Legislators Propose Expanding Sales Tax to Services

Lower income tax brackets, property tax relief held out as incentives

NFIB/Nebraska State Director Bob Hallstrom’s report from Lincoln for the legislative week ending February 17.

The Legislature resumed processing legislative bills February 16, after adopting temporary rules for the next 30 days. Lawmakers advanced five bills to the second round of debate prior to adjourning for the long, four-day holiday weekend.

State Spending

Gov. Pete Ricketts signed Legislative Bill 22 into law that reduces state government spending in the current fiscal year by $137 million. The spending reductions will give the state a head start in addressing the projected $900 million revenue shortfall in the upcoming two-year state budget.

Committee Activity

Legislative Bill 261 – Nebraska Worker Adjustment and Retraining Notification Act: During the past week, NFIB submitted testimony to the Business and Labor Committee in opposition to LB 261. Introduced by Sen. Matt Hansen (Lincoln), LB 261 would require advance notification of large-scale employment loss, similar to requirements of federal law.

The measure would prohibit an employer from ordering a “mass layoff, worksite closing, or a transfer of operations” unless a written notice to employees and government officials is given at least 60 days prior to the order taking effect. The bill would apply to employers with 25 or more employees, including part-time employees (federal law applies to employers with 100 or more employees).

Legislative Bill 452 – Sales Tax on Services: NFIB joined forces with a number of other business organizations to express concerns over a bill that would expand the state sales tax base to include a significant number of services. Introduced by Sen. Brett Lindstrom (Omaha), LB 452 would reduce the number of individual and corporate income tax brackets and incrementally reduce tax rates beginning in 2018 through 2025. In the event state revenue forecasts do not exceed the prior year’s receipts by 3.5 percent, reductions in tax rates would be deferred.

The legislation would also phase out personal exemption tax credits and expand the state sales tax base to include lottery ticket sales, personal care services, taxis, storage and moving services, dry cleaning and laundry services, and newspaper sales.

While NFIB supports lowering the state’s top individual income tax rates, along with other tax relief measures, it opposes expanding the sales tax to include additional services and has a “watch” position on LB 452.

Upcoming Hearings

NFIB will express its opposition to the following series of measures that would extend the state sales tax to a new host of services. While generally supportive of property tax relief measures, both Legislative Bill 312 and Legislative Bill 313, described below, represent a “tax shift,” rather than true tax relief.

Legislative Bill 312 – Sales Tax on Services – Property Tax Relief: Sen. Tom Briese (Albion) is the sponsor of LB 312, which would subject the following items to a sales tax on services:

cleaning of tangible personal property
storage and moving services
investment advice
personal care services, including haircare, messages, nail services, spa services, and tattoo services
maintenance, painting, repair, and interior decoration services for single-family housing; limousine, taxi and other transportation services
travel agents and tour operators
lawncare, gardening and landscaping services
parking lot services
swimming pool cleaning and maintenance services
dating and escort services
instruction in music, dance, golf, and other recreational activities
custom meat slaughtering services
legal services, excluding legal services performed in the furtherance of a for-profit business enterprise
accounting services, excluding accounting services performed in the furtherance of a for-profit enterprise
real estate services relating to the sale of single-family housing
architectural services for single-family housing
tele-floral delivery services
labor of a contractor for any major additional, remodeling, restoration, repair or renovation of owner-occupied residential housing.

The measure would also impose a sales tax on soda, candy, and bottled water. Any net increase in tax revenue resulting from the increased sales tax on services will be credited to the excess revenue property tax credit fund to provide a property tax credit to owners of real property.

Legislative Bill 313 – Sales Tax Increase/Property Tax Relief: Senator Briese has also introduced another tax bill that would increase the state sales and use tax rate from 5.5 percent to 6.5 percent and credit any net increase in tax revenue resulting from the legislation to the excess Revenue Property Tax Credit Fund to provide a property tax credit to owners of real property.

Legislative Bill 563 – Taxation – Sales Tax on Services/Elimination of Certain Sales and Use Tax Exemptions: Introduced by Sen. John McCollister (Omaha), LB 563 would impose a sales tax on services, including: