Small-business owners testify against legislation that adds sales taxes, removes redevelopment incentive

Small-business owners lined up Wednesday afternoon to testify against a proposal in the Nebraska Legislature that would implement sales taxes on dozens of services.

Sen. Dave Murman, who represents seven south-central Nebraska counties and the city of Holdrege, introduced LB 1244 on behalf of Gov. Jim Pillen, who’s attempting again to expand Nebraska’s tax base to offset the state’s reliance on property taxes. The governor has spent several legislative sessions encouraging senators to expand sales taxes, but previous legislation has failed to overcome arguments from other senators that this maneuver would be a “tax shift” and not real property tax relief.

Under the current proposal, sales tax exemptions would end for a wide array of services, ranging from animal grooming and tattooing to nail care and wedding planning operations. The measure would also end the Nebraska Job Creation and Mainstreet Revitalization Act at the end of June. The measure would direct $120 million from the state’s general fund to the school district property tax relief fund.

Businesses helping ‘the little people’ could be harmed

Neil Sullivan, the state budget administrator under Pillen, was the only testifier to speak in support of the bill.

“This bill is part of the governor’s comprehensive budget package to shore up the budget shortfall and offer additional property tax relief to Nebraskans,” Sullivan said. “Clearly, we have to balance a budget before we can deliver property tax relief.”

This is one of several bills that are a part of Pillen’s property tax relief plan. In his state of the state address at the start of the legislative session, Pillen said the legislation his team is introducing this session would boost Nebraska’s “recession-proof” economy, while doubling down on the condition of Nebraska’s budget, which has suffered a $471.5 million shortfall as state tax revenues continue to fall.

“The result of this budget will mean a $500 million improvement to the state's bottom line in this biennium. For those doing the math, take note, the proposal eliminates the make-believe budget crisis that so many critics have imagined over the last few months,” Pillen said in January.

But as senators buckled in Wednesday to hear a list of arguments in opposition to the tax bill, Murman said he understood that some business owners would be greatly impacted.

“But I also value feedback I received from so many Nebraskans who reach out to me asking for property tax relief,” Murman said. “The consumer can choose to – or not to – get a tattoo or purchase a zoo ticket much easier than they choose if taxes come out of their paycheck or if they pay property taxes on their home or ag property.”

He encouraged lawmakers on the Revenue Committee to have an open mind about tax exemption conversations and examine each proposal one by one, instead of throwing out the bill as a whole.

“I think it's time to start being a little bit more skeptical of special incentives overall, when we pick winners in the tax code, even with good intentions. We also are picking, indirectly, picking losers. Nebraska has a tax code where some businesses are taxed, others are not, and sometimes there doesn't seem to be much of a rhyme or reason why,” Murman said.

Marilyn Hansen, an owner of an interior design business in Omaha, testified against the bill. She argued that independent interior designers often do not provide services they would consider luxury. She referenced some of her most recent work that assisted a single-income family of seven who needed to add a garage to their 70-year-old home.

“You think we are ‘luxury’ people. We are not. We are helping the little people. We're helping them do something with their home. Those people with the luxury homes —- I don't know who's getting them. I'm not. I haven't done a million dollar home in 10 years, and my fee is still $150 an hour, and it has not gone up in 10 years,” Hansen said.

The small-business owner said her shop has barely hung on as internet services have changed the interior design business.

“My 8,000-square-foot store is long gone. My nine employees — long gone. I’m down to two. Get a picture of what’s really going on. But ‘luxury’ interior designers — we are not,” Hansen said.

Revitalization program could be cut

Another mission of LB 1244 is to wind down the Nebraska Job Creation and Mainstreet Revitalization Act, which was passed under Gov. Dave Heinemann in 2014.

The program, which is operated by the Nebraska State Historical Society, has helped communities from Alliance to Omaha improve structures including courthouses, hospitals, housing complexes, museums, banks and small towns’ main streets.

David Borrenpohl, a commissioner in Johnson County, said his county was able to use the tax credits to get a new roof on the Johnson County Courthouse and replace the building’s HVAC system. The county hopes to use the remaining credits to fulfill other projects.

“If these credits are unavailable, the next phase of work would be a burden to our taxpayers of the county,” Barrenpohl said.

The committee took no immediate action on the bill, but its future remains uncertain given lawmakers’ historical hesitancy on approving new sales taxes.

Other measures heard in the Revenue Committee Wednesday included proposals to increase the cigarette tax by $1. The sales tax would jump from $0.64 to $1.64. Much of the new revenue would be directed to the Nebraska Health Care Cash Fund to be used for “purposes of Medicaid.”