the bill's Statement of Intent: "This bill updates Neb. Rev. Stat. Sec. 28-632 & 28-634 to attempt to address new technological methods for committing credit card fraud, especially those affecting new cards that primarily rely on a computer chip instead of a magnetic strip only for encoding user account information. The bill would eliminate limiting language in the criminal statute that refers to "magnetic strip." The bill eliminates the current requirement that a prosecutor show that use of a scanning device without permission was "with the intent to defraud the authorized user." Explanation of amendments: AM 2216 to LB 811 would add the requirement that commission of the crime requires that the prohibited act be committed "intentionally and knowingly." The amendment also strikes the phrase "directly or indirectly" to eliminate an ambiguity in the bill as introduced.
The committee also offers AM 2216 to LB 811 that "would add the requirement that commission of the crime requires that the prohibited act be committed "intentionally and knowingly." The amendment also strikes the phrase "directly or indirectly" to eliminate an ambiguity in the bill as introduced."
Up Next Week
Monday of this coming week lawmakers will not commence until 10:00am, as opposed to their usual 9:00am start time. The reason for the later start time is due to a budget briefing at 9:00am by Appropriations Chair, Senator John Stinner, to his colleagues.
The three main budget bills, LB944, LB945, and LB946 were advanced to General File on Friday, March 9th, the 40th Legislative Day and the last day in which the budget could be advanced to General File. Lawmakers now have till March 27th, the 50th Legislative day and the last day in which the budget adjustments must be passed by the Legislature.
General Fund Financial Status
"When the 2017 Legislature adjourned, a FY2017-18 and FY2018-19 biennial budget was
enacted and a balanced budget was achieved. Spending was limited to a two year average
increase of .6%. Increases in TEEOSA, Medicaid eligibility and utilization, employee salary and
health insurance costs, and homestead exemption reimbursement required significant
reductions in other areas of the budget in order to achieve that low percent change.
Since that time increases in child welfare costs, a lower than budgeted federal Medicaid match
rate, and a large reduction in revenue forecasts in October 2017 resulted in a budget shortfall
relative to the required minimum reserve of roughly $210 million. The choices available in
addressing this shortfall were relatively simple; increase revenues, reduce expenditures or
some combination of the two. What is not simple is the combination of those budget actions.
The Committee proposed budget adjustments maximizes the amount of revenue available at
the current tax rates (including the February 2018 forecast revisions), and a level of budget
reductions that balances the budget while utilizing an amount of Cash Reserve Fund monies
that maintains an unobligated balance of almost $300 million in the Cash Reserve Fund.
General Fund Budget Adjustments
The Appropriations Committee proposed adjustments result in a net reduction of General Fund
new appropriations of $15.0 million over the two year period.
A complete listing all changes can be found in Appendix A and a complete breakdown of the
across the board reductions can be found in Appendix C. A narrative description of the major
items starts on page 21.
General Fund Revenue Forecasts
Revenue estimates for FY2017-18 and FY2018-19 are the February 2018 forecasts from the
Nebraska Economic Forecast Advisory Board (NEFAB). These forecasts yield a projected
adjusted revenue growth of 3.8% in FY17-18 and 4.9% in FY18-19, an average growth of 4.4%.
While this two year growth is below the 4.75% historical average, the average growth for the
three prior three years was 2.3%
For the following biennium or what's commonly referred to as the "out years", the preliminary
estimates for FY2019-20 and FY2020-21 are prepared by the Legislative Fiscal Office (LFO)
using the "capped" historical average methodology. This "smoothing" technique derives "out
year" revenue estimates by calculating the level of revenues that would yield a five year average
growth (FY16 to FY21) roughly equal to the 36 year historical average (4.75%) less .25% which
is the projected impact of indexing the tax brackets as enacted in LB987 (2014). Under this
method, revenue growth for the two years would average 6.4%.
Impact of Federal Tax Changes
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (TCJA),
significantly changing the tax code for the United States. Nebraska is a state of rolling
conformity to the federal tax code, hence any changes in the federal tax code can affect the
Nebraska Revenue Act, thereby influencing Nebraska tax receipts.
At their February 2018 meeting, the NEFAB also had to incorporate the impacts of the Tax Cuts
and Jobs Act (TCJA) enacted in December 2017. Because Nebraska's income tax law is linked
to the federal tax code, changes in this federal law result in an increase in revenues of $335
million in FY2018-19, $274 million in FY2019-20 and $303 million in FY2020-21. These impacts
were incorporated at this meeting as these impacts will occur under existing law and the
absence of any Nebraska legislative action.
While these additional revenues are included in the forecasts, the Appropriations Committee
incorporated the provisions of LB1090 into their proposed budget. This bill changes Nebraska
tax code to offset virtually all of the income gained from the federal tax changes removing this
"windfall" from the financial status.
Cash Reserve Fund
Entering the 2018 legislative session, the unobligated balance in the Cash Reserve Fund was
projected at $369 million at the end of the five year financial status. This reflected an FY19
balance of $379.6 million less $10.4 million scheduled to be transferred for the State Capitol
HVAC project in FY21
The Committee proposed budget includes three changes. First is a $2.3 million reduction in the
transfer to the Nebraska Capital Construction Fund (NCCF) for construction of the new Central
Nebraska Veterans Home. The lower transfer amount is the result of actual funds needed being
less than originally estimated. The second change is to shift an existing transfer to the NCCF
for the State Capitol HVAC project from FY21 to FY19 to reflect a revised cash flow for the
project. And the third change is a $100 million transfer to the General Fund simply to balance
the budget at the minimum reserve requirement.
These two transfers leave an unobligated balance in the fund of $296.4 million. A more detailed
discussion of the Cash Reserve Fund is provided on page 6.
Available for Legislative Bills
The current financial status with the Committee proposed budget adjustments yields a projected
balance that is only $.6 million above the 2.5% minimum reserve applicable to the current
biennium. For the following biennium the projected balance is $91.8 million above the 3%
minimum reserve which is again applicable after this biennium. This is based on estimated
revenue and spending levels noted above and discussed elsewhere in this report. These
amounts constitute what is available for A bills or revenue reduction bills.
The minimal amount of funds available for A bills or revenue reduction bills reflects the fact that
the committee proposed budget already relies on the use of $100 million from the Cash Reserve
and any additional funds available for A bills or revenue reduction bills would only be financed
with an additional draw down of the Cash Reserve Fund balance."
