Legislators Seek To Shore Up Tax Laws in Nebraska
Nebraska legislators last week began a special session aimed at shoring up tax laws in response to a state supreme court decision that threatens to erode the schools' property-tax base.
The ruling could cause "the loss of millions of dollars of local revenue designated to educate our children," Gov. Kay A. Orr said in calling the session, which is scheduled to end this week.
The supreme court ruled in July that pipeline companies should be exempt from paying personal-property taxes--which apply to property other than real estate--because similar tax breaks are given to other entities.
Citing a federal court's ruling allowing a property-tax exemption for railroads, the court said pipeline companies would be denied equal protection under the law if they were required to pay property taxes while railroads were not.
Officials said the decision opened the floodgates for businesses and motor-vehicle owners to claim exemption from personal-property taxes under the 14th Amendment's equal-protection clause, with potential losses to the state of up to $222.4 million a year.
"Our law is up in the air," said George Kilpatrick, a legal counsel for the revenue committee of the state's unicameral legislature. "Anyone who pays property taxes now has some reason to protest."
About 65 percent of Nebraska'sproperty-tax revenues go to school districts, which rely on such levies to provide more than 70 percent of their funding, state officials said.
If the personal-property tax base dissolves, homeowners will see their real-estate tax rates increased by 25 percent to 40 percent to cover the loss, the Nebraska Association of School Boards maintains.
The legislature is slated to consider two proposals from Governor Orr designed to curb revenue losses resulting from the court decision.
The first proposal would ensure that localities will not have to refund property taxes collected from corporations in past years, she said.
The second proposal would redefine as real property--and thus place back on the tax rolls--about 80 percent of the property excluded from personal-property taxes by the pipeline decision.
Nebraska currently derives $39.4 million in revenue from pipelines, telephone companies, and airlines. Such firms are subject to central assessments by the state, just as railroads had been, and thus are likely to claim exemptions.
The proposed amendment would preserve about $30 million in revenue from centrally assessed property, Governor Orr said.
The amendment would not, however, prevent the potential loss of $100 million in revenue from motor-vehicle taxes or $70 million from taxes on locally assessed personal property, such as business equipment, state officials said.
Already, the officials added, 243 businesses have appealed their tax valuations to the supreme court.
A third proposal, by Senator Jerome Warner, would create a statutory property-tax exemption for railroads. Mr. Warner argues that such a change would undermine claims by pipeline companies and other entities that denial of an exemption for them violates the equal-protection clause.
Personal-property taxes currently account for about 20 percent of the $1.1 billion in property-tax revenue collected by Nebraska. The remainder comes from taxes on real estate.
State law does not distinguish between real and personal property in collecting centrally assessed taxes.
About 75 percent of all commercial and industrial property in Nebraska already was exempt from personal-property taxes by 1988. That year, the U.S. Court of Appeals for the Eighth Circuit ruled that Nebraska's policy of taxing railroads and exempting most industrial-property roads violated the federal Railroad Revitalization and Regulatory Reform Act of 1976, which bars tax discrimination against railroads.
Several pipeline companies then filed suit against the state. In Northern Natural Gas Company and Enron Liquid Pipelines Company v. State Board of Equalization and Assessment, the supreme court held that pipelines are personal property and the companies were being denied equal protection in being taxed.
The supreme court has denied a state motion for a rehearing.