Debate Transcripts

LB 1063 (1992)

General File

March 3, 1992

PRESIDENT MOUL: LB 933 passes. Senator Warner would like to announce that the cookies being passed around to the senators today have been provided by students attending the Villa Marie School in Waverly for Nebraska's 125th birthday. A couple of comments that the students wrote after visiting the State Capitol are: I liked it when the lawmakers clapped for us. And I saw the lawmakers. A bell rang, they voted and red and green lights came on. Thank you very much. We'll now proceed with Item 8 on the agenda, General File, LB 1063.

CLERK: Madam President, LB 1063 was a bill introduced by Senators Warner, Landis and Withem at the request of the Governor. (Read title.) The bill was introduced, Madam President, on January 13 of this year, referred to Revenue -Committee for public hearing. On February 21, the bill was pulled from committee by a vote of the body. Madam President, Senator Warner does have amendments pending to LB 1063, AM3048, and I believe copies have been distributed to the membership.

PRESIDENT MOUL: Senator Warner, would you like to open on your amendment?

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SENATOR WARNER: Madam President and members of the Legislature, the amendment, which I believe is in the bill book, is the...essentially, it is the bill as introduced with some technical amendments, after it was originally drafted, voted, the handout that was given to you the other day indicated it was a combination of three different amendment numbers, one of which is the one that's on file, 3048. And then it included the technical amendments that was offered at the public hearing, plus the amendment that changed the method of determining book value from using the depreciation schedules for different types of personal property included under the Internal Revenue Service to a state depreciation system so it was uniform as to the -method of depreciation that would be used by all sectors as far as the ... the definition of life cycle as well as the method of depreciation, type of depreciation for depreciable property. The concept in LB 1063, as you are well aware, is essentially dividing personal property into two classes, one of which would be depreciable property. The other nondepreciable property from that definition items that are nondepreciable such as inventory would not be subject to taxation under the amendment and property that is depreciable and with its life cycle for the period in which it would be taxable it would be included under the definition of depreciable equipment. As the bill is ... or as the amendment is drafted and as the bill was conceptually drafted, it means that once an item was depreciated out that it would no longer have a taxable value and, as a practical matter, then would be exempt. The amendment, as drafted, also is a two-tier or dual system for this year. The one system would be the requirement for the filing of personal property tax valuations as required by current law which has a requirement, as, you know, that those forms be turned in ... the valuations of all personal property be turned in by March 1 which generally has been delayed to March 31st by a number of assessors, which they can do under the law, currently, but it is required that that value be market value or actual value as required. What the bill does in that respect is change those dates from March 31st with the change in the assessor's date that they're allowed to do to June 1st for the filing time. And the reason for doing that, of course, is on the assumption the constitutional amendment would be placed on the ballot and would be voted on in May and should that constitutional amendment fail, then the current law requiring all personal property to be put on the tax rolls at market value would be the law as required by the Supreme Court, and the filing date then would

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become that June 1 date. Also other dates are adjusted rolling back other requirements in the fall for setting budgets to accommodate that delay in the reporting of mark...of personal property at market value. The other concept, if the constitutional amendment is approved by the voters so that the concept in 1063 can take effect, then as the taxable personal property being at book value or depreciable value and that, too, then would be required to be reported as of June 1 after the election, assuming that the statute ... or the Constitution was adjusted and the statute at that point become valid. Generally, the concept in 1063, to get us out of the constitutional abyss that we're in, is that the shift in taxation, as far as personal property tax is concerned, would essentially remain with personal property and those having personal property and would not be shifted for the support of local government to other sectors in the...in the economy. The issue, of course, basically here is whether or not you support or believe that a constitutional amendment is necessary because the whole bill is designed on the concept that a constitutional amendment is necessary and will be placed on the ballot during the primary in order to give the Legislature the opportunity to tax personal property in some fashion other than the at-market value. I would hope that... I know there are a number of amendments filed to the bill, and with this general explanation of the amendment, why, as filed to 1063, why we can take up other amendments that people have to offer to the bill itself.

PRESIDENT MOUL: Thank you, Senator Warner. Before we proceed, I would like to call the senators' attention again to the south balcony. The second half of the students from Millard South High School Government class have now arrived, and their teachers. They are guests today of Senators Chizek, Abboud, Beyer and Horgan. Would you please rise and be recognized. Welcome to the Chambers. Thank you. Also, while the Legislature is in session and capable of conducting business, I propose to sign and do sign LB 175, LB 878, LB 879, LB 906, LB 928 and LB 933. Mr. Clerk, do you have amendments on the desk?

CLERK: Madam President, I do. The first amendment I have to Senator Warner's amendment is one by Senator Hall. Senator, I have a note that you want to withdraw this amendment and substitute AM3201.

SENATOR HALL: That is correct.

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PRESIDENT MOUL: If there are no objections, it will be so ordered.

CLERK: Senator, I now have AM3201 as an amendment to Senator Warner's amendment. (The Hall amendment appears on pages 1075-76 of the Legislative Journal.)

SENATOR HALL: Thank you, Madam President, and members. Thank you, Mr. Clerk. AM3201 is the amendment that was just passed out in the last 15 minutes while we were under Final Reading. I apologize that it was not printed in the Journal. There were a number of other amendments to the committee amendments that were printed in the Journal. This one was not and I, again, I apologize. I think though that the amendment, if you look at it, is approximately a page and a quarter, is very self-explanatory. And I would think that it would be rather noncontroversial with regard to the amendment itself. It is offered...it's offered for purposes of the problem that could arise if the constitutional amendment should happen to fail at the ballot. There may be those who would like to see the constitutional amendment fail at the ballot. I guess, if that were the case, you probably would not want to vote for this amendment. But it says that if the constitutional amendment... and you can read it right there, doesn't pass, that personal property tax would not be back on the tax rolls . As you all know, under MAPCO, for 1992 personal property is back on the tax rolls. We have an opportunity to make some changes in this session. A constitutional amendment would be necessary to treat personal property different than rural property because of the uniformity clause. That's what the CA is attempting to do. Should that fail, there would ... personal property would be back on the tax rolls. Now there would be possibility to come back in a special session. There would be the possibility of a November ballot issue. There would be a lot of possibilities but, I guess, rather than take the chance of those happening, in the future, I would like to, as an amendment to 1063, put in place a provision that says, if the CA fails, personal property does not go back on the tax rolls. There is a number of reasons why. First of all, it only goes back on if the CA fails. If the constitutional amendment fails, personal property will go back on. If we should happen to lose the Jaksha case this year, personal property goes back on. And, thirdly, if the court, in their ruling, says that the application in Jaksha is not only prospective, if they don't limit it only to prospective

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application, if those three things take place, all personal property will go back on the tax rolls. Then you've got a situation where you're standing here in May, you have more than likely a special session to deal with this issue again and we're kind of back at square one. The second reason for putting this amendment in is that in the ... in the bill, Senator Warner's amendment, is that if the argument is that taxing inventory is bad policy, tax policy, tinder any circumstances, then I think it makes sense to guarantee, if at all possible, that that does not take place. And that's another aspect of what this amendment would do. Thirdly is that it takes away the incentive for an individual to vote no at the polls if you're hoping to see personal pro... all personal property go back on the tax rolls. I mean, folks are clearly going to be out working the constitutional amendment. They're going to argue that if you vote for this, you're going to reduce the base. There will be a number of individuals who will champion that effort. What this amendment does is it helps protect that from being a lever, if you will, or a form of incentive for people to vote no at the ballot on the constitutional amendment. And I think that that is something that needs to be talked about a little bit. We haven't had an opportunity yet to talk about the constitutional amendment but I think that, clearly, we have to recognize what is going to take place between the time this Legislature finishes tip dealing with the tax issue and the time that the election at the ballot on a CA takes place. With that, Madam President, I would offer the amendment to Senator Warner's amendment.

PRESIDENT MOUL: Thank you, Senator Hall. We will now recognize senators wishing to speak to the Hall amendment. All ... Senator Haberman, followed by Senators Warner, Hall, Schmit, Lamb, Schellpeper, Moore, Lindsay, Withem and Heftier. Senator Haberman.

SENATOR HABERMAN: Madam President and members of the body, I rise to support Senator Hall's amendment for the following reasons. I would like to read to you and then I will pass out to you later on exactly the wording that the citizens are going to be voting on in the constitutional amendment. A constitutional amendment to authorize the Legislature to provide for the taxation of tangible personal property in such manner as the Legislature may direct. To authorize the Legislature to tax in such manner as they shall direct. For the separation of personal property, from the uniformity and proportionate

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provision which apply to real property, and for the separate classification of certain property and franchises not listed or named; to harmonize a provision relating to the limitation on county taxes and to provide that legislation passed in the 1992 legislative session pursuant to this amendment shall be ratified and confirmed by such amendment. I would like to have somebody stand up on this floor and explain to me why the average citizen is not going to be confused by this language. They can't understand this language. They don't have the input that we have. They don't have the facts that we have. And they don't care. This isn't going to pass, in my opinion. It is too complicated. It says, and the separation and classification of certain property and franchises. What does that mean? What property and franchises? We're not being up front. We're not actually, in my opinion, telling them what we're doing. We're trying to snow them and it isn't going to work, folks. It's not going to work. I can tell you if 40 votes are gathered to put this language on the ballot, and that's going to be- the language, it isn't going to pass. In my opinion, it's not going to pass. This tells me that the citizens trust the Legislature. -I do not believe that a lot of them trust the Legislature. Some of them are going to say this gives the Legislature a signed check to steal. Some of them are going to say this gives the Legislature who has the most votes to take care of their people. The people and ... the farmers and the people in western Nebraska might say, well, I can't vote for that puppy, it takes all my rights, it takes me and then sells me down the river. So I will pass this out. I would like to have you read it, digest it, and then if any of you can come up to me and tell me how the average citizen will understand this, I will get up and explain it to everybody on the floor because, quite frankly, I don't understand how they're going to understand it either. So I support Senator Hall's amendment. I think it's a good amendment and we should adopt it. Thank you, Madam President.

PRESIDENT MOUL: Thank you, Senator Haberman. Senator Warner.

SENATOR WARNER: Madam President and members of the Legislature, I would rise to oppose the amendment, at least as I understand the amendment to be, and what I understand is if the constitutional amendment fails, that then all personal property is exempt. Now that may sound attractive. It's only attractive if you believe that the Constitution currently permits all personal property to be exempt. I know there are those who are promoting that. I do not believe that to be the case and I

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doubt, seriously, if a lot of people generally believe that is the case, and certainly the case that's before the courts on LB 829 probably will resolve the issue, but, more importantly, I can think of no amendment that would probably be more likely to guarantee the defeat than to put this on because there would be a whole host of people who would be attracted to vote against a constitutional amendment on the belief that somehow or other they were going to exempt all personal property. And that's going to be misleading for them. I don't mean the amendment is misleading but it's going to be misleading in their interpretation, because I don't believe the Constitution permits all personal property to be exempt from an at-market value currently. And I think the court has made that exceedingly plain. I would urge that you vote against the amendment because, clearly, what the Supreme Court indicated last July was that all personal property had to be on at market value because of the uniformity clause that ties personal and real property to be taxed uniformly and proportionately as to the value and this clearly flies in the face of that... of that proposal. And I hope you will not vote for the amendment.

PRESIDENT MOUL: Thank you, Senator Warner. Senator Hall.

SENATOR HALL: Thank you, Madam President, members, I rise in support of the amendment. I thought I would start out with a friendly amendment. I guess I was wrong. The... the Supreme Court did not say all personal property had to be valued at market. The Supreme Court spelled out there were a number of exemptions that were allowed for. They said there was no need to tax household items, which we have taxed in the past. They represent personal property. They said that there was no need to tax things like 775 property that was exempt; earthmoving equipment, that was exempt. There was a litany of things that... charitable property, charitable and educational personalproperty that were exempt, that did not have to be valued at market value. The Supreme Court did not hand down a decision that said all personal property was subject. to ad valorem taxation. They did not say that, and. that's part of the problem. They did not make it exceedingly clear with regard to where we are headed in terms of this issue. What this amendment does is it does exactly what I think the proponents of 1063 have argued all along that it's bad tax policy to tax inventory. It's a bad tax policy with regard to worrying about what the business climate, the economic climate in this state is going to be if we don't address the issue of taxing personal property for

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1992. 1 offered a bill in committee to just exempt property for 1992, strictly on the basis of, hey, let's allow for some stability at least for this calendar year into the future, not gambling on what may or may not happen at the ballot box. Look at the figures for cattle on feed, December of 1990 and December of 1991. They're 60,000 head apart. The State of Nebraska has lost 60,000 head of cattle specifically because of this issue. They've moved 50,000 of them to Kansas and 10,000 to Iowa. They picked up in direct proportion to where they left the State of Nebraska because of the personal property tax issue. Now, you can argue that that's not why those decisions were made but you can't, at the same time, then stand up and say that it's good to exempt inventory for purposes of taxation and fair tax policy as it relates to decisions that business must make and that it's time for the Legislature to act on this issue, blah, blah, blah, blah, blah, blah. I mean, ladies and gentlemen, the issue here is what ... how do you deal with this and what is going to happen for 1992 if that constitutional amendment doesn't pass? I mean, people need to know that. They don't need more of wondering about what could happen. I guess, you know, what it does is this is the kind of an amendment that says, well, who gets the advantage? Who gets the advantage? Do the people that argue it's all on, all the property is on if you don't vote yes? Does that automatically mean that they're going to vote for the -constitutional amendment because that's the alternative? Or do you take this approach which says, look, if it doesn't pass at the ballot, in other words, if you don't have that threat hanging out there and if you don't let people make a fair decision without the threat of all property going back on, all that fell under the MAPCO decision because, clearly, it doesn't all go back on, if you don't take that away, then people...I could argue, I guess, as a proponent of a different approach, that you're not giving them a fair choice. You're basically using blackmail ...

PRESIDENT MOUL: One minute.

SENATOR HALL: ... in terms of the constitutional amendment as it relates to the voters at the ballot box. All this says is that make your mind tip knowing full well that at least for 1992, fully, you know, five months into the year, that your decisions in terms of your business property, your inventory, are not going to be affected by what may or may not happen at the ballot. And that's all ... all this discussion is predicated on the fact that it's going to be a May issue, which I believe it

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should be, but, I mean, we're in a whole other ball game if ... because I guess I would argue that if this may be a November ballot issue, folks who oppose it now may want to all of sudden change their position on this ... this amendment at the point in time that it doesn't have the 40 votes, unfortunate as that may be. But I think it's a... it's a good amendment in terms of asking folks to...

PRESIDENT MOUL: Time.

SENATOR HALL: ... to deal with the issue on a rational basis and not have a gun to their head.

PRESIDENT MOUL: Thank you, Senator Hall. Senator Schmit.

SENATOR SCHMIT: Thank you, Madam President. A question of Senator Warner, if he would yield, please.

PRESIDENT MOUL: Senator Warner, would you yield?

SENATOR SCHMIT: Senator Warner, a several part question. Part number one. If the 3-R bill were to pass for 1063, whatever it is, what percentage of the personal property in the State of Nebraska would be subject to personal taxes? Do we know?

SENATOR WARNER: What percentage would be taxed?

SENATOR SCHMIT: Yes.

SENATOR WARNER: All ... all depreciable personal property would be taxable.

SENATOR SCHMIT: But, Senator, that doesn't tell me the question. The question is, what percentage of the total would be taxed? One percent, 90 percent or something in between? Or do we know?

SENATOR WARNER: Senator, I don't... I don't have in front of me the estimated value of what inventory would be. The taxable personal property on a net book value of nonagriculture will be in the vicinity of 4.2 billion of the valuation and the ag book value would be in the vicinity of 1.7 billion book value. And the other item would be, that would be exempt that you're asking about, would be inventory and I have to look through some papers to find what that estimated personal property value would be.

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All of the other personal property, such as motor vehicles, is outside of this issue, in any event. I understand the inventory is about 4 billion.

SENATOR SCHMIT: All right. The personal property that is depreciated under 775 would not be included though. Is that not right?

SENATOR WARNER: To the extent there are contracts, yes.

SENATOR SCHMIT: To the extent...and are all of those contracts written in a manner such that the personal property exemptions of 775 become null and void even though the Legislature worked to reimpose those taxes on that type of equipment?

SENATOR WARNER: My opinion, Senator Schmit, is that, in all probability, the Legislature could not negate the provisions of a contract that was constitutional at the time it was signed.

SENATOR SCHMIT: If the Legislature...

SENATOR WARNER: So we could not ...

SENATOR SCHMIT: If the Legislature were to reimpose those taxes upon the jet aircraft and mainframe computers and food processing equipment, would it be the responsibility of the State of Nebraska to reimburse local governments for those -taxes? Or would the local governments be unable to collect anything from that property?

SENATOR WARNER: If I understand, your question.. Senator Schmit, is could the state ... could the state reimpose those. And I would indicate again that if there is a contractual agreement, which I believe 775 has with all the conditions that are to be met, my understanding would be that we could ... no matter what we did, we could not negate the provisions of that contract. You could ... you could, obviously, from this point forward make changes where contracts do not exist.

SENATOR SCHMIT: But it would be possible for the statute to be written in such a manner that the State of Nebraska would be liable for those personal taxes to the local subdivisions. Is that not right?

SENATOR WARNER: If you ...

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PRESIDENT MOUL: One minute.

SENATOR WARNER: If you wanted to establish an aid program that would have a distribution formula that... that was constitutional, I assume you can expand aid to local governments under a variety of... of distribution formulas, so, in a general sense, the answer is yes.

SENATOR SCHMIT: I think perhaps it might be that if the taxes were reimposed, that the state could well become liable, based not upon any aid program, Senator, but upon the value of the personal property located within the various subdivisions, multiplied by the levy and therefore it could become an obligation of the state, since the state entered into the contracts which took that tax or that revenue away from local subdivisions. I have one more question.

PRESIDENT MOUL: Time.

SENATOR SCHMIT: I'll have to wait for another time.

PRESIDENT MOUL: Thank you, Senator Schmit. Senator Lamb. Senator Lamb. Senator Schellpeper, followed by Senators Moore, Lindsay, Withem and Hefner. Senator Schellpeper.

