Fall Real Estate Guide: Nebraska’s property-tax battle will rage on
The Nebraska Tax Modernization Committee
In 2013, the plethora of dissatisfaction over property taxes in Nebraska led to the creation of the Tax Modernization Committee to look at how Nebraska’s overall tax system could be restructured.
The committee’s executive summary stated that:
The revenue system generally complies with the characteristics and principles outlined in LR155;
Nebraska’s system is comparable in design to most states and does not require significant changes;
The state’s reliance on property taxes as a share of state and local taxes is greater than the national average and greater than most of our border states;
The individual and corporation income tax programs are appropriately progressive but our “bracket system” has not kept pace with the rate of inflation in terms of personal income; and
The sales and use tax base has been both narrowed and expanded several times since its inception but is comparable to and broader than most border states, with the notable exceptions of taxing agricultural machinery and equipment repair and replacement parts and residential energy consumption.
Source: Tax Modernization Committee
Land Value and Property Taxes in Nebraska
From 2013 to 2014, agricultural land valuations again increased, this time by 29.12 percent.
The statewide valuation of agricultural land for tax purposes has doubled since 2009, with estimates showing nearly a 120 percent increase in valuation since that time.
Estimates also suggest that due to the increase, the statewide property taxes paid by farm and ranch families on agricultural land will near $1 billion in 2015.
With the values of farms and ranches skyrocketing in recent years, ag land now makes up about a third of the statewide property-tax pie. It was only about a fifth of the pie as recently as 2007.
Nebraska farmers and ranchers pay the third highest property taxes in the U.S.
Sources: Nebraska Farm Bureau and Nebraska Department of Revenue
The many adamant advocates for restructuring property taxes in Nebraska came up short in their pursuit last year, but that certainly does not mean they are throwing in the towel.
Expect the topic to be just as prevalent in the Cornhusker State’s 2015 legislative session as it was in 2014, if not more so, say those who feel way too much of the state’s tax burden in recent years has been placed on those who own valuable farms and ranches.
Ag leaders said this month they are waiting for November’s state elections to wrap up before they know exactly what their push will look like next year.
“But either way, it’s going to be a main topic of discussion again,” said Jay Rempe, Nebraska Farm Bureau’s vice president for governmental relations. “It’s our producers’ biggest concern, and every candidate has been talking about it out on the campaign trail. So regardless of who’s elected, the discussion will be there. We just don’t know all of the details yet.”
Rempe noted, though, that last year’s failed effort to reduce ag land valuations for tax purposes – from 75 percent to 65 percent – will likely resurface in some form during 2015, among other efforts.
In talking with Nebraska Farmers Union president John Hansen over the past year, no issue came up more often than property taxes, and – like Rempe – Hansen stressed that Nebraska’s ag producers have long been looking to get some “much-needed” relief.
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, including Rempe and Hansen, believe too much of the tax burden is being put on agriculture producers, who not only make up a small percentage of the state’s population. Although this population is often asset-rich, thanks in large part to its valuable land, it is also often cash-poor.
Falling corn prices in recent months have only added to the concerns.
With the values of farms and ranches skyrocketing in recent years, ag land now makes up about a third of the statewide property-tax pie, according to a Nebraska Department of Revenue report, released earlier this year.
It was only about a fifth of the pie as recently as 2007.
In addition to the increases in farm values, Hansen and others explained that, when everyone saw the economic downturn a few years ago, all of the aid to counties and to other property-tax using government subdivisions were terminated. With less state aid, there was a “carte blanch shift” to property taxes.
Also, Hansen and others have said Nebraska’s farmers and ranchers are now 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.
Taking a longer look
In 2013, the plethora of dissatisfaction brought the conversation to a point where the state formed the Tax Modernization Committee, headed by Sen. Galen Hadley, R-Kearney, to look at how Nebraska’s overall tax system could be restructured.
As the group held its public hearings across the state last year, property-tax issues took up most of the talking time.
In the end, the group put together a report for the 2014 Legislature, and in its executive summary, it backed up the concerns of the ag industry.
The summary stated that “the state’s reliance on property taxes as a share of state and local taxes is greater than the national average and greater than most of our border states.”
With that in writing, the ag industry pushed for reform during the 2014 Legislature last spring.
However, without all sides seeing eye-to-eye, the bigger ideas of major tax reform never materialized.
There were some wins for agriculture this past spring, though. A bill that provided $25 million of additional funds to local government subdivisions went through, which should provide some property tax relief, Hansen and Rempe said.
There were a number of other legislative wins for producers in Nebraska, beyond property-tax talks. A sales tax for repair parts on agriculture machinery and equipment, which no surrounding state has, was eliminated, and Cornhusker State ag leaders also applauded progress made in the areas of water and transportation infrastructure.
“There were certainly some things we were happy to see,” Rempe said. “We don’t at all feel like we were ignored. But when it comes to the biggest issue we face, we still have a long ways to go.”
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, which is based on market value.
As Hansen and Rempe explained, the owner of a $1 million residential property has a lot more income and ability to pay taxes than the owner of $1 million of ag land.
“It’s just a difficult situation,” Hansen said. “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.”
Just as it was becoming clear this spring that there would not be major reform during the 2014 legislative session, the state released reports that showed continued increases in the state’s ag land values.
According to the report, from 2013 to 2014, agricultural land valuations increased by 29.12 percent.
It only made the ag industry more frustrated that, despite its calls for help, progress was not being made on property-tax reform.
In April, when the report was released, Nebraska Farm Bureau President Steve Nelson made the following statement:
“This increase ensures the statewide valuation of agricultural land for tax purposes will have doubled since 2009, as our estimates suggest nearly a 120 percent increase in valuation since that time. Our estimates also suggest that due to the increase, the statewide property taxes paid by farm and ranch families on agricultural land will near $1 billion in 2015.
“As we have pointed out on many occasions, the unprecedented growth in valuation on agricultural land and the associated increases in property taxes are carried by farm and ranch families who make up less than three percent of our population, but pay more than 25 percent of the property taxes collected statewide.
“While the Legislature placing more monies into the property tax credit program in the vein of property tax relief is appreciated, the fact remains that Nebraska farmers and ranchers pay the third highest property taxes in the U.S. and will continue to do so until something is done to address this issue.”
“Nebraska Farm Bureau will continue to advocate for change to a tax system which fails to recognize that property is not the sole means of measuring wealth and unfairly relies on farmer’s and rancher’s primary production tool (land) as the basis for funding schools and local government.”
Rempe and Hansen said this month the passion for property-tax reform in Nebraska has not faded since Nelson’s letter in April, and that their respective organizations will speak up on behalf of their concerned constituents once again.
“It’s our biggest issue,” Hansen said. “No way we can back away from it.” ❖
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