Legislative Testimony for LB946: Change the sales tax rate and impose sales tax on additional services

Good afternoon, Chairwoman Linehan and members of the Revenue Committee. I’m Nicole Fox, Director of Government Relations at the Platte Institute and I am testifying in support of LB946.

Nebraskans may disagree about which taxes are in need of reform, but each major tax could be improved in some way to better adhere to sound tax policy principles and make Nebraska a better state for taxpayers.

 

Under LB946, Nebraska’s state sales tax rate would rank among the lowest in the country while still collecting revenues needed to pay for state services. Local governments with sales tax authority would also see new revenues that could enable additional reforms.


Reducing the sales tax would come with the trade-off that the new state revenues could not be used for property tax reform, but because the base expansion proposed in this bill includes only services and not exempt goods, there would still be room to end more exemptions and reduce other tax rates if the Legislature decided to approve property or income tax reforms.


One concern we do have about the current language in LB946 is that it does not properly exempt business-to-business services from sales tax. Business inputs should not be taxed to avoid tax pyramiding.


However, we would like to commend Sen. Briese for how this bill approaches new revenue. Each year for the first four quarters after adoption, LB946 would require the Tax Commissioner to review sales tax receipts and potentially make an additional reduction to the sales tax rate if revenues increase. This allows the new revenue to be used to phase in tax reform based on actual receipts, and not to simply add to state spending. It’s a perfect example of broadening bases and lowering rates.


With this change, Nebraska would be reducing the state sales tax rate from 29th highest to 40th highest at the very least. Because five states do not have a state sales tax, that would put Nebraska among the lowest of states that do levy sales tax.

 

While all services would become taxable under LB946, the rate imposed on currently exempt services would be lower than the rate imposed on taxable goods and services charged today. Right now, an Omaha resident buying a car pays a 7% sales tax, while their neighbor buying pool cleaning services pays 0%. Under this plan, both purchases would be taxed at 5.5%. This is a fairer way to pay for the services we all benefit from and it improves our economic competitiveness by reducing the chance for tax rates to influence economic decision-making.

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