SENATOR SCHELLPEPER: Thank you, Madam President, and members, I rise to support this amendment. I think if the Legislature really wants this constitutional amendment to pass, you have to have this writing in it. If you don't, it's going to be devastating to Nebraska business and agriculture. I passed out a list of the Midwest Messenger, and you can see by the amount of the farm sales that the ag economy is in very bad shape in Nebraska. They cannot afford to be worried about their inventory going back on. They cannot afford to have any additional personal property taxes. So an amendment like this is really needed if they're going to support the constitutional amendment. And without something like this the amendment will not pass the voters and then we'll have the worst of all worlds which is inventory goes back on. Senator Hall is right, the cattle did not come into Nebraska this year and they won't come into Nebraska as long as you're ... as they have to be worried about an inventory tax. We just can't penalize business in Nebraska that way. We're saying, come into Nebraska and do business here but we're going to penalize you by taxing you and

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that's not the way that we should do business in Nebraska. Our surrounding states don't do that. Nebraska shouldn't do it either. I think this is a good amendment and I agree it shouldn't be all that controversial because it only spells out the way that it should be. If you don't support it, then we know what's going to happen. By having that hammer hanging over us that says that you're going to put inventory back on is not fair because I don't think the voters are going to approve that amendment. So, with that, I support the Hall amendment. Thank you.

PRESIDENT MOUL: Thank you, Senator Schellpeper. Senator Moore.

SENATOR MOORE: Madam President, and members, first, would Senator Warner yield to a question?

PRESIDENT MOUL: Senator Warner.

SENATOR MOORE: First off, just to follow up on Senator Schmit's question, Senator Warner, just to make your answer correct, you mentioned about the LB 775 contracts could not be cancelled regardless of the Constitution. Is that what you said?

SENATOR WARNER: What I said, Senator Moore, is that I am of the belief that a Legislature, under the Constitution, could not negate a contract which was constitutional at the time it was went into.

SENATOR MOORE: What if that contract was not constitutional though?

SENATOR WARNER: Well, then that's another issue.

SENATOR MOORE: That's 'another... okay. That question... that's what I thought, okay. The second question is, Senator Warner, under LB 1063 what will the tax base be? If we pass 1063 as is, what will the tax base be for local governments in the area of personal property for tax year '92?

SENATOR WARNER: As I ... in addition to the real property tax, as it ... whatever it adds up to statewide, the net book value for agriculture would be in the vicinity of 1.7 million ... billion additional value, and the nonag net book value would be in the vici ... at least estimates I have would be in the vicinity of four point one or two billion,...

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SENATOR MOORE: Okay, Senator Warner...

SENATOR WARNER: ... and the current one back to 18...1990 for business equipment I believe was around 3.8.

SENATOR MOORE: Okay, Senator Warner, and when would this personal property be reported to local county officials if 1063 is passed?

SENATOR WARNER: If the constitutional amendment failed to be adopted, then it would be required to be reported by June 1 of this year, based upon the...

SENATOR MOORE: No, under the 1063 scheme of taxation, when would the depreciation scheme valuation be reported and assessed in county government?

SENATOR WARNER: If ... if the...

SENATOR MOORE: If the bill passes.

SENATOR WARNER: If the constitutional amendment is adopted, then the net book value would be again reported by June 1 and would be assessed in the budget-making process that would occur this fall. The collection of those then would be included in the tax notices that would go out this fall and anything that you had on hand, as of 12-01, January 1st, would be subject to the tax that would be due ...

SENATOR MOORE: Okay, Senator Warner....

SENATOR WARNER: ... December 1 of '93.

SENATOR MOORE: Okay, Senator Warner, so the...between May 12th and June 1 all personal property that will be taxed under 1063 must be reported? Is that what... am I understanding that correctly?

SENATOR WARNER: By June 1 it has to be reported either both as book value and market value as the current law and the current Constitution requires.

SENATOR MOORE: And so the county assessor could do nothing

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prior to ... prior to June 1 as far as would they print forms for that purpose?

SENATOR WARNER: There would be the requirement that you would have two forms, one dealing with market value which is already (interruption).

SENATOR MOORE: Well, when would the county assessor...

SENATOR WARNER: Pardon?

SENATOR MOORE: ...when would the county assessor mail out those forms? After June I?

SENATOR WARNER: No, they would be mailed out prior to ... both forms, one of which, as you know, has already been made available, some mailed and some not, for market value because that's what the current law requires. The second form would be a market value form...

PRESIDENT MOUL: One minute.

SENATOR WARNER: ...or book value form as required in 1063.

SENATOR MOORE: Okay, thank you, Senator Warner. I think what Senator Warner explained is that there is going to be a problem regardless of what you do, whether you pass LB 1063 or whether you pass LB 1120, the personal property tax that we want to collect in tax year '92, is going to be extremely difficult, if not impossible, for lower governments to assess and collect in tax year '92. For that reason alone, you have to support Senator Hall's amendment. Now, regard... even if you want to pass 1063, you. ought to exempt for '92, regardless, I support Senator Hall's amendment, it basically takes the argument totally away from the administration that said that the only choice you have is putting everything back on at market value or the 3-R plan. There are other choices out there that the voters ought to have the ability to make an educated choice, not be pushed into a corner.

PRESIDENT MOUL: Time.

SENATOR MOORE: For that reason, I support Senator Hall's amendment.

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PRESIDENT MOUL: Thank you, Senator Moore. Senator Lindsay.

SENATOR LINDSAY: Thank you, Madam President, and members, I rise in opposition to the friendly amendment of Senator Hall. And the reason for doing so is, I think, let's look at what it will do to the amendment. I think Senator Schell ... I disagree completely with Senator Schellpeper on what it will do at the polls. You're going to have people, first of all, in the urban areas who are going to look at the LR, right from the outset, at least talking to the people that I've talked to in my district, who are going to say, we don't want a constitutional amendment. We want everything back on the tax rolls. We want a 20 percent decrease in our real estate taxes. That's what the people in that area are going to be doing. Now you add onto that this amendment that says to the rural folk, if you vote against the constitutional amendment, everything is exempt. If you vote for the constitutional amendment, it's going to be taxed on that book value. You take away the incentive to vote for the amendment. Now if that's your agenda, if you're looking for a way to defeat the legislative resolution or defeat the constitutional amendment when it gets on the ballot, this is a great way to do it. And I will give Senator Hall credit, I don't know if lie thought of that but I think it's a great way to do it. The. . . I think we have to look past what we're doing here and I guess that's what I try to keep harping on is that the number of votes we get here is irrelevant if it doesn't get past the voters at the poll. And if we're looking for a short-term fix to get us past the election day in our reelection campaigns, this may be the way to do it. If we're looking for something to avoid having to handle the crisis this year, this may be the way to do it. If we want to... if we want to just postpone it, I think this is the way to do it. What's going to happen though, I think Senator Warner has accurately portrayed the ... or painted the scene and that is that we're going to be back here next year with not only 829 but 1063 after the legislative resolution fails at the polls, with 1063 also being declared unconstitutional, with everything back on the tax rolls and with little or no incentive to change it. Remember, once that constitutional amendment fails at the polls, what incentive is there next year to come back and try to change it? I would suggest that if all the personal property is returned to the tax rolls and people in my district and in Senator Hall's district and in Senator Hartnett's district and Senator Withem's district and all the other urban districts ... okay, Senator Ashford's district too, and all the other urban districts ... Senator Chizek

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won't be here so we don't care, in all those other urban districts once they experience a 20 percent decrease in real estate taxes, how are we going to come in here and vote to increase those taxes again? How are urban people going to try to help out? We can't do it. We won't be able to do it. And you're putting us in a position of having to go back and run in reelection campaigns and taking back that huge decrease in property taxes, not a real tough position to put us in, we can appreciate that. But you're putting us in a real tough position next year, we won't be able to do it. People in our districts won't stand for us increasing the taxes dramatically. And I think that's what we're doing here. We're trying to defeat the legislative resolution, and if that's what we want, that's fine, but let's be clear about what we're doing. I oppose the Hall amendment and I would urge the rest of you to do so also.

PRESIDENT MOUL: Thank you, Senator Lindsay. Senator Withem.

SENATOR WITHEM: Yes, Madam President, and members of the body, I think Senator Lindsay started us talking about something that maybe those of us who represent districts that are primarily residential real estate haven't really talked about. There appears to be this assumption that there is a ... a general consensus that the worst possible thing that could happen would be to have MAPCO continue to be implemented and follow down that road, and that everybody in here will be scrambling to prevent that from happening. And it's true, we have been. Those of us from the urban areas that think it would be detrimental to tax farm inventories and business inventories have been striving ever since the special session to find that middle ground. And, again, I reference Senator Beutler's amendment during the special session that would have done that. The fact that we are striving to do something other than have everything taxed has been misinterpreted. It's been misinterpreted that we will do anything we can do to keep everything from going on the tax rolls. That is not true. That is most certainly not true. There are many things that would happen that would cause us to accept everything going back onto the tax rolls. And, frankly, this amendment is one of them. This amendment that will continue an exemption of all personal property, particularly this one the way it's drafted right now, is a $100 million increase on real estate property, is far worse to the state, far worse to my constituents and I would guess if you looked at your districts, it would be far worse to a majority of your voters than having everything on the tax rolls. And that's where we

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are. If this amendment gets adopted or if other provisions that repeal all personal property tax, particularly with no replacement revenue and the shift is onto the already overly burdened real estate owner, whether that be ag property or residential real estate or business property, if that shift occurs, it is far more detrimental to the state and to my support for any measure than allowing MAPCO to continue to take effect. If the game is to force us into the two extremes, I know which corner I'm running to, and I think a lot of other people do too. I'm not saying that as a threat or as a negotiating point. It is a fact. It's a fact I have been -comfortable with from the general session to the special session all of the way through, despite the fact that I have been working for a middle ground approach. LB 1063 is now a middleground approach that I can support. It goes further than I would like it to. People start asking me to defend the depreciation methodology of valuation, you're not going to find a strong defender of it. I would prefer an ad valorem method. But I support the depreciation methodology as a way of solving the problem and finding a solution that will ... will bring us to a middle ground. This amendment that has the effect of moving us toward a continuation of not taxing personal property and shifting that to real property is not a viable option. if it gets adopted, 1063 is not a viable option, the constitutional amendment is not a viable option, and then we have wasted a lot of time. The other thing I want to comment on is the constitutionality of it. I have read MAPCO and I assume everybody else has read MAPCO. I read MAPCO as a very strong, direct statement. As a matter of fact, when the Supreme Court was asked to have a rehearing to clarify...

PRESIDENT MOUL: One minute.

SENATOR WITHEM: ... their ruling, they said, what, you dummies, can't you read? I mean, they didn't say it in necessarily that language but that's what they were saying. It's very clear that the Constitution says all tangible property must be treated the same. If we don't amend that, we can't exempt personal property despite what the bill says. We might as well repeal the law of gravity in here as to try to change our Constitution through passing a statute. You can buy time. You can avoid the issue. You can go home to your constituents and say, yeah, we saved you another three or four months from the inevitable, but the inevitable is out there. If we don't repeal...if we don't change the uniformity clause of the Constitution, everything is

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going to be taxed and if you ... and if you don't come up with a middle ground solution that taxes some personal property...

PRESIDENT MOUL: Time.

SENATOR WITHEM: ... and some other sorts of things, then...then we're not going to pass a bill or a constitutional amendment. I think it's that clear. I would oppose the consti ... or this particular amendment.

PRESIDENT MOUL: Thank you, Senator Withem. Senator Hefner, followed by Senators Elmer, Haberman, Warner and Schmit. Senator Hefner.

SENATOR HEFFER: Madam President and members of the body, I rise to support this friendly amendment to LB 1063 and to Senator Warner's amendment. I feel that this would help us out. it would buy us a little time. It says if the constitutional amendment fails, all personal property is exempt from taxation. This would give our farmers and businessmen, industry men a little more time and it would get our economy back on track again because, right at the present time, some of those that want to locate in Nebraska or expand in Nebraska won't be doing it. Up in my area, the farmers and small businessman is very concerned about what we're doing down here. They want to know where the leadership is. Why haven't we done something by now? And the reason they're concerned is because if property tax goes back on farm machinery, it will break some of our farmers and especially the young farmers that are depreciating all their equipment at the present time. And so I would urge you to support this amendment. But if we put all personal property back on the tax rolls, it will certainly be devastating, especially to the rural areas. And I know the Supreme Court says everything must go back on. But, ladies and gentlemen, I lost a lot of faith in our Supreme Court. They said all personal property must go back on but they said, you don't have to put on household goods. Well, what is household goods? If household goods isn't tangible personal property, I guess I don't know too much about personal property. Inventory tax is bad. And I thin k we've all discussed that. And I know some of the large businesses and some of the large industries are -concerned about the inventory go back on. Well, I'm concerned too but I'm also concerned that if we put farm machinery and breeding livestock back on the tax rolls, that will also be devastating to our economy. Up in my area, Legislative

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District 19 borders South Dakota, not too far away from Iowa, and so what we're doing when we're putting all personal property back on, we're putting our farmers and our small businessmen at a disadvantage with those in South Dakota and Iowa. Do we want to do that? I think the simplest solution would be take all personal property except motor vehicles off the tax rolls, replace it with a small increase in sales tax, small increase in income tax, at least the people can understand that. The bill that we passed last year, 829, a lot of people didn't understand that. And right now they're beginning to understand a little better when they're figuring up their federal and state income tax, because that 2 percent depreciation surcharge is going on. And so I think that at this time I would certainly like to encourage you to support the Hall amendment to the Warner -amendment. Thank you.

PRESIDENT MOUL: Thank you, Senator Hefner. Senator Haberman.

SENATOR HABERMAN: Madam President and members of the body, I have heard a lot of talk about being fair, it has to be equitable, everybody has to be treated the same, no one wants to take advantage of anyone and it saddens me to see, shall we say, the eastern establishment senators take advantage of the farmers. And I would like to give you some concrete examples as to how the farmer is going to be penalized. The personal property taxes under LB 1063, a business will pay for a $ 3,000 computer, an $800 fax machine and a $400 office desk, a total of $260, $260 in personal property taxes. Isn't that a tremendous amount, $260, over a seven-year period? Now a man in the construction business who uses a bulldozer, in five years will spend $11,000 extra in taxes. A man who is in the constr uction business and has a bulldozer will spend approximately $11,000 in five years on that bulldozer. Now the business man spends $260 in seven years, but the bulldozer man spends $10,975 in five years. Now let's talk about a farmer. The majority of the farmers cannot farm without a combine. The farmers now adays purchase their own combines as custom combining is too expensive and they have to combine the crop when it's ready to go. So at a $100,000 combine, and, folks, you're not going to get very much of a combine for $100,000, in seven years the farmer is going to pay a total of $5,783 in personal property tax, 5,000 plus dollars compared to $260 that the business man is going to pay. And I can't understand how some people can say that that's fair. I just can't understand that. I have heard that the depreciation methodology is supported as an option as being

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fair. Well, this is underneath that depreciable column. And I heard people say, my constituents, this is terrible for my constituents. Well, I could say the same thing, this is terrible for my constituents, but the Hall amendment is not terrible for everybody's constituents, it's a fair amendment. As if it doesn't pass, it's going to need a no votes from the eastern establishments and then they will say, well, we voted no, that western Nebraska voted no, and the citizens don't want any personal property tax. They say to us, raise the money. somewhere ...

PRESIDENT MOUL: One minute.

SENATOR HABERMAN: ...but let's be fair about it. So we have to get over there ... get over this feeling it isn't fair for my constituents. I'll go along with something that's fair, but 1063 isn't fair. The whole amendment will make it smell a lot better than 1063 smells now and even the Governor said that it smells pretty bad. It smells pretty bad. So I would like to suggest that you do support the Hall amendment to the Warner amendment to 1063. Thank you, Madam President.

PRESIDENT MOUL: Thank you, Senator Haberman. Senator Warner.

SENATOR WARNER: Well, Madam President, and members of the Legislature, it seems the argument that I hear on the floor is coming down to, I believe, on the part of some that you can exempt all personal property and not amend the Constitution. You know, I'm at a loss. I have no idea where that comes ... where that concept in your mind comes from. I don't know how much plainer the Supreme Court could be. You know, page 9 of the MAPCO decision, in any event, ??personal property and real property are both tangible property under Nebraska law and must be equalized and taxed uniformly pursuant to Nebraska Constitution, Article VIII, Section 1", goes on to cite previous cases in '91, 1987, 1984 and 1966, in which they repeatedly held the same thing. You can pass all the legislation you want to exempt all personal property, but if you fail to amend the Constitution, all you have done is kept it like it is now and that is it's all taxed at market value, the concept that everybody says is the worst possible thing. You talk about cattle leaving the state, sure they left the state. They left the state because on January 1, 1992 all cattle were taxed at market value, period, the thing that none of you want. A -handout that someone had on farm sales and the concern with the

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bill that... the resolution, rather, that we adopted, the reason you adopted it is because all farm equipment is now taxed at market value, which you all say you do not want to see happen. That is what is now. And those of you who believe that you can change that merely by changing the statute and not change the Constitution are going on a hope that simply doesn't exist, in my opinion. And I would hope that you do not, you know, I can understand the argument, the comments because I could make them too that it's not right to have everything at market value and it has severe economic impacts on all sectors of the economy, that's absolutely a fact, I agree. But you cannot do what you want to do or what you're talking about doing without a constitutional amendment that permits-that separation of real

and personal property. And I hope that you would not make a philosophical vote for an amendment which is a matter of constitutional authorization, cannot be done and you simply are guaranteeing, you say, in my opinion, simply guaranteeing that all personal property is going to be on the tax rolls at market -value and from this time forward, as a matter of fact, as Senator Lindsay pointed out and which I also agree with, that once personal property, and in particular inventory, gets on the tax rolls and then you attempt to amend that out, change it, then, in fact, you will have significant impact on increasing' residential property tax by virtue of inventory. And in the process you will also dry tip jobs and you will find particularly in the border area businesses moving across the border, keeping their equipment somewhere else. I can tell you there...

PRESIDENT MOUL: One minute.

SENATOR WARNER: ... isn't any doubt that's going to happen. And I hope you would be realistic and say, no, this is not the way to go because it cannot be done.

