Federal Tax Changes Could Challenge Property Tax Relief Efforts

June 16, 2020, 3:42 p.m. ·

The Nebraska Legislature's Revenue Committee listens to a briefing Tuesday (Photo by Fred Knapp, NET News)

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Federal tax changes could cost the state of Nebraska about 250 million dollars, at the same time as the state is looking for revenue to be able to lower property taxes.

The federal tax cuts are contained in the CARES Act passed by Congress. They range from increased deductions for charitable contributions to more generous treatment of business losses. Most of the cuts are expected to lower people’s federal income taxes. But because Nebraska’s income tax is coupled to the federal system, they’re expected to cut into state revenue as well.

In a briefing Tuesday, the Department of Revenue told the Legislature’s Revenue Committee the decrease in state revenues could amount to $250 million over the next three fiscal years. That’s about half the amount the Revenue Committee has proposed pumping into additional school aid, in an effort to lower property taxes.

After the briefing, Sen. Lou Ann Linehan, chair of the Revenue Committee, was asked if the federal tax law changes meant that property tax relief efforts in Nebraska are dead.

“No! No, property tax relief is not dead. There are plenty of people trying to kill it. But the majority of the people, especially the people paying the property taxes, are in support of property tax relief,” Linehan said.

The tax relief proposal has run into stiff opposition from the state's largest school districts, who say it would take away their taxing authority and leave them vulnerable the next time the state has to cut its budget.

One possibility senators discussed to avoid the projected loss of revenue is “de-coupling” the state income tax from the federal changes, so Nebraskans would still get a break on their federal income taxes, but not on their state income taxes. Linehan suggested Nebraskans might prefer that, because the federal changes are set to expire in three years.

“Would they rather have property tax relief, or this tax relief? Property tax relief is permanent. This is a three year deal,” she said.

But in a statement sent to businesses Tuesday, Nebraska Chamber of Commerce and Industry President Bryan Slone urged caution in de-coupling the state from the federal tax system. "The latest federal tax provisions were intended to help stimulate the very businesses that are in most need right now and to keep Nebraskans employed to the greatest extent possible,” Slone wrote.

These tax questions are among the issues lawmakers will confront when they reconvene next month to finish the 2020 legislative session.