LINCOLN — Backers of a property tax relief package call the plan a “revenue-neutral” shift of taxes. Critics, like Gov. Pete Ricketts, call it the “largest tax increase in Nebraska’s history.”
Legislative Bill 289 has churned up a firestorm over what’s fair when it comes to state tax policy.
The bill proposes doing away with about two dozen sales tax exemptions on everyday goods and services.
Under the plan, the almost $100 million in new revenue would be targeted toward reducing traditionally high property taxes in Nebraska.
If the bill is passed, Nebraskans would pay sales taxes on services like hair cuts, auto repairs, plumbing and heating and air conditioning work that they haven’t paid in the past.
State Sen. Lou Ann Linehan of Elkhorn, one of the main authors of LB 289, said “the people who are getting the blunt end of the deal” in Nebraska are those who pay property taxes, which are estimated to be the seventh-highest in the nation.
The new taxes, she said, would lower the state’s over-reliance on property taxes to finance local governments, especially K-12 schools. The plan would also divide the tax load more equally among sales, property and income taxes.
Taxing more services, Linehan added, is recommended by many think tanks because it reflects a shift in the economy toward buying more services.
Ricketts has repeatedly criticized the idea, saying that raising a slew of taxes to cut other taxes is a “tax shift” and not tax relief.
He has also said that it amounts to ”reverse Robin Hood” because many of the new taxes would hit low-income people harder because a larger portion of their income goes toward buying things like pop and toward fixing cars and homes.
Ricketts maintains that the only way to deliver real property tax relief is to cut spending.
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One veteran of past tax wars in the state, former Gov. Ben Nelson, a Democrat, said Ricketts, a conservative Republican, has a point. When you shift taxes, there are winners who pay less in taxes and losers who pay more, Nelson said.
“There are shifters and shiftees, and the question is does the shiftee get the shaft?” Nelson said.
Nelson was at the helm in 1990 when a series of court rulings struck down the state’s tax on business personal property, such as farm machinery, livestock breeding animals and business equipment. It took a series of special legislative sessions, and a voter-approved constitutional amendment, to resolve the tax crisis.
The former governor and U.S. senator said that he sympathizes with lawmakers who are trying to lower property taxes but that the fairest way to reduce taxes is to reduce spending, as Ricketts has said.
Here’s a list of sales tax exemptions that would be repealed under LB 289, and how much revenue each would generate:
Pop, bottled water and some candy: $30 million
Motor vehicle repair: $18.7 million
Roofing, plumbing, HVAC and remodeling of homes: $12.9 million
Pet-related veterinary services: $8 million
Haircuts, styling: $7 million
Moving services: $6.4 million
Parking fees: $3.6 million
Dry cleaning, laundry (except coin-operated): $1.9 million
Tattoo and body modification: $1.5 million
Self-storage fees: $1.2 million
Nail care: $1.1 million
Ice: $1 million
Taxi, limo and ride-sharing services: $983,000
Weight loss services: $795,000
Purchases by fine art museums: $719,000
Skin care: $380,000
Personal training: $350,000
Wedding planning: $350,000
Dating/escort services: $300,000
Lawn care: $300,000
Interior design: $250,000
Swimming pool cleaning/maintenance: $250,000
Other beauty and personal care: $235,000
Hair removal: $211,000
Sales tax exemptions on the chopping block in Nebraska
To raise new revenue for a property tax relief plan, a legislative bill proposes to do away with about 20 sales tax exemptions. Here are some of the goods and services that would be taxed under Legislative Bill 289, and the amount of revenue those taxes generate.