PRESIDENT MOUL: Thank you, Senator Warner. Senator Schmit, followed by Senators Hall, Nelson, Landis, Moore, Morrissey, Ashford, Beutler and Withem. Senator Schmit.

SENATOR SCHMIT: Madam President and members, a question of Senator Warner, if lie would yield, please.

PRESIDENT MOUL: Senator Warner.

SENATOR SCHMIT: As I read the Constitution, Senator Warner, the Constitution at the present provides and says that household

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goods and personal effects, as defined by law, may be exempted from taxation in whole or in part. It goes on and points out the value of household goods and personal effects also can be determined. It also points out that the Legislature may classify personal property in such a manner that these fit and may exempt any of such classes, or may exempt all personal property from taxation. Now, I think that the biggest misunderstanding, and I'm very sorely tempted to call it something other than a misunderstanding, is the argument that it all goes back on. And, Senator Warner, when you repeat on the floor, time after time, that it all goes back on, do you also mean that household goods goes back on?

SENATOR WARNER: Senator Schmit, you bring tip a point, and I should be very careful, what the Supreme Court said in MAPCO was relative to inventory of farm equipment and livestock, because business equipment was already on. But to extend to household items there was, as I recall, a couple of judges that made reference to that in their opinions. I don't recall if that was a majority court, it may or may not have been. But the bottom line is that the case that was filed in 1986 dealt with business equipment, farm equipment, livestock, and inventory, and these other items that the court did not comment on, or volunteered some things, was not specifically before the court, as I understand it. And we don't know what the court would do with those as a matter of fact.

SENATOR SCHMIT: Is it not then very risky for this Legislature, Senator Warner, to assume that the Supreme Court took a hear no evil, see no evil, speak no evil provision relative to the exemption of household goods and, of course, our favorites, the 775 exemptions, which they very carefully tiptoed around also. How can we be so naive as to assume that if we blindly, and I say it that way, blindly proceed to reimpose a portion of the tax on farm equipment or livestock that the court will not then again say, wait a minute, now in retrospect, we should have referred also to household goods and/or the 775 exemptions.

SENATOR WARNER: Senator, you're asking me a what if question, and a what if question, from my opinion, yes, there's a possibility. As I recall, one of the judges, Judge Shanahan, in his comments, directly addressed the issue that there was no more logic to leaving household goods and personal effects, charitable and educational exempt than other things. There was

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a precedent that would be difficult what the majority of the court might do, simply was not addressed by the court because that issue was not before them in the, as I understand it, in the form in which the case was filed. But I still will go back to the one sentence, you know for five years now...

PRESIDENT MOUL: One minute.

SENATOR WARNER: ...we have been attempting to pass legislation to get around the court decision without amending the Constitution. I've had bills, others have had bills, some of which were enacted., Every one has gone down the drain. I've got the point where we're past taking risks. I'm at the point where there is no doubt in my mind I...others can look at it differently, but I'm at the point where I believe there is no solution that can be found without amending the Constitution first to permit a different treatment for personal property than what our current Constitution permits, which is only at market value for tax purposes.

SENATOR SCHMIT: Well, Senator Warner, I could go back to I believe LB 1, introduced by DeCamp many years ago, which did just that, it removed the equal and proportionate clause. And, of course, all the farm organizations and others on this floor argued against that ...

PRESIDENT MOUL: Time.

SENATOR SCHMIT: Thank you.

PRESIDENT MOUL: Thank you, Senator Schmit. Senator Hall.

SENATOR HALL: Thank you, Madam President. Again, I rise in support of the amendment. The proponents of 1063, some of them anyway, must be getting tired, taking off their business, economic development hat as it related to the attack on 1120, and putting on their defender of the homeowner hat for purposes of this amendment. Maybe just a tad schizophrenic, I guess, I don't know. But I think this is not an issue of do you put $100 million on real estate taxes, that's not what it is at all. I mean if the proposal fails at the ballot, we'll be back here in special session, we all know that. That's just a given, it's going to happen. The $100 million in terms of property tax as it relates to the overall tax base in the State of Nebraska is 3 percent, a little over 3 percent of all the revenue that's

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raised at the local and the state level. Are property taxes too high? You bet, that's one of the big issues here, they are too high. The fact of the matter is, though, that personal property is no longer a viable revenue source. And to argue that it is, whether you use the net book value approach, or the ad valorem approach, which under the ... during the 3 R Committee it was deemed...determined by the Department of Revenue that undervaluation to the point of approximately 70 percent, 60 to 70 percent, under the old method of personal property, but yet I've not heard what percentage, although we've come up with figures of approximately 42 percent of personal property is represented by that net book value or depreciated personal property approach. Ladies and gentlemen, I would argue, and I will argue that under 1063 real estate taxes are going to go up. And they're going to go up in Omaha. They're probably not going to go up in the rural areas. They're going to go down, I guess I would argue. And we're going to pay the bill, because depreciation is a cyclical thing, it is not something that is going to be year in and year out as it relates to property, it's going to fall off. And when that value is removed from the rolls, when that value is gone, unless the rates and the levies go down, it's going to fall on real estate, and that means the homeowners are going to pay the bill. I don't want that to happen. And I don't want to put up an illusion that this is going to keep real estate taxes from going up, because anybody who argues that and comes back to this body, should 1063 pass, in a couple years, after the rates have gone up, they're going to... they're going to have to go to the people and explain how that washes, because it doesn't work. It's going to be deja vu all over again with regard to, you know, another elected official who said, I didn't raise the income tax rates. But in terms of page 9 of the MAPCO decision, let me read to you what it says. A paragraph up, it says, quote, and this is from Article VIII, Section 2 of the Nebraska Constitution, it says, the Legislature may classify personal property in such manner as it sees fit, and may exempt any of such classes, or may exempt all personal property from taxation. Sounds plain enough. You go over to page 10, it says, a legislative act can violate Nebraska Constitution Article III, Section 18 as special legislation, one, by creating a totally arbitrary and unreasonable method of classification; or, two, by creating a permanently closed class. You go down to the bottom of page 10, it says, the legislative classification, in order to be valid, must be based upon some reason of public policy, some substantial difference of situation or circumstances that would

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naturally suggest the justice or expediency of diverse legislation with respect to the object...

PRESIDENT MOUL: One minute.

SENATOR HALL: ...to be classified. And underlined it says, classifications for the purpose of legislation must be real and not illusive. They cannot be based on distinctions without a substantial difference. I guess I would argue, and we can go on, we will as it relates to MAPCO, I'm sure we'll talk about it more. Distinction without a different, I mean you know, look at net book value as it relates to depreciable property. One piece of property that's being depreciated, the same piece of property that's not because that one piece of property happened to be bought used, it's going to be depreciated, it's going to pay a tax on it. The other one, which has lived out its life and is held by the same owner who happened to buy that prior to the enactment of this piece of legislation, I would argue that those are clearly distinctions without a difference, and that you can't ...

PRESIDENT MOUL: Time.

SENATOR HALL: ...make tax policy or legislative acts, according to MAPCO, under that type of a process.

PRESIDENT MOUL: Thank you, Senator Hall. Senator Nelson.

SENATOR NELSON: Madam Speaker, I guess I have mixed emotions. I want to follow Senator Warner very carefully and his judgment. However, I do... I do tend to concur with Senator Hall. I will tell you outstate the people will be coming so, so dissatisfied with the instability of our not knowing or direction. Basically, they don't understand the complex issue that we are dealing with. I do want to address Senator Withem. He said that people were misinterpreting that the Omaha senators are trying to force inventory back on the rolls. Senator Withem, I just have never heard that. And, personally, I don't feel that about the Omaha senators in the very least. And I would hope .that we don't have an urban-rural split on this. But I'm telling you folks at home and maybe the Omaha people have to give a little bit. It may be, you know this is a good opportunity to address our whole tax system. Property tax is not a means of income. And this is the time that we need to address many, many other possibilities, be it rather tax on

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food, or be it rather tax on service, or my people that have contacted me, and of course that's not all of them, very firmly believe in an increase, a small increase in sales tax, the only fair tax. And they realize that you cannot move the burden back on the agriculture community because the income simply is not there. The small elevator operators made me aware there are large, large piles of grain out on the ground yet. They can't get railroad cars. It's rained on that grain, simply by putting a tax back on that you simply have eliminated those small elevators. And this is not anything that they can control. They are judged by world market. But back to my point. I do hope the Omaha senators, and I do believe that they are trying. And we all must swallow a little bit, and let's try to move forward. Because the instability, and a machinery dealer got ahold of me Saturday morning and his farmers are now refusing to pay sales tax on the equipment. They will purchase a $15,000 disk this spring, and they will give him a check for 15,000, but they will not give him a check for the other 5 percent. And he says, I cannot continue to run my business, Arlene, I have 19 employees, I have not sold a thing in almost 90 days, and that actually goes back to last August. And he was very bitter. You folks have put me in this bind. And he is a large machinery dealer. And I have to agree, this is not his fault. But we do have to find some stability, we do have to compromise. And let's not try to say, well it pushes me on this, or I'm coming up for election, I can't vote for this. I don't know what to do, but we have to find a middle ground. And I do appreciate the fact that the Omaha senators do have a different constituent, and I do, to a certain extent. But we all will have to work together, or we'll find the economy of our state devastated, and that is the last thing that we want to do. I think that if we don't change the line of thinking here that that may be what will happen. And I just fear that. it's getting closer and closer to that, I think, every day. And the household goods, when I read the amendment nothing tells me that they're not... they're going to be exempted. Charitable goods, religious goods, there's a long, long laundry list there. Why should we assume? Sure, LB 775 was not directed, but I don't know why we have to assume that... sure, the past exemptions...

PRESIDENT MOUL: One minute.

SENATOR NELSON: ... there won't be any change. And I'm not saying that we should remove them. But I'm Just saying that we should not just assume that it is going to be addressed. So all

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I've got to say is, folks, that we just have to work together. And I am going to support Senator Hall's position, and hopefully I'm not wrong at this point. Thank you.

PRESIDENT MOUL: Thank you, Senator Nelson. Senator Landis, followed by Senators Moore, Morrissey, Ashford, Beutler, Withem, Rogers, Schimek, Hefner, Kristensen, Schmit, and Lamb. Senator Landis.

SENATOR LANDIS: Thank you, Madam President, members of the Legislature. It's a pity that this debate is as seemi ngly boring as it is, because this is one of the higher quality debates that we've had on a public policy issue. Senator Hall has been quoting from MAPCO and he's been making some excellent points. Senator Warner has as well, Senator Withem has as well. And we've had actually a very reasoned exchange on a very difficult issue, no wonder it's hard to follow, and just a trifle boring. But I want you to... I want to try to draw an analogy with you on my perspective on this amendment that may help to revitalize the conversation. For seven years many of us brought to the Legislature a claim for assistance from the Commonwealth depositors. We did it year, after year, after year. Ultimately, we got some relief from the body. You were all gracious enough to vote for -that package, and there was an audible sigh of relief from people like myself who had been fighting so long. As Senator Hall had, as Senator Schmit had, as Senator Labedz had, and many others. The Supreme Court took that bill and put it right over the center field fence. It was gone. Could have brought in a bill the next year, could have tried another one to redo that. But, in fact, frankly some of our colleagues came to those that were supporters and said, Dave, there's a point at which you're simply dealing in false hopes, and that would be a great tragedy. You've got to work within the realm of what's doable, because otherwise you're really extracting a set of hopes that can't be met, and that has its own tragic quality. You know those feelings, we've exchanged them. You've had those conversations with me, and I've heard those points. Now there is a difference of opinion here, a difference of legal opinion. But my point to you is this, this is much the same situation. We have the possibility of entertaining false hopes and allowing people to think that something is possible when it really isn't possible, if we are not careful. I read MAPCO and I acknowledge the distinctions that Senator Hall made, he quoted from the opinion and the sections that he quoted from or accurately reported, and what

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they generally *is that the Legislature does have freedom to act so long as it does so reasonably and we can classify. There are provisions of the Constitution that permit us variation, flexibility, and the power to act. He was right in bringing those to our attention. We have not handcuffs, we have boundaries to what we can do. And inside those boundaries we have freedom to act. I think that is appropriate. What I want to show you, on the other hand, is the limitation, the actual element of those boundaries, and it's found in the section that Senator Warner read, but I want to renew it for you again. You'll find it on page 9 of the MAPCO decision. It's one sentence. Will you listen to this one sentence as the characterization of the MAPCO decision. Notice the first three words in this sentence, in any event. Let me start the sentence again, in any event, personal property and real property are both tangible property under Nebraska law, and must be equalized and taxed uniformly pursuant to the Nebraska Constitution, Article III, Section 1. In other words, Senator Hall was exactly right....

PRESIDENT MOUL: One minute.

SENATOR LANDIS: ... we have a freedom of action. But that freedom of action comes to an end with the boundaries of what we faced. And the Supreme Court tells us, in that one sentence, what that boundary of our freedom is. It says without a single word that has any equivocation in it, there isn't a weasel word in that sense. It starts, in any event, personal property and real property are both tangible property, and must be equalized and taxed uniformly. The freedom to act, that Senator Hall quite rightly points out, that exists in the Constitution, in that sentence, is bounded by this unequivocal limitation which we, given the Constitution, do not have the power to upset. Our freedom to act, which does exist, ends here. And those who are in the lobby or on the floor telling us that we don't need a constitutional amendment ...

PRESIDENT MOUL: Time.

SENATOR LANDIS: ... cannot leap the apparent, clear, unequivocal language of that sentence, in my estimation. I could be wrong, I confess. But the clarity, absolute lack of equivocation in that sentence means to me that we must have a constitutional amendment. And, if that's the case, Senator Withem's arguments become very, very significant. We deal in false hopes...

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PRESIDENT MOUL: Time.

SENATOR LANDIS: ... if we think that there is equivocation in that sentence, because there isn't. We need a constitutional amendment, we should not imperil the constitutional amendment by actions such as this amendment which adopt what I believe is a patently unconstitutional result. Vote against the amendment.

PRESIDENT MOUL: Thank you, Senator Landis. Senator Moore.

SENATOR MOORE: Madam Speaker and members, if Senator Landis, to kind of follow up on that thought, given that clarity and lack of ability to move, do you ... if that is so supreme and so basically obvious, how are household goods and charitable ... charitable goods...are they not treated the same then? How can they not be. If that is the confines we are working under, you have to put it all on, does that not include charitable and household goods?

SENATOR LANDIS: The ones, as part of the delineation of that boundary, the court also identifies, in this case, what is in and what is out. The court reads that as a totality, but I don't think... I don't see the boundaries being pushed beyond what the court has announced in the decision.

SENATOR MOORE: Well, but if ... it's not ... it's not totality?

SENATOR LANDIS: The decision read in its totality identifies, I believe, the boundaries that this sentence indicates for us, and those are the terms of MAPCO.

SENATOR MOORE: It's just... just the four situations, and does not apply to the other things, in your opinion.

SENATOR LANDIS: In my opinion, yes.

SENATOR MOORE: Okay, and obviously once again we respectfully disagree on that. I ... in no way can I rationalize how you could... if they're all in Section 2, how could you not treat them all the same. That's certainly my opinion. Senator Warner, if Senator Warner would yield to a question, please. Senator Warner, we had a dialogue in our last question and answer about what happens, assuming the constitutional ballot, the constitutional question is on the ballot in May. I must now

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shift our conversation to if the constitutional ballot question is in November. And if, indeed, the constitutional question is not until November, it's your...and 1063 is indeed passed, what would be the county... in your opinion, as what 1063 would do, what would local county assessors be taxing for tax year '92?

SENATOR WARNER: Senator Moore, in my opinion, if we do not put an amendment on until fall, then you have the position, probably the only constitutional thing you can do is use at market value as is now the case for at least business equipment, business-farm equipment, livestock, and inventory, which is at market value. Conceivably, you could exempt, as we did in 829, if you believe that all property could be exempt without a constitutional amendment. I don't happen to believe that. You know, I might like to believe it, but to me it's abundantly clear that we cannot. And I don't think there would be, as a practical matter, even if you exempted it all for this year, repeated in 829, where you shift it to real property, or shift it to some other form of taxation to negate the 100 million shift to real property by repealing business inventory for one more year. Even if you do those things, I doubt seriously that it would stand. I think the bottom line is that come July, June, why we will find it all on the tax rolls at market value.

SENATOR MOORE: So, I'm assuming if there was not 40 votes in this body to place something before the people in May, you would not vote to do another year of 829?

SENATOR WARNER: Senator, I don't know what I would do at that point. But if I did,...

PRESIDENT MOUL: One minute.

SENATOR WARNER: ... I would feel that I would be misleading the public immensely, because I don't think it would stand up.

SENATOR MOORE: Thank you, Senator Warner. I think I have respect for what you're saying there, but I think that is, as Senator Hall- mentioned, if for some reason there is not 40 votes in here, that lobby is going to treat this particular amendment a whole lot different because that is what they are going to do, that is what they are going to argue to have us do in here, and things like that,' because that is the only thing you can do, unless you're willing to vote as a body to place things on the tax rolls. And I think that is the oddity, as obviously it ... in

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some people's mind if you adopt this amendment it will dilute chances of an amendment passing because people will have a legitimate choice as to what tax policy they want to choose for Nebraska. Now for taking something to the people of the State of Nebraska, I think they ought to have a choice and not a gun to their head.

PRESIDENT MOUL: Thank you, Senator Moore. Senator Morrissey.

SENATOR MORRISSEY: Thank you, Madam President, members. Senator Landis, if you would. If, under 1063 as written, the constitutional amendment fails, your vision of taxation is what? If the constitutional amendment as written, 1063, and that fails, then what is taxed?

SENATOR LANDIS: If 1063 is passed, and the constitutional amendment is put on the ballot, and the constitutional amendment fails, 1063 is still the law and would continue to be operated until it was challenged. The challenge would argue that 1063 was not constitutional. The way in which it would be unconstitutional arguably would be that it does not satisfy the desire to tax or the necessity of taxing all personal property in a realistic sense. The way out of that, in my estimation, with that challenge, would be to find a way to tax the elements indicated in the opinion that would need to be taxed, which would- mean you'd probably have to find a way to tax inventory. That would occur upon a successful challenge. LB 1063 would be the law of the state, but upon challenge my guess is that's the form of remedy that you would proceed towards.

