Sales tax could help remedy property tax burden

October 31, 2018

SCOTTSBLUFF – Nebraska has struggled to find a solution to high property taxes since the late 1960s, but a recent Platte Institute study shows that increasing the sales tax base might be part of that solution.

The report, “ Get Real About Property Taxes, ” reported that 46 percent of survey respondents said they’d be willing to pay sales tax on services such as haircuts and dry cleaning. Another 44 percent agreed to sales tax on transportation, including taxis, limousines and ride sharing services. Thirty-eight percent favored collecting sales tax on household repair services.

None of the nine listed items on the survey earned majority support, and 28 percent of respondents chose “none” for broadening the sales tax base.

That reluctance to raising sales taxes makes it even harder for lawmakers to address property tax relief.

“There are very few palatable choices left on the table if state senators want to collect new, stable revenue to pay for significant and immediate property tax reforms,” said Sarah Curry, policy director at the Platte Institute, She co-authored the report with Adam Weinberg, the institute’s communications and outreach director.

In the survey, 41 percent of respondents agreed that Nebraska property taxes are too high compared with neighboring states.

Another 17 percent of respondents said that property taxes are basically paying rent on property they already own.

The report also found the Supreme Court decision allowing for collection of sales tax for online transactions wouldn’t raise enough revenue on its own to fund significant property tax reform.

Nebraska currently has the seventh highest property tax in the nation. When adjusted for inflation, Nebraskans pay more property tax per capita than at any time in the state’s history, more than $2,100 per person.

Weinberg said their recent report is one of the tools the incoming Legislature can use to determine when the state has and hasn’t been favorable to property tax reform.

“We don’t have a lot of new revenues coming into the state now,” Weinberg said. “We have other tax burdens that people tell us need attention. “We have to figure out what we’re willing to change in order to navigate this situation.”

Curry said the report would help new, incoming senators gain the needed historical, institutional knowledge to effectively address the property tax question.

“The issue of property tax has a long history,” Curry said. “The first one was levied by the territorial legislature in 1857.”

She added that because property tax is a complicated issue, there isn’t one magic policy or change that will fix the issue.

“Property tax is the primary funding source for our school system,” Curry said. “We can’t cut and slash local spending to the point it negatively affects education spending. But Nebraska already has a high tax rate. If we significantly increased taxes on the state side to reimburse those local funds, it will put the state at an economic disadvantage when trying to attract new residents and businesses.”

Overall, the study found that most respondents want to see a solution that doesn’t involve tax increases, but tax reform that reduces their property tax burden by 20 to 30 percent. However, that relief would cost the state about $1 billion a year.

“That means it’s an absolute necessity for the state to come into some kind of new revenue and revisiting the way it’s designed its tax code,” Weinberg said. “There’s just not enough current revenue to come up with $1 billion a year.”

Curry said the state may be reaching the end of the road in delaying real property tax relief. A recent ballot initiative showed there are citizens that are frustrated with the current system and want the Legislature to act.

District 47 State Sen. Steve Erdman said the state has yet to make a concerted effort to make spending cuts.

“We can’t continue to spend as we have been and expect to lower property taxes,” Erdman said. “Our tax system is broken and we need to get back to a balance among sales, income and property taxes. We can’t ask businesses to come to Nebraska until we fix our crazy tax system.”

The “Get Real About Property Taxes” policy paper is available at platteinstitute.org.