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From Governing’s Supplemental information | Introduction
Although the state falls roughly in the middle of the pack in the breadth of its sales tax base, the tax is loaded with exemptions. The legislature has tried to hold the line against punching more holes in the structure during the past four or five years, but has had to live with the consequences of its lingering generosity. Much of this is geared to farmers, but the long list of exemptions also excludes sales taxes on receipts from telephone directory advertising, fuel used in aircraft and sales made to and by a wide variety of Nebraska-licensed associations, schools, universities and nonprofit organizations. “It’s very hard to take something back,” says Egr. “Who wants to give it up?”
Nebraska has also been generous to its corporations. In the past 20 years, the growth in corporate income tax receipts has lagged far behind the increase in the gross state product. This is partly due to the increased sophistication of corporate tax planning. But Nebraska has made it easy for ordinary accountants to look like tax planning geniuses. For example, it was one of the first states to adopt an apportionment formula for its corporate income tax that relies solely on sales. A company’s taxable income is determined only by the ratio of its sales within Nebraska to its total sales nationwide. Assets and payroll do not enter into the calculation. At one time, the effects of this provision were modified by a “throw-back” rule, which allowed collection of tax receipts on sales recorded by in-state companies also operating in tax-free jurisdictions elsewhere in the country. But that rule was repealed in 1987. Then there are the numerous tax incentives and credits for business. Most significant of these — and well known to Nebraskans as LB775, the number of the legislative bill that created it — is the one aimed at keeping the agricultural giant, ConAgra, from fleeing the state in 1987. Since then, LB775 has dispersed about $1.65 billion in tax credits to more than 100 companies. In 2001 alone, businesses saved $137 million through this law, plus $51 million more in income tax credits and $54.3 million in sales tax credits. Last spring, Governor Mike Johanns attempted to impose a temporary 20 percent tax credit surcharge, but, in the words of one legislative aide, that proposal “really got hosed.” The governor has said he won’t try again. Although Nebraska produces informative annual reports on the incentives offered to companies, the reports include only aggregate data. Details about benefits to individual companies are unavailable to citizens. But Nebraska’s newspapers, as well as a growing number of politicians, including the governor, are pushing for more specifics. This information would help iron out inconsistencies in data. “We know in aggregate that the private-industry groups had an increase of 25,060 full-time equivalent jobs in 2001, but claimed benefits for 71,460 jobs,” says George Kilpatrick, legal counsel to the legislature’s Revenue Committee. Even the Chamber of Commerce, long an opponent of any kind of disclosure, has softened its position, saying that it is willing to work on ways to better inform the public while protecting information that should be proprietary. It’s not a surprise that both the executive and legislative branches are hungry for any kind of data that will help the state save some money. Over the past year, painful budget cuts were matched with a variety of temporary tax increases — a 0.5 percent hike in the sales tax rate, a 2.2 percent increase in income tax rates, a 30-cent hike in the cigarette tax and an expansion of the sales tax to cover nine additional services. The state may have to pass these temporary measures again, as it’s currently facing a budget gap of $673 million — 11.6 percent of the next biennial budget. With that kind of pressure, leaders are concerned about their ability to mount any significant property tax relief. Although the property tax burden has dropped substantially in the past decade, these taxes remain a sore point for Nebraskans, whose residential taxes are still above the U.S. average, while most other taxes are below it. In general, Nebraska has been helped by the fact that its legislature and revenue department have strong analytic ability. Armed with good research, the state was able to take steps to deal with the current economic downturn somewhat sooner than others. Nebraska also is one of the top states in soliciting taxpayer input. And, with the exception of data-mining, where it is still weak, it does well in the use of technology. One big challenge: Many of the tax department’s 400 employees joined the department at the same time — right after the sales and income tax were put into place in the late 1960s. Most will soon retire. “We’re not adding any new staff,” say Egr, “and we’re not replacing people as they leave. You look out on the horizon and wonder where are the people going to come from who are going to step into these very large shoes.” Copyright © 2003, Congressional Quarterly, Inc. Reproduction in any form without the written permission of the publisher is prohibited. Governing, City & State and Governing.com are registered trademarks of Congressional Quarterly, Inc. |
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ost of our tax code was written in the late 1960s,” says Mary Jane Egr, the Nebraska tax commissioner. “To a large extent it has become obsolete. It’s woefully out of step with our current economy.” That’s not a problem unique to Nebraska, but it’s not going to be easy to solve, either.