SENATOR MORRISSEY: Senator Hall, the same question.

SENATOR HALL: Thank you, Senator Morrissey. The way I read LB 1063, or the amendment, AM3048, if you turn to page 77 and 78, specifically 78, on subparagraph 3(a), if the constitutional amendment amending Article VIII of the Nebraska Constitution is adopted in 1992, tangible personal property, not including motor vehicles registered for operation, shall be subject to taxation, unless expressly exempt from taxation, and shall be valued at its net book value. Okay. That's if it's adopted, the constitutional amendment. (B) If Article VIII of the Constitution 'of Nebraska is not amended in '92, tangible personal property not including motor vehicles registered for operation on the highways of this state shall be subject to taxation, unless expressly exempt from taxation, and shall be

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valued at its actual value. I think it spells out that if the constitutional amendment doesn't pass, MAPCO takes effect.

SENATOR MORRISSEY: And that's the way I understood it. And thank you. And the problem with that is we don't know how the people will vote. Senator Lindsay thinks they may vote one way, I think they may vote another way, or the same way, but for different reasons, possibly. And I mentioned it last week, if my people look, say, well I get a 20 percent reduction in my property taxes, I'm going to hope everything falls. Well that is well and good, unless you're going to lose your job over inventory and other things going on, because if you lose your job, it doesn't matter what your property taxes are, you can't pay. And I agree with Senator Schmit. The logical course for the court to take is then to go for all property, all property. That is the only clear and concise message that I see. What has been described as a clear message is all property should be taxed uniformly, except for those we haven't talked about. I see as further challenges come up everything is knocked out, religious, homestead exemptions, everything that is specifically listed in here is then knocked out. So I'm going to support Senator Hall's amendment. Because if the...I see it if the constitutional amendment fails, everything goes back on, that's the worst possible scenario.

SPEAKER BAACK PRESIDING

SPEAKER BAACK: One minute.

SENATOR MORRISSEY: I will go with Senator Hall's amendment because it will ... it could prevent that from happening. I'm not comfortable enough with this whole process to say that it would, but I think it could. And everything going back on might lower my property taxes, it might lower my property taxes. But if I don't have a job it doesn't really matter, it doesn't really matter. And the person I asked this question to in Palmyra the other night at a public meeting just happened to work for a car dealer, just happened to work for a car dealer. And he said, well, and he was tickled that his taxes may go down on his house tax. Then when you discuss what his boss may do when inventory goes on, then lie wasn't so pleased, wasn't so pleased. There is no clear message sent by the court, in my opinion. The message sent by the court is very confusing because of the things they left off if indeed all personal ...

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SPEAKER BAACK: Time.

SENATOR MORRISSEY: ... property, all property tax uniformly... shall be taxed uniformly, all property is all property. All property cannot be all property, except for what we haven't talked about yet. It will come on later.

SPEAKER BAACK: Time. Thank you, Senator Morrissey. Senator Ashford, you're next.

SENATOR ASHFORD: Thank you, Mr. President, members. I rise to oppose the amendment. I'm one senator who is agreeable to making changes in LB 1063 to accommodate the various economic interests that exist across our state. And I tried to show that the other day when I offered some amendments on exemptions on farm machinery. But I think that the issue here is a legal one primarily. And that's the issue that I think we have to address ourselves to. I don't know... there's been discussion back and forth as to whether or not, if we pass 1120 or 1063, which one would persuade or dissuade voters to vote for or against a constitutional amendment. And I don't know the answer to that. I don't know what the voters will or will not do. I do think, though, there are two separate.... One thing I do, know for sure, though, is that if we load up whatever it is that we pass with a lot of amendments that are not directly related to the underlying piece of legislation, I think the chances of it... of a constitutional amendment passing are extremely remote. I don't know either whether or not the MAPCO... could I get a gavel, just because I can't... could I get a gavel, Mr. Speaker. Could I just get a gavel real quick, I can't hear what I'm...

SPEAKER BAACK: (Gavel.)

SENATOR ASHFORD: ... and I'm not sure, either, whether Senator Lindsay is correct about the impact, and Senator Withem, about the impact of the MAPCO case. I don't know because quite frankly we haven't had a case supplemental to it that would interpret it as it relates to real property. We don't have anybody, legal scholars, writing on it, that I know of. I just don't know what it means. But we do have, on page 120 of the Journal, we do have the Attorney General's Opinion in answer to a question on assessment dates that was asked by Senator Warner. And Senator Withem drew my attention to this, and I have read it. And I think it's valuable that we do read it because it does, in my mind at least, create a real question, a very

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substantial question as to whether or not we can go ahead without a constitutional amendment. It's enough of a question, in my mind, that without question we do need to address the constitutional amendment. And that if we do exempt all personal property in 1120, or in this amendment to 1063, in all probability we are going to have a very close call in the judiciary as to whether or not that is a constitutionally permissible classification. So I think we need to discuss ... and I might ask Senator Kristensen, because I've asked him...I've talked to him a bit, and if I might ask him a question.

SENATOR KRISTENSEN: Yes.

SENATOR ASHFORD: Senator Kristensen, I just talked to you briefly about the issue that was raised about the four classifications of... that were referred to in the MAPCO case, the four types of personal property. And we discussed that. And I believe you gave me your view that... about that. And I wish you would give that to me now.

SENATOR KRISTENSEN: Thank you, Senator Ashford. I referred down in MAPCO a little bit later, because the argument seems to be here that all personal property is eventually going to come off, and that's not what the court said in MAPCO. And I ... the copy I have is at the bottom of page 21, and it is really towards the end of the fifth subsection of the court. And it's where they are overruling Stahmer and they are saying, here are the reasons we're kicking out those four exemptions. And those four exemptions were kicked out because they were the culprits in Trailer Train, in the 4-R Act. Those four items created the unconstitutional climate of allowing for 75 percent of all the property to be exempt. That's the reason they're there. Then you've got to go back...

SPEAKER BAACK: One minute.

SENATOR KRISTENSEN: ... to Northern and say, well why don't you go after household goods. Northern is very clear. No one's quoted from that yet, but that is a very clear case that household items and household goods are, in effect, diminimus because they are so hard to collect, value and do. That...

SENATOR ASHFORD: Thank you, Senator Kristensen.

SENATOR KRISTENSEN: ... subsections out.

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SENATOR ASHFORD: I think that's important language. And I guess I would just conclude in saying that I agree with Senator... those who have argued that we do need to address these legal issues on the floor and get some history in there so that we can fully understand what we're doing. Again, I think we need to look at 1063 as the basis for further legislation, or further amendments to see if we can accommodate some of these other economic issues and move on with this and...

SPEAKER BAACK: Time.

SENATOR ASHFORD: ... go from there. Thank you.

SPEAKER BAACK: Next speaker is Senator Beutler.

SENATOR BEUTLER: Mr. Speaker, members of the Legislature, this particular amendment might be one I would be tempted to look at, except for the fact that it contains a very serious flaw, a very serious flaw. And I hope you will listen just a minute. If you pass this amendment I predict that the result of debate in this Legislature will be that 1063 will pass through almost further ... without further debate, because the debate will shift to the constitutional amendment upon which 1063 relies, and there is no way in heaven there's going to be enough votes for that constitutional amendment, if you pass this. Why? Because of the flaw. It says here if a constitutional amendment amending Article VIII of the Constitution is not adopted in 1992, now it can be not adopted because the people reject it at the ballot, or... or it could be not adopted because it's never put on the ballot. There's nothing in this amendment that requires us to put a constitutional amendment on the ballot. And if we fail to do so, 1063 will pass. It cannot go into effect because you don't have the constitutional amendment but that part of it that says taxes will be exempt will go into effect. And basically you've wiped out the whole debate that we're working with here. You've wiped out 1063, and you have made it impossible to adopt a constitutional amendment. So those of you who are looking for a 1063 solution, or who' are looking for some kind of compromise should certainly reject this because there's no incentive any longer to adopt the -constitutional amendment if you pass this particular amendment. It doesn't say that you have to put it on the ballot. It just says if a constitutional amendment is not adopted. Please pay attention to that particular distinction, because it's extremely

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important and it's going to affect immediately the debate on this bill and the debate on the constitutional amendment. This amendment has a very bad flaw in it. Thank you.

SPEAKER BAACK: Thank you, Senator Beutler. Senator Withem, you're next.

SENATOR WITHEM: Mr. Speaker, members, one more time I rise against the... this particular amendment, respond to two or three things that have been said. First of all, Senator Beutler, I very much appreciate pointing out the language here.' And I really don't know if that is just a ... the language did not get amended to reflect the intent of what Senator Hall means, or if that is his intent. And I would hope in his closing remarks he would address Senator Beutler's point as to whether the intent is to indicate that if a constitutional amendment is placed on the ballot, and if it is defeated, this measure is triggered, or if it is ... if we don't even place the constitutional amendment on the ballot at all, is this particular amendment triggered. The way it is now written the latter would be the case. We would not have to refer a constitutional amendment on to the voters. The passage of 1063 and the failure to refer an amendment would cause all personal property to not be taxed. Second point I'd like to make is Senator Hall made some reference to use the term schizophrenia regarding those of us who were talking economic development business arguments on 1120, and are talking homeowner residential arguments here. I plead guilty, plead guilty on that very point. It's something that in my personal reflections on this measure I debate, if not on an hourly basis, at least a daily basis. And failure to pass anything in the short-term would be better beneficial to residential property taxpayers. If that were the only constituency I was concerned about I would probably say let's not pass 1063, let's not pass anything, let's allow the current law to continue in effect. We don't represent just one constituency, we represent others. And I think in the long run that policy is not in the best interest of the state as compared with the policy in 1063. 1 reiterate, though, that moving much further along the spectrum toward more favorable treatment of personal property than 1063 has taken us, or to shift the tax burden that comes as a result of passage of 1063 on some groups offer those groups, by virtue of other tax measures, passes beyond that line beyond which I don't feel I can further go. So I...I ... he's correct in pointing out that there is kind of a schizoid reaction here on some of us, and I plead guilty to that

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particular statement. Third thing I'd like to bring to your attention, most people have been quoting directly from the MAPCO case. Last summer, if you recall, one of the prospects from those that were trying to hide from the MAPCO decision was, let's have a special session and let's just back up the assessment dates on personal property, keep everything else in place for real property, but on personal property, let's back up the assessment dates. Senator Warner wrote to the Attorney General and asked for an opinion, can you treat personal property different from real property in terms of its assessment. Page 120 of the Legislative Journal is that opinion. That opinion, if you go through that opinion and scratch out the word "assessment date", and put in any other way in which you treat personal property different from real property, you have an Attorney General's Opinion that says you can't do that. It quotes from the MAPCO decision, it indicates deferring by six months a date of assessment of a part of the class of tangible property for purposes of establishing taxable values for such property is inconsistent with the principle that all property must be taxed uniformly...

PRESIDENT MOUL PRESIDING

PRESIDENT MOUL: One minute.

SENATOR WITHEM: ... as required by Article VIII, paragraph one. You strike out the reference to assessment and talk about taxing it differently, exempting a portion and not exempting. You can't do that. It further goes on to make reference to the special legislation category clause in our State Constitution. The court could well determine that a classification establishing different assessment dates they're talking about, but if they talk about different taxing mechanisms for real and personal property, results in impermissible special legislation in contravention of this constitutional provision. Our Attorney General's office, because they have a statutory obligation to defend 829, cannot give us a clear opinion on the constitutionality of 829 or other schemes that exempt personal property but tax real property. But it's so clear, if you read this AG's Opinion on 120, which is a very parallel question, that there is no way, under the MAPCO decision and the other decisions we've had, to do what is proposed here by, this constitutional amendment. And this is the same argument...

PRESIDENT MOUL: Time.

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SENATOR WITHEM: ... that will be used, because people aren't listening or aren't paying attention, or don't understand what the court says. They'll be coming back, I'm sure, later on with let's just extend 829 a year. You can't do that. You're...

PRESIDENT MOUL: Time.

SENATOR WITHEM: ... hiding from the problem, the problem is we have to make a determination of what the taxing scheme will be for dealing with personal property. LB 1063 is a compromise approach, it's gone from a negative impact 'on agriculture of $48 million that we would have if we allowed the current law to take...

PRESIDENT MOUL: Time.

SENATOR WITHEM: ...place, to $13 million negative impact on agriculture. Already, 1063 has already moved us to...

PRESIDENT MOUL: Time, Senator Withem. Time.

SENATOR WITHEM: ... two-thirds, three-fourths of the way across... Pardon me.

PRESIDENT MOUL: Time.

SENATOR WITHEM: Thank you very much.

PRESIDENT MOUL: My microphone isn't working well. Thank you, Senator Withem. Senator Rogers, followed by Senator Hefner, Senator Kristensen, Senator Schmit, Senator Lamb, Senator Hall, Senator Haberman, Senator Elmer, Senator Morrissey, and Senator Schimek. Senator Rogers.

SENATOR ROGERS: Madam President, is Senator Landis in here? Senator Warner, I'd like to ask you a question.

PRESIDENT MOUL: Senator Warner.

SENATOR ROGERS: In your estimation, I mean we're debating all this and I'm beginning to think that even if we get it on the ballot I'm real concerned that it would even pass. What is your feeling, or what is your argument, or what is your discussion against sales and income tax to solve this whole problem which

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would be constitutional?

SENATOR WARNER: Well it's essentially, Senator Rogers, it's the same argument that I was using here. It is my belief that you will not be able to pass a constitutional amendment that would permit personal property be treated in any fashion other than market value, if business equipment revenue is replaced with a sales and/or. income tax, which predominantly will be paid by individuals. I believe that you would find a great many people voting no.

SENATOR ROGERS: Well, I guess I...from the part of the country I come from I can disagree with you wholeheartedly because...

SENATOR I WARNER: Senator, if you're talking about my neighbors that farm across the road, you bet, they'll vote yes, but the great many people I've talked to, who do not have personal property, argue that they are not willing to Increase their tax burden in order to provide an exemption for business equipment, which is the 100 million.

SENATOR ROGERS: Okay, thank you.

PRESIDENT MOUL: Thank you, Senator Rogers. Senator Hefner.

SENATOR HEFNER: Madam President, I call the question.

PRESIDENT MOUL: Is there sufficient seconds? There are. We will now vote on the motion to cease debate. All those in favor please vote aye, opposed nay. Have you all voted on the motion to cease debate? Have you all voted? Please record, Mr. Clerk.

CLERK: 26 ayes, 0 nays to cease debate, Madam President.

PRESIDENT MOUL: We have ceased debate, and I will recognize Senator Hall for closing.

SENATOR HALL: Madam President, I'd like to ask for a call of the house, and then I'd close while people are coming to their chairs.

PRESIDENT MOUL: Thank you, Senator Hall. We have a request for call of the house. All those in favor please vote aye, opposed nay. Please record, Mr. Clerk.

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CLERK: 21 ayes, 0 nays to go under call.

PRESIDENT MOUL: The house is under call. All unexcused senators please return to the floor and record their presence. All unauthorized personnel must leave the floor. Would the senators please check in. The house is under call. Senator Hall.

SENATOR HALL: Thank you very much, Madam President. The amendment, AM3201, does this, it says that if a constitutional amendment, amending Article VIII of the Constitution, is not adopted, personal property, except motor vehicles, shall be exempt from property taxes for tax year 1992. It goes on to say, and Senator Beutler pointed out, if a constitutional amendment amending Article VIII of the Constitution of Nebraska is not adopted by June, this act shall terminate on January 1, 1992. The rationale behind the draft in this proposal is that if the constitutional amendment is not either passed out of this body, which clearly was one of the intents the way it was drafted, or passed out of this body with 40 votes to have a May ballot issue, and not adopted by the electorate, that for tax year 1992 all personal property is exempt, so that people can plan. It doesn't say that we can't come back into session and put an issue on the ballot. It doesn't even say that...what about the constitutional amendment that only gets 33 votes and is on the November ballot. What it says is that for 1.992, should the constitutional amendment make it to the May primary, which I believe it should, I've always said that and will continue to vote for it, that we don't have to burden those individuals who are out there right now moving their cattle, trying to figure out how to make business decisions in terms of their personal property for 1992, five months after the start of the year. That's what it says. Maybe 11 months if it's on the November ballot. It needs to be a part of this proposal so that people can plan. I buy all those arguments that I heard on 1120 and have heard in relation to the proposal. All this does is incorporate them into an amendment to 1063. And since we started to talk about MAPCO, I would concur 100 percent with what Senator Landis said as it related to the language on page 9, last paragraph, where it says, in any event, personal property and real property are both tangible property under Nebraska law, and must be equalized and taxed uniformly pursuant to the Nebraska Constitution, Article VIII. Read it again, ladies and gentlemen. Everybody keeps skipping over that sentence and saying, well it all fits in the same class. It

9511

doesn't, and that's not what the court said. What the court said is that personal property and real property are both tangible property. So, in other words, personal property is tangible, real property is tangible. You've got to treat real property in a uniform manner, and you've got to treat personal property in a uniform manner. Never does the court ever once say personal property and real property have to be treated identical. If it did, none of the opinion which talks about, frankly, calling a dog a cat, as we did in the special session with regard to personal property is now going to be real property as it related to pipelines, and then they threw that out, I mean that's what we're dealing with here. We can treat a class of property separately. We can treat it uniformly and proportionately by exempting it all. We have that power. The court went on to say that, and I pointed it out. The Legislature has the ability to do that. We have to have a rational, reasonable, public Policy basis for doing that. We do. Personal property doesn't raise any revenue. Seventy percent reporting... less reporting, 70 percent of it isn't reported. We get 30 percent accuracy on it as related to revenues that have been coming in. But yet we are bound and determined to find a way to tax it.

PRESIDENT MOUL: One minute.

SENATOR HALL: That's fine, if we're going to do that, okay. Different subject. All we're dealing about, here in 1063, is saying if it fails at the ballot and we point it out in the bill ... in the amendment that it says it all goes back on, all I'm saying is I prefer the other alternative. I don't want to, like Senator Lindsay said, point it out. Have a 20 percent reduction in real estate values at home and then try to take that away from the homeowners, or the farmers, when all the inventory goes back on. That will be a sticky wicket to be in. That we can't afford to let happen. So you need to exempt it for '92, you need to find the replacement revenue if that's necessary, but you also need to adopt this amendment because the alternative is the worst possible solution. I would urge adoption of the amendment, and I would ask that if everyone's checked in we take a roll call vote, Madam President.

