Tax break repeal runs into business roadblock in Legislature

February 15, 2019

Legislation to eliminate a state income tax break that provides tens of millions of dollars of benefits largely targeted to a small number of high-income Nebraskans ran into a buzz saw of opposition Wednesday.

A parade of business representatives along with a flood of letters from segments of the business community warned the Legislature’s Revenue Committee that the bill would harm Nebraska’s economy.

The proposal (LB276) would damage the state’s position in the ongoing “competitive battle for jobs and workforce” while adding to Nebraska’s reputation as “a very high tax state,” Nebraska Chamber of Commerce President Bryan Slone said.

The bill, introduced by Sen. John McCollister of Omaha, would eliminate a state income tax break that allows Nebraskans to avoid paying income taxes on earnings from S corporations and limited liability companies that are generated from goods or services sold outside Nebraska.

The proposal would increase annual state general fund revenue by more than $80 million, according to a legislative fiscal analysis.

But the committee was told the legislative estimate far exceeds what is likely to be realized because of taxes paid on income in other states.

McCollister said the bill was designed to help provide revenue to fund local property tax relief.

“The tax system is clearly out of balance,” he said. “Farmers are in deep financial trouble.”

“I know that you have some very wealthy and very influential people that are lobbying you very quietly on this bill and threatening to leave” the state, Renee Fry, executive director of OpenSky Policy Institute, told the committee in supporting the legislation.

Slone said Nebraska is at “an economic crossroads” and needs to be in position to attract companies as it moves into a technology and services economy while maintaining its agricultural base.

“We are the entrepreneurs driving growth in Nebraska,” Michael Cassling of Omaha, CEO of a Nebraska-based health care company, told the committee in opposing the bill.

“Companies will not come here,” he warned.

Todd Simon, senior vice president of Omaha Steaks, said the bill would be “an incalculable impediment to expanding the Nebraska economy.”

“Companies would leave, not come,” Ron Quinn of energy company Tenaska told the committee.

The new tax would be “a detriment to Nebraska’s economic growth,” Sarah Curry, policy director of the Platte Institute, said.

The Nebraska Farmers Union supported the legislation.

Among other bills heard by the committee was LB182, introduced by Sen. Kate Bolz of Lincoln, which would allow local school boards to ask voters to approve a local income surtax not to exceed 20 percent for the purpose of property tax reduction or school building construction for a duration not to exceed five years.

Bolz said the bill provided a means of allowing school boards to spread the tax load upon approval of local voters.

The proposal “could do a lot to reduce our reliance on property taxes,” Tiffany Friesen Milone, policy director of OpenSky, told the committee.

The Lincoln Independent Business Association opposed the measure, citing its potential impact on local businesses.