The bulk of the focus was on property taxes during recent public hearings in Nebraska, hosted by the Tax Modernization Committee.
And farmers, ranchers and dairymen — who own land that’s seen sharp increases in value — had plenty to say.
Thanks to recent upswings in farmground values, ag land is carrying an increasingly heavier share of the property tax burden levied across Nebraska.
Ag land now makes up about a third of the statewide property tax pie, according to a Nebraska Revenue Department report, released earlier this year.
It was only about a fifth of the pie in 2007.
“It’s certainly a big concern for ag producers, and, as we had anticipated, they were vocal about those concerns at our recent meetings,” said Sen. Galen Hadley, R-Kearney, who, as the head of the Tax Modernization Committee, is spearheading the examination of the state’s entire tax structure.
The ongoing 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. 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.
And, in recent weeks, the Tax Modernization Committee held state tax reform public hearings in Scottsbluff, North Platte and Norfolk.
The Tax Modernization Committee will hold two more hearings in October — on the 17th in Omaha and the 18th in Lincoln.
While the study is looking at all aspects of the tax structure, property taxes dominated talks at the recent hearings.
Property taxes are a significant source of revenue for counties, schools, fire districts, educational service units, natural resources districts, rural housing developments and other entities in many parts of the state.
But some in the state — including John Hansen, president of the Nebraska Farmers Union — believe too much of the tax burden is being put on agriculture producers, who, making up a small percentage of the state’s population, are often asset-rich, thanks in large part to their land, but cash-poor.
In particular, Hansen and others have 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 potentially changing how Nebraska’s K-12 education is funded, or possibly putting more of the burden on sales and income tax, some have 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.
“The owner of a $1 million residential property has a lot more income, and ability to pay his taxes, than the owner of $1 million of ag land,” Hansen said. “It’s just a difficult situation. Ag land owners are in a tough spot with high property taxes. But as soon as you put more of the tax burden on someone else, those people are going to be upset.
“Our tax dollars have to come from somewhere.”
Ag land values climbed by 22.8 percent from 2012 to 2013 — compared to an 8.76 percent increase in overall assessed valuations for real property across Nebraska.
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.
With such increases for farmground, ag land represents more than half of the assessed value in 58 of Nebraska’s 93 counties, it’s more than 60 percent of the value in 47 counties, and carries 80 percent or more of assessed value in some low-population counties, according to reports.
OTHER TAX ISSUES
In addition to property taxes, the ongoing examinations of the state’s entire tax structure included discussions of eliminating a sales-tax exemption on agricultural and manufacturing inputs.
Talks of such a move raised eyebrows among farmers and ranchers, but Sen. Hadley and others have said the general consensus after meetings this summer seems to be that eliminating the sales tax on agricultural inputs wouldn’t be good for food producers or consumers.
This summer, 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. ❖