PRESIDENT MOUL: Thank you, Senator Hall. The house is under call. We do have all senators present, and we'll proceed with roll call vote on the Hall amendment to the Warner amendment on LB 1063. Mr. Clerk.

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CLERK: (Roll call vote taken. See pages 1076-77 of the Legislative Journal.) 18 ayes, 26 nays, Madam President.

PRESIDENT MOUL: The amendment fails. I will raise the call. And I would like to direct the senators' attention to the area .under the south *balcony, special guests today of Senator Withem are Rex Gruber of Omaha, and a visitor from overseas, Roger Keay of England. Would you please rise and be recognized. Welcome to the Chamber. Thank you. Do you have items for the record, Mr. Clerk?

CLERK: Madam President, I do. New A bills. (Read LB 1178A and LB 992A by title for the first time. See page 1077 of the Journal.)

A reminder, Madam President. Appropriations will be meeting in 1003. It's in your hearing room? Yeah, 1003, okay. Hearing Room 1003 over the noon hour. Revenue Committee will...reports LB 947 to General File; LB 938, General File with committee amendments; LB 996, General File with committee amendments. Those signed by Senator Hall. And your enrolling clerk has presented to the Governor bills read on Final Reading. (Re. LB 175, LB 878, LB 879, LB 906, LB 928, LB 933.) That's all that I have, Madam President. (See pages 1077-78 of the Legislative Journal.)

PRESIDENT MOUL: Thank you, Mr. Clerk. Recognize the Speaker.

SPEAKER BAACK: Yes, Madam President. I move that we recess until one-thirty.

PRESIDENT MOUL: You've heard the motion to recess until one-thirty. All those in favor please say aye. Opposed nay. We are in recess until one-thirty this afternoon.

RECESS

SPEAKER BAACK PRESIDING

SPEAKER BAACK: (Recorder off) ... the George W Norris Chamber.

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Roll call.

ASSISTANT CLERK: There is a quorum present, Madam President.

PRESIDENT MOUL PRESIDING

PRESIDENT MOUL: Thank you, Mr. Clerk. Are there any items for the record?

ASSISTANT CLERK: Not at this time.

PRESIDENT MOUL: We will proceed again then with Item 8 on the agenda, LB 1063.

ASSISTANT CLERK: Madam President, prior to lunch, we were considering the Warner-Withem-Landis amendment, AM3048. We are now ready for an amendment by Senator Hall to that amendment. The amendment is found on page 1040 of the Journal.

PRESIDENT MOUL: Senator Hall.

SENATOR HALL: Thank you, Madam President. Mr. Clerk, the amendment is AM...

ASSISTANT CLERK: This is FA280. It is on page 1040 of the Journal.

SENATOR HALL: Okay. This would be ... I would respectfully ask that that be withdrawn, Mr. Clerk.

ASSISTANT CLERK: In that case, the next amendment that I have is from Senator Hall. It is an amendment to the amendment, FA281, also on page 1040.

SENATOR HALL: Thank you, Madam President, and thank you, Mr. Clerk. FA 281 would have that all depreciable personal property other than motor vehicles be valued at 150 percent of net book value. The purpose behind that is to compensate for the reduction in value due to the method being used, the net book value, as it relates to only depreciable personal property. In other words, what I am trying to do is protect the fact that real estate taxes won't go up. So, in other words, we start out with a base of 150 percent of net book value, so. that there is a guarantee, if there can be one, and I am not sure 150 percent is even enough to do it. What we have now in the amendment that

9514

Senator Warner has for us in 1063 is a system that would use a state depreciated table, and I guess the argument is is that automatically there will be 100 percent of compliance to that, that state table, as it relates to depreciable property, that folks are just going to, even though presently under the old system, the ad valorem system, it has been shown out, proved that compliance was somewhere between 30 and 40 percent. So, roughly, 60 to 70 percent of the personal property was either undervalued 'or not listed for purposes of taxation. Under this new method, the net book value approach, I guess there is going to be some magic that occurs that requires folks to comply and, granted, in the bill, in the amendment, there are provisions to allow the assessor to subpoena the worksheet. We don't, in the amendment, require the worksheet to be part of the filing. We don't do anything as it relates to additional monies set aside for compliance on the part of the assessors. As a matter of fact, there is a zero percent lid that is built in, but yet we are going to ask the assessors to audit the personal property tax portion, a new tax system under net book value with a new state depreciated table, depreciation table, and we are going to do that with a zero percent lid on local government, so that that compliance factor, that audit factor will have to be picked up from some portion of the budget within the assessors office, I guess, is going to have to be shifted over there. Something is going to have to be let go, something is going to have to go without being done in order to raise the revenue necessary to comply with the net book value approach. All I do in this amendment is say value it at 150 percent, so that you guarantee as best you can that the net book value of personal property covers the $100 million cost that needs to be covered to insure that real estate taxes don't go up. I am convinced that real estate taxes are going to go up, that the net book value approach doesn't raise the kind of revenue, that the compliance., as it was with the old ad valorem method, is going to continue to prevail. That folks are going to say, and if you listen to them on the street, and if my colleagues that I hear talk about it are telling the truth when they say what they hear back home is, well, we just won't pay it, that that is going to continue to hold true, that folks won't file, whether it is a state system or whether the auditor has the subpoena power or not, that it is not going to be there, except for, as someone has said, only the honest people will pay. Well, I just want to make sure the honest people pay all of that $100 million and I am going to require that it be, under this amendment, valued at 150 percent of net book. It ... we don't know what the reporting

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requirement is going to be. We don't know what the compliance is going to be, and with this amendment, what we try to ensure is that the cost is not shifted to the homeowner, the cost is not shifted to the individual, that the cost is borne in the area where the ad valorem tax used to be, and that be with business, in this case, with business and agriculture. I would offer the amendment, would urge its adoption.

PRESIDENT MOUL: Thank you, Senator Hall. Senator Kristensen, followed by Senator Lamb.

SENATOR KRISTENSEN: Thank you, Madam President, members of the Legislature. Senator Hall, if I understand your amendment right, and you can do whatever if I am not correctly characterizing this amendment, but what you are really saying is is that under 1063 when it will pass and if the constitutional amendment, as is presently being proposed, that we could do a wide variety of things. We could tax personal property 150 percent of its net book value. We could tax it at 5 percent of its actual value, and sooner or later what this amendment will get around to is showing the different ways that you can tax property. This isn't an amendment, necessarily, designed to either make LB 1063 a better piece of legislation or do anything else. It is designed to show you and a way to attack the. constitutional amendment. I find this to be unfortunate because that debate truly belongs in the constitutional amendment debate, not on LB 1063. Be that as it may, once you start to head down this line of discussion, and I think that we would like to get the discussion back into what the merits are of 1063 rather than showing what its possibilities are or are not, is that that debate truly belongs to the constitutional amendment. This morning we had some debate and some indication that a constitutional amendment is not necessary. That is something that can't go unchallenged. That is just not true. There has got to be a change in the Constitution no matter which bill passes, and it becomes very apparent if we are going to be working on 1063 that that constitutional amendment needs to be done and needs -to be crafted as closely as we can to not only comply with MAPCO, with the other decisions. So with this, I am...Senator Hall probably has and certainly will use that example throughout the day, or at least I think maybe he will use that example, but that debate belongs on the constitutional amendment, not on LB 1063. And sooner or later, we need to sit down and talk about the merits of 1063 and not the collateral issue of the constitutional amendment because we are not there

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at this point. With that, I would certainly urge you not to adopt this amendment because I don't think there is anybody in here who believes that that is an amendment that is going to be in there and be a contributing factor to any piece of legislation that is going to come out of here dealing with the personal property issue. With that, I urge the defeat of the Hall amendment to the amendment.

PRESIDENT MOUL: Thank you, Senator Kristensen. Senator Lamb, followed by Senator Hall. There has not been sufficient debate yet, Senator Lamb. Senator Hall.

SENATOR HALL: Thank you, Madam President. Anybody ever hear the "Oompah" story. There was a... I heard this in church, believe it or not. There was a politician and he was running for office, statewide office, happened to be Governor. And he was going around the state and he went to a little town out in Nebraska, and he came to that little town, agricultural community, and started to talk to the entire town. It was a town meeting and he said, you know, I am running for office. And he goes, by gosh, I drove into the town and this road coming into town was ... he said it was in terrible condition. And he said, if I become Governor, I am going to build a new road to this town, and everybody in the community said, oh, oompah, oompah. So the politician said, well, I never heard that response before, but he said, great, I will keep going. He said, and I walked down main street and I saw the condition of the buildings on main street, and he said this town really needs to have those buildings updated, and if I become Governor, that is what I am going to do. I am going to work to see that there is rehabilitation on main street in this town. And all the citizens said, oh, oompah, oompali. And he said, you know, lie said there is a real problem with the taxes in this state, and he said, if I become Governor, I am going to make sure that we correct the tax system in this state. And the citizens all said, oh, oompah, oompah. And they all cheered and said, oompah, oompah, again. Well, it became time for the politician to move on to the next town, but before he left, one of the fellows said our community is known for the livestock that we raise here in this community, and I would like to show you before you leave one of our prize bulls. And the politician said, sure, let's -go. So they took him outside of town to a corral where there was a prize bull, and they helped him over the fence, and they said, now be careful, you are dressed very well, when you walk through the field, we don't want you to step

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into any of that oompah. I heard that in church, by the way. And, you know, maybe, I guess, with regard to this amendment, Senator Kristensen says it belongs in the constitutional amendment. Well, you know, I remember a bill that was up, and there was amendments to it, and there was no problem taking out things like motor vehicles and real estate as it related to depreciation add-backs. That was fair game to talk about in relation to the overall scheme of things, and, you know, I thought that was oompah. But the issue here is one of...the argument in relation to 1063 has been this is going to replace that revenue. Proponents have argued time and time again that this is going to be enough to guarantee that property taxes won't go back up, that there won't be a shift from the business to the individual. There are no guarantees, ladies and gentlemen. That is exactly what this points out, and if there aren't revenue figures right now, at least I haven't seen them, to show that this is going to take place, that net book value somehow is going to generate enough revenue to ensure that there isn't a shift to the residential homeowner, because that is exactly where it is going to go. Compliance is not mandatory. Compliance to this type of taxing provision is no different than the old ad valorem method. Granted, you give the assessor the ability to subpoena records. You don't give him any money to do it. You put a zero percent lid on him, and you say go do these extra duties. That dog don't hunt, it don't work. It isn't going to. You can't argue that all of a sudden because you put this new system...

SPEAKER BAACK PRESIDING

SPEAKER BAACK: One minute.

SENATOR HALL: ... in place that there is going to be 100 percent compliance. The money isn't there. They are not going to do it. They haven't done it in the past. Historically, they have reported 30 to 40 percent of value on personal property. That means 60 to 70 percent is either undervalued or not listed at all, and that is going to continue, even though you go about using the net book value approach. It isn't going to work, and when it doesn't work and the revenue doesn't come in, it is going to shift over to the real estate owner, whether that real estate owner be a business, be a farmer, or be a homeowner, and I am worried about the homeowners. I am worried about the homeowners in a district like Omaha, where there is a huge amount of personal property. Nobody has told me how much of it

9518

is depreciable. Nobody has said this percentage, X percentage in Douglas County is going to be depreciated for purposes of taxing...

SPEAKER BAACK: Time.

SENATOR HALL: ... it on personal property. I'd like to know those figures.

SPEAKER BAACK: Thank you, Senator Hall. Before I proceed to the next speaker, I would like to introduce a guest of Senator Elmer. Under the south balcony, we have Jim Smith from Arapahoe. Would you please stand and be welcomed by the Legislature. Thank you for being with us. Senator Moore, you are next.

SENATOR MOORE: Mr. Speaker and members, I rise not necessarily to support Senator Hall's amendment, but certainly supporting and agreeing with what he is saying. As far as Senator Kristensen's argument that this would be better for the constitutional amendment, I would agree were it not for the fact that the constitutional amendment that we are going to discuss, the uniformity clause is no longer applying to personal property, and really the sky is literally the limit of what this Legislature wants to do on personal property. I would agree if your CA was written in such a way to confine me, yes, but I am assuming we are proceeding on this debate tinder the guidelines of what that CA will allow us to do, and if that CA is no different than Senator Schmit's in saying the Legislature can do whatever it wants, however it wants, but it just doesn't say it that way, I think that is certainly the argument and now is the time to do it because Senator Hall is absolutely correct. It is an inexact science to guesstimate how much money will come in under this new net book method, net book value depreciation method of levying property taxes. We do not know, and those numbers have jumped all over... remember, right...the week after the 3-R Committee completed its work, the Governor goes out to -the Farm Bureau and the Wheat Growers and says, the plan as is will cost agriculture $3 million; $3 million is all this plan will cost agriculture. That was one of them, you know, and it could under ... with about ten ifs, that could be true. I think it was irresponsible at the time, and since that time, the Governor, and at least myself, and I think the Governor and the Fiscal Office agree there is a range of numbers there between 7 and 14 million dollars, -ind that Is with three or four something

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on each side of them. We don't know how much money is going to come in, and to assume for a moment, as the Department of Revenue has starting, well, really in between May 12th and June 1, really in a matter of, you know, less than 20 days, there is going to be a 100 percent compliance under this new law, even if everybody wanted to, is unreasonable. That simply is not going to happen. It won't happen in that 20 day period, and I argue it won't happen in '93, '94, maybe by '95, '96, if, and only if county assessors spend a lot of time subpoenaing depreciation worksheets, spend a lot of time auditing things will we ever get close to 100 percent compliance. It is that simple. And if you are going to hold this out as a hold harmless in how much money it is going to raise, I think Senator Hall raised a good point. You had better either find more property to tax under this plan, or raise the value of how we are going to tax it. Because, otherwise, it is going to do what Senator Hall has mentioned, because whatever error there is, it is going to come right out of the homeowner's pocket, whatever error there is going to come right out of real estate, ag land's pocket. Unless you account for that, you'd better be willing to low ball the numbers. if anything, I have only been in this body, this is my sixth session, and I gave this friendly advice to Governor Nelson in November, if I've learned anything about taxes, whatever you do guess low. Don't guess high and fill people with expectations only to have them... those numbers not come true. Be conservative and say here is probably what it is going to be under an ideal scenario, it may be this, and I think the numbers we are working on, unless you are willing to do what Senator [fall is talking about, this is the only way to assure ...

SPEAKER BAACK: One minute.

SENATOR MOORE: .... what numbers be represented as to what this bill will do. That is the only way, in my opinion, that I will be comfortable in saying that there will be no impact there. I think this body has to look at that, and once again, whatever the error is is going to come out of the homeowner's pocket, it is going to come out of the ag sector's pocket. It will totally change that sector analysis. We know that. I think Senator Hall raises a good point that you have to understand that it isn't an exact ... I am not being critical of the Department of Revenue because it is an inexact science, we must admit that, and I think the prudent thing to do is to draw back your estimates and say here is where we are comfortable that we think

9520

might happen. Anything that comes over and above that will be money in the homeowner's pocket, money in the real estate owner's pocket. But until that point, if you want to guarantee those numbers come true, you have to do something like contained in the Hall amendment.

SPEAKER BAACK: Thank you, Senator Moore. Senator Haberman, you are next. Senator Lamb. The question has been called. Do I see five hands? I do. We will now vote on ceasing debate. All those in favor vote aye, opposed vote no. We are voting on ceasing debate, have you all voted? Record, Mr. Clerk.

CLERK: 27 ayes, 3 nays to cease debate, Mr. President.

SPEAKER BAACK: Debate has ceased. Senator Hall, would you like to close on your amendment?

SENATOR HALL: Thank you, Mr. President and members. I appreciate the extensive amount of debate on the issue. The amendment does nothing more than says you are going to use 15O percent of net book value, and the purpose behind that, the way we ran the numbers, 15O percent is probably even a little bit shy. If you use the approximately 38 percent base reduction as it relates to 1063 as it was introduced for purposes of calculating how much revenue is going to come in, that you are going to have to have it up to approximately 15O percent of net book value, when you calculate what kind of compliance we are going to have as it was calculated by the Department of Revenue on the old ad valorem system. Otherwise, without this amendment, 1063, as it is in the amendment Senator Warner offers, is going to mean that by adopting that you are going to have real estate taxes go up, real estate taxes. Residential real estate taxes will go up. That is the long and the short of it. That is what it means. Unless you put additional revenue in the proposal, there is nothing else that can happen except for an increase in property taxes to the homeowner. That is why I offer the amendment. I would urge its adoption.

SPEAKER BAACK: Thank you, Senator Hall. You have heard the closing. We will now vote on the amendment offered by Senator Hall. All those in favor vote aye, opposed vote no. Have you all voted? Record, Mr. Clerk.

CLERK: 3 ayes, 19 nays, Mr. President, on the amendment.

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SPEAKER BAACK: The amendment fails. Next item.

CLERK: Mr. President, Senator Hall would move to amend. Senator, your amendment that is on page 1041 of the Journal, AM282, FA282, I should say.

SPEAKER BAACK: Senator Hall.

SENATOR HALL: Mr. President, members, Mr. Clerk, I would like to skip over that, if we could. I think the next one is FA283, which is ...

CLERK: Yes, sir, 28...

SENATOR HALL: 283, FA283, the next one in line?

CLERK: Actually, I have 284 from you. 283, 1 mean it is to another bill, Senator.

SENATOR HALL: It is to the bill as opposed to the...

CLERK: Not necessarily, it could be to another entirely bill. It just depends on when they came in. FA284 is on page 1056. 1 think I probably misled you this morning.

SENATOR HALL: Ah, it is your list I am going off of, but my mistake. All right, okay.

CLERK: Strike sections 46 through 48, that one?

SENATOR HALL: Right.

CLERK: Okay.

SENATOR HALL: Okay.

CLERK: Do you want to pass over the one you are...

SENATOR HALL: Let's go to 284, if we could, please?

CLERK: Yes, sir, 284, Mr. President, is on page 1056 of the Journal.

