LINCOLN, Neb. — A tax imposed on office computers, furniture, farm equipment and other business property could be in jeopardy next year if two Nebraska lawmakers have their way.
Sens. Jim Smith of Papillion and Curt Friesen of Henderson expressed interest Tuesday in repealing the state’s personal property tax.
The state-mandated tax is first imposed when companies purchase goods or equipment for use in their businesses, and declines every year as the property’s value depreciates. The revenue goes to local governments and accounted for $217.1 million, or 5.6 percent, of the total property taxes collected statewide in 2016, according to an analysis of state data by the Omaha-based Platte Institute.
Smith said the tax could “bridge the gap” between urban and rural lawmakers who have been at odds over whose taxes to cut. Farm groups have lobbied for legislation to reduce agricultural property taxes, while business organizations called for a lower income tax.
“I think there’s an opportunity for this to be a win-win,” Smith said after speaking about the issue at a forum hosted by the Platte Institute, a think tank that advocates for lower taxes and fewer regulations.
Smith, who owns a door installation business, said the tax played a role in his decision to hold off on purchases of scissor lifts, fork lifts and a new telephone system.
“Those are all things I delay, delay, delay as much as possible, and it really cuts into my productivity,” he said.
Smith said he expects lawmakers will debate the issue in the 2018 session. He said he isn’t planning right now to introduce a bill but would be willing to do so if asked.
Friesen, a farmer, said the personal property tax discourages producers from investing in new pivot systems, combines and other technology.
“We’re punished in a way for trying to become more efficient and do better for the environment,” he said.
The idea could face resistance from local governments that rely on the tax to pay for their operations. The tax also favors businesses that own a lot of property, such as manufacturing plants and large-scale farms, but doesn’t provide an immediate benefit to non-business owners or homeowners.
Eliminating or reducing the tax is also likely to shift property tax expenses onto homeowners, said Larry Dix, executive director of the Nebraska Association of County Officials.
“If you don’t replace the personal property tax with some other revenue source and you keep the same level of services, it puts more of a burden on real estate,” Dix said.
Nebraska lawmakers approved legislation in 2015 that provides a tax exemption on the first $10,000 of personal property, but some rural senators criticized it as too small to make a difference. The original proposal to exempt $25,000 was scaled back because it would have consumed most of the money available for other bills.
In a report released Tuesday, the Platte Institute said six other Midwestern states — Iowa, Illinois, Minnesota, North Dakota, Ohio and South Dakota — currently exempt all or nearly all personal property from taxation. Indiana and Michigan recently adopted laws to reduce their personal property tax levels, according to the report.
The report noted that rural counties pay the most per capita in personal property taxes, while fast-growing Sarpy County south of Omaha paid the least.
Personal property taxes tend to affect the economy more than taxes on real estate because business property can migrate elsewhere but land can’t be moved, said Scott Drenkard, director of state projects for the Washington-based Tax Foundation.
Drenkard, speaking at the Platte Institute forum, suggested that lawmakers increase the personal property exemption, phase out the tax slowly, or pass a local-option law that gives local governments the chance to repeal it. Senators could also shoot for an outright repeal, he said, but would probably face pressure from local governments that want to be held harmless.
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