Nebraska considers major changes to ag taxes
for Tri-State Livestock News
Nebraska lawmakers are in the midst of examining the state’s entire tax structure – efforts that include looking at the elimination of a sales-tax exemption on agricultural and manufacturing inputs.
Talks of such a move raised eyebrows among farmers and ranchers, but Sen. Galen Hadley, R-Kearney, who’s leading the study as the head of the Tax Modernization Committee, said the general consensus after the group’s first hearing earlier this month seems to be that eliminating the sales tax on agricultural inputs wouldn’t be good for food producers or consumers.
“I can’t speak on behalf of the entire group, but it seems like we’re hesitant to go that route,” Hadley said.
“That’s encouraging,” said John Hansen, president of the Nebraska Farmers Union, adding that there are still other tax issues that need to be looked at for the sake of the state’s agriculture industry.
In May, state lawmakers authorized a major review of Nebraska’s tax system, aimed at making it fairer and simpler for all citizens and more attractive to businesses.
The study, being conducted by 14 lawmakers, grew out of Gov. Dave Heineman’s rejected proposals to eliminate state income taxes by shifting the load onto sales taxes.
At the Tax Modernization Committee’s first hearing this month, the group heard a presentation from University of Indiana professor and tax expert John Mikesell, who stressed to the committee that taxing inputs for farmers, ranchers and manufacturers overall would hurt more than it helps.
It was stressed that surrounding states have tax exemptions on agricultural and manufacturing inputs, and Nebraska doing away with their exemption would put the state’s producers at a competitive disadvantage.
Paying a sales tax on inputs would only add to the input costs for farmers and ranchers, who have limited to no ability in some cases to pass on those additional costs to the buyer, Hansen noted.
While the Tax Modernization Committee at least seems “hesitant” to do away with the sales-tax exemption on inputs, still of concern to farmers and ranchers is property taxes, which have skyrocketed in recent years as land values have done the same.
Preliminary findings from the 2013 University of Nebraska-Lincoln Nebraska Farm Real Estate Market Developments Survey show the Nebraska’s all-land average value rose 25 percent over the 12-month period ending on Feb. 1. After each of the previous two years saw upswings of 22 percent and 32 percent, respectively, the 2013 all-land average value of $3,040 per acre is more than double the value of what it was just three years ago – and that means higher property taxes for landowners.
Hansen said Nebraska’s farmers and ranchers are paying higher property taxes compared to surrounding states, largely because of how the state’s tax system uses property taxes to fund K-12 education.
In addition to changing how Nebraska’s K-12 education is funded, Hansen said the Nebraska Farmers Union has supported going to a property-tax system that bases its land values on “earnings capacity,” rather than the current system that’s based on market value.
Sen. Hadley said property taxes will be part of the discussions at upcoming meetings.
There are six meetings scheduled, according to the Nebraska Legislature’s website.
Hadley added that, although the governor’s tax shift idea hit a wall of opposition, there’s broad agreement that Nebraska needed to study whether its tax system had kept up with the times.
Hadley said, in general, the Tax Modernization Committee will look at whether the state grants too many sales tax exemptions and whether more services should be taxed.
“I think we’re certainly behind in some regards,” Hansen said, stressing that Nebraska needs to gravitate to a sales-tax exemption on agriculture parts, like there is on agricultural machinery. Again, he said, farmers and ranchers in surrounding states are at an advantage in this regard, because they already have sales-tax exemptions on parts. “Our agriculture industry needs some changes.”
To learn more about the Tax Modernization Committee and see when upcoming hearings are taking place, go to news.legislature.ne.gov/tmc/.