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LINCOLN, Neb. (AP) — With no votes to spare, Nebraska lawmakers advanced a bill that would raise the state’s sales tax by 1 cent to 6.5% on every taxable dollar spent — which would make it among the highest in the country.
The bill is key to Republican Gov. Jim Pillen’s plan to slash soaring property taxes, which reached a high of $5.3 billion in 2023 as housing prices have soared in recent years. Because local assessors are required to assess residential property at around 100% of market value, some people — particularly the elderly who are on fixed incomes — are being priced out homes they’ve owned for years because they can’t afford the tax bill, Pillen and others have said.
The bill garnered the 33 votes needed Tuesday to end a filibuster and advance to the second of three rounds of debate in Nebraska’s unique one-chamber legislature. In addition to raising the state’s current 5.5% sales tax and expanding it to include more services — such as digital advertising costs — it would add new taxes to candy and soda pop and would tax hemp and CBD products at 100%.
California currently has the highest state sales tax in the nation, at 7.25%. If the Nebraska bill passes as is, it would match the 6.5% state sales taxes of Arkansas, Kansas and Washington, which all currently tie for 9th highest in the nation.
Because most cities and counties in Nebraska have an additional local sales tax from 1/2-cent to 2 cents on the dollar, the legislation advanced Tuesday would take the total sales tax in some Nebraska cities to 8.5%.
But the bill would also cut sales tax currently added to utility bills — a proposal made to address complaints that a sales tax increase would disproportionately affect lower income people.
Supporters of the bill pushed back on that argument, noting that grocery food items would still be exempt from sales tax in Nebraska. The bill is aimed at higher income residents with more disposable income, not those living in poverty, said Omaha Sen. Lou Ann Linehan.
For those struggling to get by, “are you spending a lot of money on handbags?” Linehan asked. “Are you spending $200 on new shoes? This bill affects people who have money to spend on those things.”
Linehan has struggled to find enough votes to advance the bill, and paused debate on it last week in an effort to scrounge up more support. It appeared to be headed for failure Tuesday after initially getting only 32 votes — one short — to end debate. It got the 33rd vote from Republican Sen. Steve Erdman, one of the bill’s biggest critics, who switched from not voting to a yes vote in the last second. Erdman supports a sales tax structure that taxes virtually all purchases while eliminating property, income and corporate tax.
Critics of the measure included an unusual mix of both left-leaning opponents, who say a sales tax inherently puts more burden on lower income populations, and conservative ones who oppose any increase in taxes.
State Sen. Jane Raybould — a Democrat in the officially nonpartisan Nebraska Legislature — said that while food may not be subject to sales tax, other necessities like toiletries and cleaning products and more expensive needs like kitchen appliances and vehicles will hurt lower income Nebraska residents. Others also objected to the 100% sales tax on CBD and hemp products, which would drive many businesses that sell them out of business, Omaha state Sen. Jen Day said.
“Fair taxation is always an effort to balance with raising revenue,” she said.
The bill is a tax shift, not a new investment in public education as supporters maintain, taxation watchdog group Open Sky Policy Institute said.
“On average, the 5% of Nebraskans with incomes over $252,600 will pay less as a result of the changes, while for 8 in 10 Nebraskans, the sales tax increase will on average be greater than any property tax cut they may receive,” Open Sky said, citing a study by the Institute on Taxation and Economic Policy.
The bill must survive two more rounds of debate by the end of the legislative session on April 18 in order to pass. Pillen has promised to call lawmakers back for a special session if property tax relief efforts fail to pass.
Opponents across the political spectrum insist they support finding a way to reduce property taxes — but not with a sales tax increase. And some Republican lawmakers now find themselves at odds with the Republican governor over it.
“When you increase taxes to cut taxes, you’re not actually cutting taxes,” Republican state Sen. Julie Slama said. “I’m all for bringing the band back together and having a special session, if that’s what it takes.”
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This story has been corrected to show that the this year’s legislative session is set to end by April 18.
Margery A. Beck, The Associated Press