SPEAKER BAACK: Senator Hall.

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SENATOR HALL: Thank you, Mr. President and members. This amendment, FA284, would tax all personal property, at least business equipment and farm equipment that was personal property. The taxes on business and farm machinery would be at 60 percent of actual value, and it would, with the adoption, broaden the base, raise the kind of revenue necessary in order to make up the $100 million that was in place in the old ad valorem basis, but it would do it in a ad valorem method, and it would use a 65 percent value, 65 percent of actual value. Now it has all the sores and blisters, all the scars and problems of the old system, and I would argue the new system, in terms of the 65 percent and as it relates to reporting. I am sure it will receive the same kind of welcome reception the last amendment did, and for those purposes, I will close with this, and urge you adopt it.

SPEAKER BAACK: Senator Haberman, do you wish to discuss the Hall amendment? Senator Lamb. There hasn't been any debate, Senator Lamb. Senator Hall, you are next.

SENATOR HALL: I doubt that there will be any. So I will ... I will close.

SPEAKER BAACK: Senator Moore still has a chance to talk if he wants to.

SENATOR MOORE: I will pass for now.

SPEAKER BAACK: Thank you, Senator Moore. Senator Hall, do you wish to close?

SENATOR HALL: No.

SPEAKER BAACK: We will now vote on the amendment offered by Senator Hall. All those in favor vote aye, opposed vote no. Have you all voted? Record, Mr.-Clerk.

CLERK: 5 ayes, 15 nays, Mr. President, on adoption of the amendment.

SPEAKER BAACK: The amendment fails.

CLERK: Mr.. President, Senator Hall, I now have AM285, Senator. It is on page 1057.

9523

SPEAKER BAACK: Senator Hall.

SENATOR HALL: Thank you, Mr. President and members. The last amendment, many of the members talked about either this morning or in previous debate about the issue of liking actual value, liking going ... expanding the base to all personal property as another alternative. They chose not to talk about that. I guess that is going to be the tack that is taken on these amendments. For that purpose, I am going to withdraw this amendment, and any other amendments that I have, and I will wait until we get to the constitutional amendment. And I am very likely rethinking my position on the constitutional amendment in terms of 40 votes. If this is the way I think the debate is going to be handled after fully seven to eight days of dragging LB 1120 through the mud, then I will withdraw the amendments. I won't offer another amendment to 1063, and the fight will be on as it relates to the constitutional amendment, and we will debate them, and we will debate them inside and out, up and down, and across the board, and that is where, Senator .Kristensen, if you prefer the debate be there, we will take it on. I will respectfully withdraw the amendment.

SPEAKER BAACK: It is withdrawn.

CLERK: Mr. President, the next amendment I have is by Senator Hefner. Senator, your amendment is AM3210. (See page 1080 of the Legislative Journal.)

SPEAKER BAACK: Senator Hefner.

SENATOR HEFNER: Mr. President, and members of the body, this amendment removes breeding livestock from the Warner amendment. I just think we need to be realistic here. I don't know the difference between some breeding stock that is depreciated and some that isn't. I have talked to a number of farmers, some of them depreciate it, some of them don't. Some of them depreciate part of their breeding stock herd and some of them don't. So I am just saying let's remove all livestock from personal property. I think this would be the simplest way to do it. As to money, I received different reports on what it would raise to add breeding stock to the tax rolls on a depreciated basis. One of the figures I have is a little over 3 million, another one a little over 4 million. So it really isn't that much money that we are talking about, but I just feel that removing all breeding livestock from this amendment would be the way to go. The other

9524

day we had a discussion on what is a cow. When is a cow a cow? Is it a different cow if it is on a different side of the fence or a different side of the road? And I know Senator Landis gave us a good description about that and he talked about how we treat cash registers. And I'd rather call the cash registers "Jewish pianos" but that is a different story again. But like I said, this doesn't cost us that much money and different farmers treat their breeding livestock different. Some depreciate theirs and some don't. So I just say let's treat all livestock the same. Let's remove breeding livestock from this amendment, and this is what this would do. I encourage you to support this amendment. Thank you.

SPEAKER BAACK: Senator Landis.

SENATOR LANDIS: I am not sure if our rules allow this or not, but I wish to, for my own sake, indicate that I think the phrase "Jewish piano" is inappropriate for the discussion on the floor, And it is out of order, and is not an appropriate use of language on the floor of the Legislature.

SPEAKER BAACK: Thank you, Senator Landis. Senator Haberman. Senator Lamb.

SENATOR LAMB: Yes, Mr. President and members, I rise to support the amendment, and I would just like to discuss the issue for a moment. Senator Landis gave a good dissertation the other day about the description of what is productive equipment and what is inventory. And I think for the most part, he is correct. However, breeding livestock are different than a punch press in a factory. Even though breeding livestock is used for productive purposes, it is also used for resale. I have on my desk a copy of the Omaha World-Herald, a Sunday edition, and I counted the number of cows that are for sale, over 5,000 cows in one week at the various livestock auctions in the state that Are listed for sale. And that means that somebody is buying those and somebody is selling those, and so cows are not only items of productivity but they are also for some people inventory. And so we just cannot fairly, at least, classify them in the same manner as a piece of machinery in a factory. Now, why shouldn't... what is the unfairness, what is going to happen here? As has been mentioned, the amount of money statewide is not huge, somewhere around $3.5 million dollars, but that $3.5 million is spread out among a few numbers ... a few people, a few people. So the issue to those people is large. It is a

9525

heavy burden for those people who do buy their replacement cattle, or hogs, or whatever. Now a person like me that raises his own replacement heifers would get by scot-free without a property tax on the breeding herd because I don't buy them, I raise them, so all of the funds that it takes to raise that livestock is taken off my tax return immediately. There is nothing to depreciate and it is not eligible for depreciation, nor should it be. However, my neighbor who is in the same business of raising cattle, has cows, but his program is a little bit different. He buys his cows, and then, instead of raising them, so he has a depreciable product. And so that means that he is going to be at a distinct disadvantage to the person that raises his own. It is going to affect the cattle industry in this state, and I don't think we want to do that. I don't think we want to do that, and so I guess I would just urge the body to adopt the amendment so that livestock, all livestock, are treated as inventory, because when we don't do that, we get into real problems between producers who have a slightly different operation, and it would be a real detriment to those people that buy cows and, in fact, you are going to see the price of cows drop considerably just because they know that if they are purchased, then they are going to have to pay tax on them. So it is going to affect the industry in a negative manner. I don't think we want to do that. I hope that this amendment is adopted.

SPEAKER BAACK: Thank you, Senator Lamb. Senator Moore.

SENATOR MOORE: Well, Mr. Speaker and members, I guess I almost rise in a neutral capacity on the amendment to raise a concern. Now there has been several ... many times in the last week people have referred to LB 1063 as treating personal property uniformly, although I have always escaped me what that meant, and Senator Beutler the other day said that how all the personal property would be treated the same; Senator Warner stated again this morning that all depreciable property will be the same. And as we know 1063 in its present form, that is not a true statement about the way it is, and this amendment, once again, would take out livestock, and treat them differently, that depreciable property that is livestock, and treat them differently than everything else. So, once again, the uniformity clause goes out the window. We are already doing that anyway. We aren't keeping uniformity within class, not even attempt to keep uniformity within ... well, like I said, uniformity in the class is even gone, even the sub... the small

9526

class is even gone. So all depreciable property will not be treated the same, and all depreciable property will not be treated the same. I think Senator Kristensen, maybe Senator Hall is right, too, I mean, maybe we need to start talking about the Constitution and what exactly we are going to do to, the uniformity clause, how much, in my opinion, this body is willing to bastardize that long held belief that should guide our -constitutional thought on our tax policy in the State of Nebraska, maybe that is the time, maybe we do need to go directly to that and talk about that before we talk about LB, 1063, because Senator Hefner's amendment, I mean I support it in concept and financially, my only concern is that if we are going to have some attempt, I am trying to be constructive, if you're going to have some attempt to try and treat things the same, you can't adopt Senator Hefner's amendment. You also have to adopt my later amendment to take 775 out because you have got to treat them all the same. So, maybe, we need to wait and see on the Constitution, what we are going to do with the uniformity aspect. Even though we are going to pull personal property out, are we still going to make some small attempt to retain uniformity within the class of personal property? I don't know. That is a question we are going to have to answer. Maybe we do need to go straight to the Constitution and maybe this body has to come to grips with how far we are willing to push totally ignoring and totally eliminating any uniformity whatsoever when it comes to personal property taxation in the State of Nebraska. That is something that concerns me greatly. I have always said and I still argue that I am willing to exempt all personal property and treat them all the same. And that is my greatest, my feeling the greatest flaw with 1063 that it does not do that in its present form. Senator Hefner's amendment will just add onto that. I guess you can adopt it because you are already doing it anyway, but I guess 1, at this point in time, probably will not support Senator Hefner's amendment until we've debated the constitutional amendment, and what this body is going to do to the uniformity clause, and if this body has any intent whatsoever to make the uniformity clause still apply to personal property in any way, shape, or form. And if you don't want to, then vote for Senator Hefner's amendment. But if you are going to try and either go to the court or go to the people, and go to the people and say we are pulling personal property out from underneath the uniformity clause and keeping it separate from real, my concern is that really what you want to do is take personal property out from underneath the uniformity clause and make no attempt whatsoever to apply uniformity to the class of

9527

personal property. That is something I don't think the voters of the state will ever buy nor, in my opinion, should buy.

SPEAKER BAACK: Thank you, Senator Moore. Senator Withem, you are next.

SENATOR WITHEM: Yes, Senator Baack, members of the body, this is an amendment that, frankly, I assumed early on in this discussion that ultimately we would be supporting and adopting, but I don't think we can, and in some ways I feel bad about that because of all of the potential shifts you can make in 1063 to bring on more support, this is really one of the cheapest, but it is also potentially one of the most dangerous, in my opinion, because ... grant for a second Senator Moore may have made some good arguments about the depreciation methodology and what its actual effects would be, and Senator Hall may have made some good arguments about financially what is out there versus what the Department of Revenue has projected. All of those may or may not be valid arguments. I do not know, but the one thing I do know is we have gotten in trouble, where we have gotten in trouble with the courts is establishing a general rule of how we will treat property and then making specific exemptions for specific types of property from that general rule. And I think it is important that we apply the general rule. The general rule we are applying is depreciability. If is on a depreciation schedule that is depreciating personal property, it will be treated the same as all other depreciating personal property. .If we don't do that, if we treat one particular category of property differently by name, carve out an exemption, we are inviting a challenge on the other end of the spectrum in terms of equal protection or, at the very least, a 4-R challenge that we are not allowing the railroads. I suppose you'd make the argument the railroads don't have to pay taxes on any of their livestock either, but that isn't how the courts usually make application to this principle. Second point I would make, I don't know if this has been made or not yet, in the area of livestock, as I understand it, ranchers, dairymen, hog farmers, cattle feeders, all have various choices on how they handle their income from that operation and then how they write it off. Some of them carry losses forward. Some of them put it on depreciation schedules. Some of them produce their own breeder livestock, and under this scheme, under 1063, one of the positive aspects of it is that the individual makes the choice. If they claim it as an expense and put it on a depreciation schedule to achieve the federal tax benefit, then it goes on the

9528

state tax rolls, and there is a benefit there. The third thing I would point out, I have heard a number of people make the argument that, well, livestock are really different because they are both machinery in the legal sense of something used to produce other items, but they are also inventory because you eventually sell them. You will buy breeder livestock, and after it has used up its useful life as breeder livestock, it is then sold and the salvage value is returned and the animal goes off to the happy slaughter yards, and it is sold as meat then, at the end of that, and for that reason because it is both...it is both machinery and it is inventory and it ought to be treated different. Very few items that are of the nature of personal property equipment and machinery...

SPEAKER BAACK: One minute.

SENATOR WITHEM: ... they are usually treated the same way. I will buy a copy machine. I will use that copy machine until either the copy machine is no longer working, or it has used up its useful life and I need a bigger and better one, and then that copy machine doesn't go away. I will end up usually selling that also. I end up selling my car after I pay personal property taxes on it. The most items that are of a machinery nature are, in fact, ultimately sold. That doesn't. make them inventory, because as I understand the tax code, there is a concept called the rule of first use, and if your first use of an item is not to hold it for resale, that isn't the reason you purchase it, that is not the reason I purchased my copy machine, that is not the reason the breeder livestock was purchased, the first purpose is to use that to produce income.

SPEAKER BAACK: Time.

SENATOR WITHEM: And so the rule of first use is applicable in this case and it ought to be continue to stay on the tax rolls.

SPEAKER BAACK: Thank you, Senator Withem. Next speaker, Senator Conway.

SENATOR C0NWAY: Thank you, Mr. Speaker and members. 1 rise in opposition to Senator Hefner's amendment. I think, and as Senator Withem aptly pointed out, that without question, Senator Moore alluded to as well, that the adoption of this amendment without question would blow a hole into the LB 1063 and its constitutionality that a 4-R train could drive through, bigger

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hole, as Senator Hall would say. The basic tenets of 1063 as they were established was not a definition of property by name and specific type of property other than how the taxpayer elects to choose that property be used for taxation purposes. It has nothing to do with cows. It has nothing to do with cash registers. It has nothing to do with any particular item of specificity. What it does have to do with is the taxpayer's election, his choice of how he wants to use that property, and the difference between one cow on one side of the fence and a cow on the other side of the fence is nothing more than the taxpayer's decision to be able to shelter or at least forego paying income taxes now by using this particular accounting technique to depreciate that piece of property. And under the IRS codes, we allow livestock to fall into a category that if you would like you may depreciate that property for a period of time and forego any income tax. I think if you talk to almost any accountant that is operating since the Tax Reform Act of 1984, they would tell you, you are just crazier than a hoot owl for trying to depreciate livestock. First of all, they have given it such a short life and, two, in almost each and every case when you buy a young heifer and put into the breeding category and then sell it out as a canner after four or five or six years, you are then going to end up having to recoup and recapture all the depreciation that you had and pay the applicable tax, which, in many cases, will put in a higher tax bracket than you had been had you not been depreciating that particular livestock for that period of time. But there are still people doing it out of old habits and out of other manipulations and attempts to try to beat income taxes. Without question, no matter what the property taxes is, no matter what the sales taxes are going to be, the federal income tax is the big bugaboo for almost any taxpayer that is out there, and they will try to structure themselves to address the federal tax purposes first. As far as the depreciation that is applied to the livestock, I have seen some of the numbers. I really question whether or not, under the direction of most accountants in the state today, that those numbers are even as large as they seem to be. But it is not a question of a specific type of a piece of property. If you go back to when we were first starting to wrestling with this, we were trying to define real estate, personal property in the Constitution, and in some of the statutes of years ago trying to talk about the fixative nature and the various kinds of things that we have defined property over the years. What I think the strongest part of 1063 is that it no longer looks at the property specific but

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looks to the taxpayer and how they elect to choose that property on tax schedules. So I think without question, Senator Withem has fairly well summed up the tenets that were behind 1063 and why a cow is a cow and that we don't care whether it is a cow, the question is whether they are using it shelter away from income tax, and if not, then you can always elect not to 'depreciate that particular livestock and this whole amount of money in one way or another would be short-lived one-year readjustment for county purposes, and, in fact, most of the people will probably find they are better off to not have been depreciating their livestock over the period of time. So I rise in strong opposition to Senator Hefner's amendment.

SPEAKER BAACK: Thank you, Senator Conway. Senator Wehrbein, you are next.

SENATOR WEHRBEIN: Mr. Speaker and members, I support Senator Hefner's amendment, and I can't add an awful lot to what Senator Lamb said, but it seems to me that one of the difficulties I would have explaining is a cow on one side of the fence and a cow on another, much as others have said, one is depreciated and one is not. It just simply seems to me that it is logical to keep all livestock in one classification, and, therefore, I support his amendment simply to perhaps simplify, in many cases, the classification of livestock. Also I think it gives it more fair and equitable treatment, and it just seems to me, for the amount of dollars we are talking, that it is reasonable that it be exempted, and simply not make a distinction between it. I would agree with Senator Conway, there probably will be a tendency to get away from depreciation as time goes along if this would not be amended, and perhaps it could be adjusted to, but if that was to be the case, then we simply ought to take it off now and not bother with moving that down the road, so at least livestock operators that want this option can. As you get into more expensive breeding livestock particularly, I think the depreciation is very logical. Perhaps it is not so much under a commercial operation, but under purebred operations, having the ability to depreciate the high value of livestock is a very worthwhile and I think reasonable thing to do. So I'd encourage support for Senator Hefner's amendment.

SPEAKER BAACK: Thank you, Senator Wehrbein. Senator Nelson, you are next.

SENATOR NELSON: Yes, just a question for clarification. We

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seem to be talking about particularly breeding cows. I am assuming, then, since the Internal Revenue Code livestock is draft breeding, dairy and sporting goods, animals used for sporting, and it also is, and I am sure doesn't even enter into our thoughts, minks or whatever may be raised, but for clarification, Senator Hefner, are we talking about horses, too, breeding quarter horses, thoroughbred horses?

SPEAKER BAACK: Senator Heftier.

SENATOR HEFNER: Senator Nelson, we are talking about all breeding livestock.

SENATOR NELSON: So that would, for clarification, include horses?

SENATOR HEFNER: Yes, include any of them, if the horse is livestock, it would include horses.

SENATOR NELSON: All right. I know the conversation went as for breeding cows or heifers or so on.

SENATOR HEFNER: Yes.

SENATOR NELSON: So I wanted that clarification that it would include ...

SENATOR HEFNER: Senator Nelson, yes, but it would...

SENATOR NELSON: Right, thank you.

SENATOR HEFNER: ... also include dairy herds, sow, pig operations, cow-calf operations.

SENATOR NELSON: Sure. Thank you. Thank you. Also, Senator Withem mentioned, he has some points on the income tax code, it is first in, first out, and particularly in breeding bulls. I think someone would probably be foolish not to depreciate them if they are up in the 20, 30, 40 thousand dollar class, but there are very explicit rules on depreciation, and the times it was put on the tax rolls, whether it was 1981, whether it was makers acres, or 1986, so I don't think there is that much fudging on the way that the livestock is put on the tax rolls. I probably will not be supporting this because I see it as another way of narrowing the tax base, but in reality, I don't

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see much difference in the other day of the argument on the real estate. And so if you exclude one, why not many others, but I think it would narrow our tax base more than what we actually want to do, even though I am sympathetic with the breeders and they are not... certainly not every operation is handled the same.

