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Legislative committee says no special session needed for tax rate changes

July 24, 2018

The Legislature’s Tax Rate Review Committee made no move Monday to consider a special session this fall, based on the state’s finances.

Some conversation ensued among committee members about collection of online taxes, but Tax Commissioner Tony Fulton, who is a member of the committee, said the state Revenue Department is still looking into the meaning of the recent U.S. Supreme Court decision on the issue for Nebraska.

The committee meets twice a year, in July and November, to determine if the income and sales tax rates should be changed, and if so, whether a special session is needed to do that. The committee includes the Appropriations and Revenue committee chairmen, the Executive Board chairman, the speaker of the Legislature and Fulton.

State revenue growth for the 2017-18 fiscal year that ended June 30 was adjusted to 4.5 percent. The growth was higher than projected because of lower tax incentive programs’ sales tax refunds of $13.8 million, Amazon.com sales tax of $17 million and higher transfers into the general fund of $61 million.

The revenue growth for this fiscal year is now projected at 4.3 percent. The rainy day fund is at $333.5 million, $37 million higher than estimated when the Legislature adjourned sine die in April.

In the meeting, Appropriations Chairman John Stinner questioned why state sales tax revenues continue to lag. Personal income growth, along with low unemployment rates and an acceptable inflation rate should drive sales tax revenue, but the state sees a continuing slump, he said.

Sales taxes are below forecasts for the year, while individual and corporate income tax and miscellaneous tax collections are above forecasts.

The fact that sales tax collections aren’t keeping pace with other tax collections can’t be attributed solely to low online sales tax collections, Fulton said. There are other factors, including sales tax exemptions, entities, like nonprofits, that don’t have to pay sales taxes, refunds and non-taxed products.

The state has estimated it could bring in $30 million to $40 million more per year from collecting online sales taxes.

A recent U.S. Supreme Court ruling cleared the path for Nebraska’s collection of state sales taxes already owed on online purchases. The 5-4 decision overruled a previous court decision that prohibited collection of state sales taxes from retailers that don’t have a physical presence in the state.

Under the ruling, states can pass laws requiring out-of-state sellers to collect state sales taxes from customers and send it to the state. More than a dozen states have already adopted laws like that ahead of the court’s decision.

Fulton said he doesn’t believe the Legislature needs to call a special session because of the decision. What law would senators pass? he asked.

“There are things we don’t know,” he said. “We’re still analyzing (South Dakota v. Wayfair) to determine whether legislation is needed.”

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