Recent developments in the special session have brought new focus to these efforts, particularly with the introduction of LB9. We will update this article as soon as a firm decision has been made.

As Nebraska seeks solutions for property tax relief, Governor Pillen has introduced a comprehensive plan to transform how property taxes are managed across the state. During a recent news conference, Governor Pillen, alongside key members of his property tax working group, unveiled a multi-faceted approach designed to rein in state and local spending, shift school funding obligations to the state, and adjust the tax structure. Below is a detailed breakdown of the Governor's plan and its potential implications for Nebraskans. 

1. Rein in State and Local Spending

One of the cornerstone elements of Governor Pillen's property tax plan involves a significant reduction in state spending. Partnering with Epiphany Associates, a Utah firm specializing in optimizing government expenditures, the Governor’s Office has identified $360 million in potential state budget cuts. On the local level, the plan proposes a cap on local property tax levy increases, set at 0% Consumer Price Index (CPI). Exceptions include: 

• Emergency Services,
• Voter-Approved Bonds
• Provisions For a Voter Override if Supported by 60% of Voters 

2. Shift School Funding Obligations to the State

A transformative aspect of the plan is the shift of school funding from local property taxes to state funding. This transition will occur over three years, during which local funding obligations for schools will be phased out. The state will take on responsibility for all operating expenses, which constitute the majority of school district budgets. School districts will still have the option to assess property taxes with at least 60% voter approval. 

3. Expand the State Sales Tax Base

The plan suggests broadening the state sales tax base to support the increased state responsibility for school funding. By eliminating approximately $1 billion in tax exemptions, the state aims to increase sales tax revenue. The proposed changes would affect over 110 goods and services, including the Non-Nebraska S Corporation and LLC Income/Loss Exclusion, Agricultural & Manufacturing Machinery and Equipment, and more. 

Additionally, the plan includes increased "sin taxes" on items like cigarettes, vaping products, spirits, and gaming. 

The NE Chamber’s Perspective 

Representing over 55,000 businesses and a substantial portion of the workforce, the NE Chamber has expressed concerns about the proposed tax shifts. They argue that increasing sales taxes to compensate for reduced property taxes could harm Nebraska's economic competitiveness and workforce retention. The Chamber advocates for more time for stakeholders to evaluate the impact of shifting K-12 operating expenses to the state level, particularly regarding challenges like the OPS pension system shortfall. 

Lutz Simplifies State and Local Tax Compliance 

Governor Pillen’s property tax plan aims to deliver property tax relief through spending cuts, funding shifts, and tax base expansions. As these proposals develop, it’s essential for businesses and individuals to stay informed about the potential impacts. Lutz’s State and Local Tax Department is one of the largest and most experienced groups of dedicated SALT professionals in the region. If you have questions about the implications of these proposed significant changes to state and local taxation structures, please contact us.