SPEAKER BAACK: Thank you, Senator Nelson. Senator Beutler, you are next.

SENATOR BEUTLER: I would like to call the question, Mr. President.

SPEAKER BAACK: The question has been called. Do I see five hands? I do not see five hands. I do now. Okay, we will vote on ceasing debate. All those in favor vote aye, opposed vote no. We are voting on ceasing debate. Have you all voted? Record, Mr. Clerk.

CLERK: 7 ayes, 16 nays to cease debate, Mr. President.

SPEAKER BAACK: Debate does not cease. The next speaker is Senator Schmit.

SENATOR SCHMIT: Mr. President and members, for many years we have been subjected to criticism by the court and others because we do not treat all personal tangible property equally. And so there is today proposed a constitutional amendment which allows us to get rid of the equal and proportionate clause of the Constitution and we put in its place then one of the least credible types of tax programs that anyone could ask for. And as an example, I am sure you have heard others, anyone one of us could sell three identical female animals, one would go into a breeding herd, would be taxed; one would go to Senator Wehrbein's feedlot, would not be taxed; and one would be kept in my own herd to be raised, to be utilized as a replacement heifer, would not be taxed. Now I understand that we are getting rid of the equal and proportionate clause of the Constitution, but by getting rid of it, does that give this Legislature the right to be as discriminate as we can possibly imagine in putting in place a tax program? We totally violate the ability to pay rule because for the most part those who are just starting to farm or starting in business will be required to pay the taxes. We totally violate any kind of proportionate taxation and we totally also abdicate to someone else the method

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whereby the taxes will be administered and collected. And if you think you have trouble now, ladies and gentlemen, I predict that that trouble will increase dramatically in the future. Senator Hefner's amendment is a small step toward trying to correct a massive inequity in a terrible bill, and I just cannot understand today or will I understand at any time during this session how anyone on this floor, who has for years committed themselves to some kind of equitable taxation proposal, can support a proposal which is today, in my estimation, the least equitable of all. I know that there are those who will say we have to do it this way to raise a certain amount of money. You might just as well tax telephone poles, light poles, outhouses, anything else you want to tax, but to just decide that based upon raising X number of dollars we are going to tax various items of personal property on a depreciable basis is unforgivable. I would like to suggest also that at some point we are going to find that the public will not accept this kind of proposal, and the other alternative then is that there are those who hope that we can put on the ballot a constitutional amendment, and that the constitutional amendment will fail, and then we will revert back to the proposal that everything goes back on the tax rolls. I Ladies and gentlemen, that does not concern me any more. I am the foremost proponent of the removal of person property taxes. I do not think it is fair, I do not think it is equitable, I think it is an antiquated system, but prior to the time that I would ever vote for the 3-R proposal that would tax personal property on a depreciated basis, I would vote to put everything back on the tax rolls, including household goods, automobile inventories, the Nebraska Furniture Mart inventory, the whole ball of wax, and I want to have my urban friends explain to Jim Earp and Roy Smith and Michael Daniel and Mrs. B why it went back on.

SPEAKER BAACK: One minute.

SENATOR SCHMIT: If we are going to skin the cat, we just as well skin the cat from top to bottom and head to rear and that no hide, no hair be left, because at the rate we are going, all we are doing is trying to reimpose the personal property tax on a very small segment of the population. Someone said if it all goes back on, it would be a 48 million dollar hit for agriculture. When we took it off in 1977, some of you weren't around in those days, it was a 66 million dollar item. How then can you put it all back on today and it only cost agriculture 48 million? If those numbers are off, and I am sure they are,

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then the rest of your numbers are off also. So I would support Senator Hefner's amendment and hope that the bill doesn't go anywhere.

SPEAKER BAACK: Thank you, Senator Schmit. Before I go to the next speaker, I would like to introduce a guest of Senator Cudaback. It is his brother, Jack Cudaback, and he is under the south balcony. Would you please stand and be welcomed by the Legislature. He is a lot better looking than you are, Jim. That is okay. The next speaker is Senator Warner.

SENATOR WARNER: Mr. President and members of the Legislature, I would rise to oppose the amendment. Certainly this is an amendment which I suppose I would personally like. In fact, I would personally like it, but I don't think I can support it because of the tax issue policy that I think is addressed and I have no different one than what has already been stated. But I am convinced, if it is not a constitutional issue, that it is, without question, an issue with the 4-R Act concept, and I simply do not think it is worth the chance of jeopardizing the whole system by making this addition. There is the basic uniformity between types of property, is essentially the two classes, depreciable and nondepreciable. And in the case of livestock, you can make the same argument of other kinds of personal property that, for whatever reason, is not being depreciable ... not being depreciated at a given time because one machine is older, then another one is depreciated out, one is just bought. It is all those arguments that are equally applicable to many parts, many of the types of personal property that we are dealing with. I think we need to stay, for constitutional reasons, that we need to stay with essentially those two classes of depreciable and nondepreciable, with the bulk of the personal property as far as business equipment, inventory, livestock, and farm equipment. And to deviate from that is just opening the door to a later problem, and I would hope again this is one of these amendments that one would not do. I have sympathy for it, but because of the legal implications or potential implications, 'at least, I do not think it should be accepted at this time.

SPEAKER BAACK: Thank you, Senator Warner. Senator Landis is next. Senator Landis, yes.

SENATOR LANDIS: You see how much stress, it has made my hair white listening to Senator Hefner's amendment. I rise to oppose

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the amendment and simply recapitulate I think some of the problems with the amendment. First, this makes our ultimate public policy infirm on a 4-R basis. It puts us back in the difficulty of treating certain kinds of personal property differently and, thereby, creating a system that does not have a conceptual whole that supposedly treats personal property the same. That is a problem with it. Secondly, this does have about a $ 3.5 million impact on the tax base, under current practices. I predict under 1063 that ultimately we will have to absorb that difficulty over time because without this change opportunities exist for farmers and ranchers to take care of this problem, an opportunity that exists now which a vast majority of ranchers utilize. It is quite sensible not to depreciate one's cattle because given the fact that when you purchase livestock and ultimately sell it, you almost invariably sell it for more than what you purchased it for. When that happens, Senator Conway in a quick sketching for us all, points out that you wind up recapturing all that lost depreciated value and have to pay income tax on that new sales price which is larger than the amount that you depreciated over time. For that reason, the majority of ranchers and 80 percent of the cattle or livestock in this state is not now depreciated because it makes economic sense not to do so. If 1063 becomes law without the Hefner amendment, we could predict that that 80 percent that is not now depreciating would grow in number, and by growing in number, eventually take care of this problem, livestock not being on the depreciation system, or the net book system of 1063, and eventually would escape taxation. Why, when we have a method available for ranchers and for livestock, which the majority of them are now using, why, when that option is available, should we shoot ourselves in the foot with respect to 4-R? I would suggest that you, even though you support the notion that livestock should not be taxed, oppose the Hefner amendment and realize that options are available to ranchers, farmers in the disposition of their livestock, and will see to it that they will not be taxed as a depreciable item simply by the elections that they choose to utilize. Actually, it will wind up being a simpler bookkeeping process, and in the vast majority of cases, your ultimate income tax liability will go down. There is a natural process to take care of this problem without the Hefner amendment, without running afoul of 4- R, and imperiling some of the public policy goals that 1063 would eventually achieve. Lastly, in his closing, I hope Senator Hefner will tell us whether the adoption of this amendment is offered as a genuine friendly motion or not.

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PRESIDENT MOUL PRESIDING

PRESIDENT MOUL: One minute.

SENATOR LANDIS: I am not sure it is. My guess is that the amendment is offered so that those of us who are bearing the burden of supporting 1063 will continue to carry Senator Hefner's public policy without him sharing the load. My guess is that this is not the place in which Senator Hefner throws up his arms and says, Eureka, we have found it. I am now a 1063 supporter, let's carry this home to our districts and I will carry my fair share of the load. As a supporter of 1063, Senator Hefner's amendment here really is one of the opponents trying to burden the bill, diminish its public policy virtue towards an end which can otherwise be achieved and yet not bring us any political support for the bill. I would urge you to reject the amendment.

PRESIDENT MOUL: Thank you, Senator Landis. Senator Schmit, followed by Senator Wickersham.

SENATOR SCHMIT: First of all, Senator Landis, I am pleased to know that livestock, we almost always sell the livestock for more than they cost. Of course, sometimes that is after we put $300 worth of feed in them and $100 worth of interest, and $100 worth of other assorted costs. It does not mean that we make money on all those operations. My concern with the proposal, as has been outlined before, is that it has been identified here as saying that we have set up the class, depreciable and nondepreciable property, and that if we follow Senator Hefner's lead, we are diverting from that procedure. Well, shucks, haven't we done that anyway when we vacate the uniform and proportionate clause of the Constitution? We have thrown the rules away. We have thrown the rules away and, in effect, you might just as well go with my proposed constitutional amendment which says the Legislature can do anything you want to do. Now you are going to say, well, but we have some guidelines; we are trying to bring some sanity, some degree of levity, some degree of reasonableness into this proposal. Reasonableness, ladies and gentlemen, is in the eyes of the beholder. In this instance, I do not deem it to be reasonable at all. I deem the proposed depreciation schedule- method of arriving at personal property taxes to be nothing less than chicanery. It is a fraud. It ought not to be proposed by reasonable people, honest

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people. It has no basis, whatsoever, there is no basis whatsoever to say that it constitutes a fair and equitable method of taxation. Senator Hefner is trying to say, at least, if we have three identical animals, they ought to all be treated identically taxwise, and that makes sense to me. I would suggest that in the event the 3-R proposal passes, which I hope it does not, it will not take very long, first of all, of course, for the railroads to let themselves out, we know that will happen, secondly, to be followed by pipelines and by telephone lines. Third or fourth will be the first farmer who has to tax his depreciable livestock or the depreciable tractor when another similar or identical item is not taxed, and I think that notwithstanding the best well-intentioned efforts of this Legislature to find some system to raise a little bit of money, if that court is as consistent and as conservative and as predictable as they have been in the past, it will promptly throw out the 3-R Committee proposal. I do not know, I think that Senator Hefner is sincere. I think that the fact that he tries to improve the bill does not necessarily make him required that he support the bill. I would hope that there will be other amendments to this bill that might make it less odious. I do not believe any amendments can be proposed short of removal of all but the number that will make it acceptable. And as I have said before, I believe the proper role to go would be to say, nuts! If it is a question of who is going to bite the bullet, then I think we have to say, well, maybe the experiment to exempt certain classes of personal ...

PRESIDENT MOUL: One minute.

SENATOR SCHMIT: ... property from taxation failed and, therefore, we shall return it all to the tax rolls. Ladies and gentlemen, those of you who are concerned about the homeowner can march back to your respective districts in the Cities of Omaha and Lincoln and you can correctly take credit for a substantial reduction in the tax on homes because real estate should go down then. It will not decline much in the rural areas because it is not going to make that big a difference there, but I would predict a substantial decrease in the real estate taxes in the primary and metropolitan class cities. If that is what you are looking for, then the route to go is to return all personal property to the tax rolls and I want to hear someone explain the merits of that because I can't do it.

PRESIDENT MOUL: Thank you, Senator Schmit. Senator Wickersham.

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SENATOR WICKERSHAM: Thank you, Madam President. Just a couple of quick comments, I have heard some discussion here that revolved around the issue of whether or not you claimed a depreciation deduction on your federal income tax return, and whether that had any effect on whether or not livestock would have to be listed for purposes of assessment of personal property tax under the terms of the amendment that is before us now, 3048. As I read the amendment, it is not dependent at all on what you do in terms of your federal income tax return. There is simply a definition that says that if property is used in a trade or business, has a life of more than one year, it is property in the system and it is classified in accordance with the CFRs. You may elect or not elect to depreciate on your federal income tax return, but as I read it, it makes no difference as to treatment within the system. So from that standpoint, I think that some of the discussion we have heard about whether you can elect to have your cattle or your hogs or your sheep taxed by simply making some sort of an election on your federal income tax return is not correct. Senator Landis, I think, made some comments with regard to the 4-R Act and whether or not exempting livestock would create some problems with the 4-R Act. I would simply suggest to you that we will have no more problems with tile 4-R Act because of an exemption from livestock than we will from tile 775 exemptions that I think some other folks want to preserve. If we are going to exempt 775 property, we can easily afford to exempt some breeding livestock. I will support Senator Hefner's amendment primarily because I cannot see any distinction between raised breeding livestock and purchased breeding livestock for purposes of this system. Both of them have a similar function. Both of them would have a similar value, and if we do not treat them tile same for purposes of the property tax system, I don't think it will make any sense to anyone, and I don't see anyone advocating that all of a sudden we put all those raised breeding livestock on to the personal property tax rolls. So I will support Senator Hefner's amendment. Thank you.

PRESIDENT MOUL: Thank you, Senator Wickersham. Senator Schmit.

SENATOR SCHMIT: Madam President and members, I think that Senator Wickersham has once again put his finger on the crux of the matter, and that is that we, as a Legislature, frequently pick and choose. He has pointed out that the 4-R Act is not going to be jeopardized any more by the livestock exemption than

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by the 775 exemptions, and no one on this floor has seriously proposed that we return the present 775 exemptions to the tax rolls. In fact, to do so would probably be doubly discriminatory. It would increase the handicap that new companies would have coming into the business as opposed to those who are already covered and protected by contracts, and so we will avoid them. We will avoid household goods. We will avoid charitable property but we, for some reason or other, have zeroed in on livestock arid farm equipment. I want to make one additional point. The argument has been offered frequently on this floor that we need to get some of the revenue back where we lost it. Ladies and gentlemen, you didn't lose any revenue from livestock or farm machinery. Those items have been exempt for 15 years. It is business equipment that is coming off the tax rolls, so if you really, in all reality and honesty, want to recover the revenue where you lost it, then you have to zero in on business arid, obviously, that is unfair. But then whoever said we had to be fair on the floor of the Legislature. I support the Heftier amendment.

SPEAKER BAACK PRESIDING

SPEAKER BAACK: Thank you, Senator Schmit. Anyone else wishing to discuss the Hefner amendment? Seeing no one, Senator Hefner, do you wish to close?

SENATOR HEFNER: Mr. President and members of the body, what this amendment will do, it will take breeding livestock out of Senator Warner's amendment, and the reason that I want to remove that is because I would like to see all livestock treated equally. There has been good debate on this issue, pros and cons, and I can understand where some of them are going, like Senator Landis arid Senator Warner and Senator Withem. You are trying to hold this bill intact, but my question to you is, how about the exemptions on LB 775? And I would like to keep the exemptions on 775, but there, again, that was an exception, so why can't we exempt depreciable livestock? I think it is just that simple. I would like to treat all livestock the same, feeding livestock, breeding livestock the same, but I want to be realistic about this and I want to tell you about this. I have a lot of young dairy farmers in northeast Nebraska and I would like to keep them out there, but they are having a hard time making a go of it. They bought their dairy herd, and at the present time, most of them are depreciating them, and here now we are going to slap a property tax on them. It is going to be

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very tough for them to stay aboveboard. Also we need to try to help the cow-calf operators and the sow-pig operators. I can't see why we want to. tax, put a personal property tax on breeding livestock. It is just that simple., and I know that accountants treat these differently, but, as I understand it, if you buy livestock, buy breeding livestock, well, then the accountant will usually recommend that you depreciate them. If you raise them, no, you don't have to, but, as I understand it, some accountants do recommend that you depreciate them too. Senator Landis said most of the time livestock raisers receive more for depreciated livestock when they sell than when they buy. Well, Senator Landis, I can quote you sometimes that they don't and I am not in the livestock business, but I have some good friends that are and some relatives, and sometimes they take quite a loss on this breeding livestock that they buy. You asked me if this is a friendly amendment. Yes, it is a friendly amendment and it is also a common sense amendment and a realistic amendment. And I'll show my* cards, I will support LB 1063 reluctantly if we also get the sales tax off of farm machinery. I'd rather have 1120, rather have LB 1120, but I realize that right at the present time we don't have the votes for it. But let me tell you this, railroads will not pay one penny of personal property tax in Nebraska. Mark my words. It is just that simple, they will not pay one cent of personal property tax, and I don't care how we structure this, they will find a loophole. So this amendment helps that little guy out there. Governor Nelson says I want to help that individual, I want to help that little guy, this amendment will do it. And so I would encourage you to support this amendment. Thank you.

SPEAKER BAACK: Thank you, Senator Hefner. You have heard the closing on the amendment offered by Senator Hefner. We will now vote on that amendment. All those in favor vote aye, opposed vote no. Senator Warner.

SENATOR WARNER: I request a call of the house and a roll call vote.

SPEAKER BAACK: A call of the house has been requested and a roll call vote in reverse order. First on the call of the house, all those in favor vote aye, opposed vote no. Record, Mr. Clerk.

CLERK: 21 ayes, 0 nays to go tinder call, Mr. President.

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SPEAKER BAACK: The house is under call. All members please report to the Chamber and record your presence. The house is under call. Members, please report to the Chamber and record your presence, the house is under call. A roll call vote in reverse order has been requested. This is an amendment to the amendment so it takes a simple majority. We are looking for Senator Beutler, Senator Lynch, Senator Labedz, Senator Chambers, Senator Robak, and Senator Rod Johnson. Senator Schmit, would you record your presence, please. The house is under call. All members please report to the Chamber and record your presence, the house is under call. We need Senator Chambers, Rod Johnson, Lynch and Beutler. We are now looking for Senator Chambers. Okay, a roll call vote in reverse order has been requested. We are voting on the amendment to the amendment by Senator Hefner. A simple majority is required. Please keep your conversations down so the Clerk can hear the responses. Mr. Clerk, call the roll.

CLERK: (Roll call vote taken in reverse order. See pages 1080-81 of the Legislative Journal.) 23 ayes, 23 nays, Mr. President.

SPEAKER BAACK: The amendment to the amendment fails. I will raise the call. Items for the record, Mr. Clerk.

CLERK: Mr. President, very quickly, thank you. Attorney General's Opinions addressed to, one to Senator Coordsen, a second opinion, two opinions addressed to Senator Coordsen. (Re: LR 219CA and LB 946. See pages 1093-1100 of the Legislative Journal.)

Amendments to be printed by Senator Dierks to LB 111; and by Senator Lindsay to LB 424. (See pages 1081-85 of the Legislative Journal.)

Mr. President, the next amendment I have to LB 1063 is by Senator Wickersham. AM3172, Senator. This is an amendment to Senator Warner's amendment.

SPEAKER BAACK: Senator Wickersham.

SENATOR WICKERSHAM: Thank you, Mr. President. This amendment was handed out to you and it simply inserts the words "purchased, which is" and the word "income" in a section of the bill that is defining property that would become subject to tax

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under the system set out in 1063. The reason I am inserting or am proposing that the word "purchased" be inserted is because you can have what is known in the tax business as step-up basis property. Step-up basis property typically is property that you inherit on the death of someone else. That property would become subject to tax under the provisions of 1063 as pro posed and as amended by 3068, 3048. 1 do not believe that it would be our intention to put that property on the personal property tax rolls. Let me give you an example. Let's say you have the owner of a small store, and in the store they have a cash register, and they have a counter, and they have some filing cabinets, and they have some display shelves, and all of those things are more than ten years old, and the proprietor, let's say for this example is the husband, dies. The wife wants to continue the business and one of the things that the attorney representing them in the estate will tell them is that the property, that filing cabinet, that shelf, that counter has a new basis, even though it is zero on the date the husband died because it has been depreciated out. As soon as he died, it had a new basis and that new basis was the fair market value on date of death. Normally, that has been official because you have new depreciable basis for purposes of the tax code, so you get tax benefits. But in this instance, we would take away some of those tax benefits because we would put that property on the personal tax rolls and increase the burden on that wife as she sought to continue the business. Now you could have more extreme examples in a small operation, this applies to both small and large. Let's say you have a farm or a ranch and you have machinery that has been fully depreciated, and all of a sudden it comes back in with fair market value as basis, or you .have a herd of breeding livestock and they have no basis because they were raised, or they have been depreciated out, and all of a sudden they have basis, and they would become subject to tax under the proposal that is before you now. I do not think it is our intent to put that kind of property on the personal property tax rolls. There are also other instances in which you can have step up in basis, corporate dissolutions, for example, may result in a step up in basis. I originally proposed this as a simple amendment so that we could bring it to your attention. At this stage of the debate, it will be brought back later with perhaps a slightly different amendment. I simply want to introduce the concept to you so that you have time to think about it and realize that there is more to this perhaps than what you had originally thought. With that, I will ask that the amendment be withdrawn and will bring back the concept later.

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SPEAKER BAACK: It is withdrawn. Thank you, Senator Wickersham. Next item, Mr. Clerk.

CLERK: Mr. President, the next amendment I have to Senator Warner's amendment is offered by Senator Elmer. (See FA288 on page 1085 of the Legislative Journal.)

SPEAKER BAACK: Senator Elmer. Senator Elmer.

CLERK: Senator, this is the amendment you gave me this morning and I believe you have distributed copies to the members.

SPEAKER BAACK: Senator Elmer.

SENATOR ELMER: I was a moment indisposed there when Senator Wickersham took his amendment away so quickly. I apologize to the body for that. Ladies and gentlemen, Mr. Speaker, I think that what I have given you here gives us a real basis for expectations for the constitutional amendment to pass and put most of the citizens in the state on the same kind of a basis as far as their personal property is concerned. An individual homeowner will think about the amendment in much the same way as a businessman, a cattleman or a farmer if this amendment is adopted. It's very simple. It puts household goods and personal effects on taxable basis as personal property if a constitutional amendment is not adopted. I'll say that again. It's very simple. It puts household goods and personal effects back on the personal property tax rolls if the constitutional amendment that hopefully we are going to propose is not accepted and adopted by the people. I believe that it would make the constitutional amendment much more attractive to a much larger segment of the population and would get us a long ways toward getting our tax problem solved and with that, I'd ask for the adoption of my amendment to Senator Warner's amendment.

SPEAKER BAACK: Thank you, Senator Elmer. The next speaker, Senator Warner. Senator Hall, you're next. Okay. Anyone else wishing to speak to the amendment offered by Senator. Elmer? Senator Moore.

SENATOR MOORE: Well, Senator Elmer, this is the amendment that basically says, complete the picture so to speak, that if the constitutional amendment would indeed fail, that everything, as Senator Landis so eloquently stated this morning, we are

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confined with the language in the MAPCO case, this is the amendment that says that household goods and charitable will go on as well?

SPEAKER BAACK: Senator Elmer.

SENATOR ELMER: Senator Moore, I drafted this amendment to address household goods alone, household goods and personal effects. I did not include charitable organizations nor the other exemptions that are currently in effect in the personal property tax schedule. When I was thinking about this amendment and the things that it could do for the passage of the CA, I thought this would probably be far enough to go and besides that, I didn't have time to draw a proper amendment here at my desk to be able to accomplish all those different...address all those different exemptions.

SENATOR MOORE: Okay, well I think that would be the proper amendment to file because I think I'm a believer in what Senator Landis said this morning, if you read MAPCO and you read Enron, you read the Constitution, the best thing to read, you have a copy of it, is it Judge Shanahan's dissent in the MAPCO case, it paints out very clearly what Senator Elmer is talking about, that you follow any sort of logical conclusion, if you agree in the direction that the court going, the only place you can go with that logic as 775 has gone, household has gone, charitable has gone. You can read that case and, I mean, Senator Landis gave a very compelling argument today after... after he said, we're confined by this, when I pushed him on it he said, but they don't mean it about that, but read the Shanahan dissent, and I wish you would, I think that paints it very -clearly, that there is much more at stake here. If the uniform clause, uniformity clause is the supreme doctrine that must guide our tax policy on personal property, you can't...I mean, I don't know how on earth you have an administrative problem that is supreme to the Supreme Court's judgment. I just... I cannot fathom that. Flow you can say that, yes, it's unconstitutional but it's such an administrative nightmare, it's not workable, I just cannot fathom how a court could say that even though they really did say that in Enron. I think the Shanahan dissent, and both those cases you ought to read, and I think that gives credence to the fact that it was talked about, 775 and things were not at issue, therefore, they were not addressed in MAPCO. I think Senator Elmer's amendment does, once again this is my opinion and my opinion only, accurately reflect what does

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happen, happen if we do nothing because if we can't exempt... if you cannot exempt personal property, you must tax it all and all means everything. That means everything in Section 2, subsection 2 of Section 8 and that does mean the thing Senator Elmer's... should have been all inclusive in his amendment. I think it should be, and with that I wish Senator Elmer would come back at a later time with a more finely crafted amendment, but if the desire of this body is to give the people of the State of Nebraska a picture what could be since we're all, we're all sitting here second guessing what the court is going to do, where they're going. Judge Shanahan painted out very clear to me that's where it has to be. I think Senator Elmer is right and it's not just the big four, the big four being farm machinery, inventory, livestock and business inventory. It goes beyond that and includes all personal property. I think, yes, we are confined to that as Senator Landis articulated very well this morning, you either have to tax it all, and obviously I have long made an argument that intangibles...

SPEAKER BAACK: One minute.

SENATOR MOORE: ... should be a part of that argument, but constitutionally they don't have to be part of that argument. I think from a policy standpoint they should be but they are in a different section of the Constitution. The thing Senator Elmer is talking about, our part of the mix, the people in the state should understand if they want to vote everything out, if everything should mean everything, everything should mean household goods and charitable goods as well.

SPEAKER BAACK: Thank you, Senator Moore. Senator Warner.

SENATOR WARNER: Mr. President, members of the Legislature, the discussion I've heard, I suppose since the beginning of the session of that the concept that is included in the amendment before is in that personal ... household goods and personal effects would go back on the tax rolls and I don't disagree with those who think that might be the case. The court case, as I recall, only had two judges making some comment as to whether or not personal property was to be exempt and as I recall and as others have indicated, it was relative to the difficulty in assessing and collecting which in many respects you could apply to a lot of personal property, but I rise to oppose the amendment for not for those reasons, but more of one of what I think would be perceived. I doubt that it's generally believed

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that household goods and personal effects was put back on the tax rolls. It certainly was not addressed by a majority of the court as I understand it. It's true that Judge Shanahan made some reference in his portion of the decision of being illogic of what two other judges had indicated, but aside from that, I think it would add an ingredient in the discussion of a proposed constitutional amendment by the public that would not. be perceived to be a legal question but one that somehow or other they were being coerced into voting for the amendment rather than the legal issue that certainly is there. I'd be hesitant then at this point to vote yes on this amendment, recognizing the arguments of those who are proponents of it, but more of one that the impact of that being adopted, of it being adopted, I think would adversely affect any ballot issue that would be on in either May or November if that's where it ends up.

SPEAKER BAACK: Thank you, Senator Warner. Senator Schmit.

SENATOR SCHMIT: Mr. President and members, it's often been said that it's more expensive to collect a tax on household goods and personal effects than we would receive or the subdivisions would receive in revenue from those items. We know, of course, that for insurance purposes virtually every insurance agent will insure personal property, household effects and personal effects for one-half the value of the house. If you choose to do it otherwise, you may of course by option list either a greater or lesser amount, if not, that is the amount that is used. it would be a very simple procedure thereby to collect the proper amount of tax due upon those items so that argument falls upon hollow ground I think. Secondly, in regard to the comments made by Senator Warner as to whether or not someone might feel coerced into voting for the amendment because if they did not, the tax might. go back on their own personal property, I can't think of any better reason for someone to vote for or against an ,amendment than how it affects them personally. It is relatively easy for me to vote to place a stiff tax upon intangibles because my holdings in that area are extremely limited. it is relatively difficult for me to vote for a proposal that will raise the tax on real estate and that is all a matter of how it happens to be at the moment. But to argue that we can get a fair vote on the constitutional amendment that would exempt personal property from taxation if, in fact, failure to adopt the amendment might mean that 500,000 persons who otherwise don't pay a dime of personal taxes are going to pay some brings to the argument some degree of reasonableness that hasn't been

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there before. There used to be some connection between the payment of taxes and the right to vote. That doesn't exist anymore and it's probably a good thing, but it also has opened the door to indiscriminate spending and some lack of responsibility on the part of those of us who are in office. And I know that there are those who will come back and say well we've just sort of spaced off household goods and personal property. Ladies and gentlemen, I do not have an estimate but I would guess that there are billions of dollars worth of household furniture and personal effects out there that ought to be considered as a part of the total tax picture. Therefore, I think Senator Owen Elmer makes an excellent argument for his amendment. In response to Senator Moore's concern, I believe that it is also reasonable that Senator Owen Elmer takes the issue one bite at a time and that lie first offers this amendment and then that we later offer additional amendments to make the package, the tax package, complete. I continually question how serious this body is about a fair and equitable tax proposal when we continue to want to zero in on a program which will tax only a very small minority of the individuals. To pass this amendment and then to pass the bill would be to bring about the best in all of its I think and to require the most, the ultimate statesmanship when we go back, home and explain to our constituents that the court said it all goes back on. Does all mean all or does it only mean livestock, farm equipment and business inventory?

SPEAKER BAACK: One minute.

SENATOR SCHMIT: I think, ladies and gentlemen, all means all and Senator Owen Elmer has taken the first step in that direction. I support the amendment and I support also any subsequent amendments to add the other items to this proposal.

SPEAKER BAACK: Thank you, Senator Schmit. Senator Withem, you're next.

SENATOR WITHEM: Yes, Mr. Speaker, members of the body, I would stand in opposition to the Elmer amendment. First of all, I know some of us in here when we throw our rhetoric around as our shorthand methodology of describing what happens if a constitutional amendment doesn't pass, if no legislation passes, we use the terminology it all goes back on. Senator Schmit, if that was part of the point you were making, you made a valuable point in it doesn't all go back on depending on what your

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definition of all is. What goes back on or stays on I should say, Senator Lindsay criticizes me for using that language that saying it will go back on, it is on. What the court said in MAPCO was the four exemptions, the big four, livestock, farm machinery, farm inventories and business inventories all go back on. That is the lion's share of personal property in the state and that is what happens. The court very specifically, I believe, and Senator Kristensen this morning refreshed my memory on where the different decisions were. I believe he indicated in one of the Northern cases the court very specifically takes up the question of household goods and personal effects and indicates that it's order does not apply to them and that is the law of the state. If the Supreme Court interprets it in such a fashion, that is the law of the state. Earlier this morning we voted to not change the status quo with Senator Hall's, amendment. Senator Hall's amendment would have altered status quo if the constitutional amendment doesn't pass. Our vote at that time was, no, let's leave status quo as it is in case the constitutional amendment does not pass. Let's let the MAPCO decision take effect, let's not alter that. Senator Elmer is taking us another step in a different direction to alter status quo and I see no reason to do it. I think the voters actually will somewhat resent our putting a gun to their head as such and daring them to vote against the constitutional amendment and threatening to tax household goods and personal effects if they do not support the constitutional amendment. Senator Moore did indicate that Judge Shanahan made some language about questioning the logic of the majority of the court in stopping at the big four and not going beyond that. I would point out to other members of the body who are not as learned as Senator Moore is that this was a dissenting opinion and there is a reason that it was a dissenting opinion and that is because Judge Shanahan did not agree with the logic of the majority of the court. And the majority of the court is what makes the opinion. I was visiting with Senator Conway about this and Senator Conway very desperately wished that the dissenting opinion in his case would have been the rule of the court, but it wasn't. It was a minority opinion. The majority of the court has indicated, in other opinions that household goods are not at risk. You can question whether that is a logical decision or not a logical decision, but that's what they have done. That's what they have said. What they have ruled in MAPCO is that livestock, farm inventories, business inventories and farm equipment tax exemptions are illegal and that they are against the Constitution and that for 1992 and all years beyond,

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if we do not pass a constitutional amendment altering the Constitution's uniformity clause, that they will be back on the tax rolls and I don't...

SPEAKER BAACK: One minute.

SENATOR WITHEM: ... think we ought to be crafting these sorts of what if scenarios here on the floor of the Legislature so I am not going to support Senator Elmer's amendment.

SPEAKER BAACK:, Thank you, Senator Withem. Senator Elmer, you're next.

SENATOR ELMER: Thank you, Mr. Speaker. You know, Senator Landis earlier in the session when we started to address our tax bills made a very compelling speech about let's get together, let's have some compromise, let's do some things that make things more palatable. Looking at this, why should some personal property addressed by the what if, if the constitutional amendment should not pass. Why should some personal property in the form of business inventories and farm inventories be put back on the tax rolls when household goods are merely your home's inventory? You have to have those pieces of equipment there in your household in order to conduct your household's business just like you have to have inventory on your farm or in your business in order to conduct your daily affairs of your business. It seems only reasonable that all the citizens of the state have the opportunity to view this in the same kind of light. What are we doing? What are we not doing? Why is some property exempt and why is some of it not? Yes, this is an opposite way of looking at it than Senator Hall had this morning. His would have removed all personal property from the tax rolls to make it so that it's more salable to the public for the CA. This goes the other way to make the CA more salable to the public. Why do we want the status quo? It's why we're in trouble. Status quo is something we can't keep. It just can't work. We need to have some give and some take to mold something that fits better, a little less burdensome in some areas, a little more contribution from some others. Somewhere in there is an agreement in this body, surely we can reach it through some sort of a compromise. But if we can only talk of the status quo, heavens, that's not compromise. That's not working together. What do we want to end up with? It seems to me that there are individuals, heaven forbid, that would like to see nothing done in this session and it all automatically, as

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Senator Withem defined it, all of the things that were addressed in the MAPCO would be back on the tax rolls and that is what might like to be happening. But I wouldn't think that benighted opinion would lie within any breast in this body. Heavens, we know what business inventory and livestock inventory taxes would do to this state, very bad. And I would continue to ask you to think positively about this minor adjustment and let us go forward with a CA and a bill that we can sell and has a chance to be passed. Thank you, Mr. Speaker, or Madam President, now. Thank you.

PRESIDENT MOUL PRESIDING

PRESIDENT MOUL: Thank you, Senator. I'll now recognize Senator Wehrbein followed by Senators Coordsen, Moore, Hefner, Schmit, Schellpeper and Withem. Senator Wehrbein.

SENATOR WEHRBEIN: Madam President and members, I felt compelled to say something about this because I did introduce a bill along this very line to bring up the point that household goods should be included in all in my opinion. It was interesting in the hearing, I was the only introducer, there was no one behind me to oppose it, no one behind me to support it and I didn't even bother to close so obviously it didn't have much interest in a hearing. But it does seem to me, based on Judge Shanahan's logic also, and I realize he was a minority opinion in this case, that all should mean all should mean all. And even if this body decides not to do anything with this amendment at this point, which I won't be surprised if they don't, it seems to me that the logic ought to be there that if, in fact, something... the amendment doesn't pass in May, that household goods ought ultimately to be vulnerable to being put back on simply because the right question wasn't asked as I would understand some of it in the court opinion, the right question being asked might come to liking household goods back on. Just because it would be an administrative nightmare or whatever doesn't seem to stop the court in many other cases. So it seems to me if we're really to follow what the Constitution says, we can't really back away from household goods simply because they would be' hard to administrate. It doesn't make sense to me in the long run to do household goods. But on the other hand, as we go along this path of potentially putting everything back on, then it seems to me surely they all should be put back on. I've made the point many times that actually the amount of value on household goods based on the 50 percent factor that Senator

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Schmit raised and which I have researched somewhat too, there is an enormous amount of value in household goods across the state. I don't know how it would compare to the value of farm machinery or other things, but it is an enormous amount of valuation and to simply allow it to slip away doesn't make sense if we are really going to go to the point of putting all, all, all, everything back on the tax rolls.

PRESIDENT MOUL: Thank you, Senator Wehrbein. Senator Coordsen.

SENATOR COORDSEN: Thank you, Madam President, I need to ask a question and I don't know who to ask it to so I'll ask, Senator Hall, would you respond to a question, please? If a...are household goods in furnished apartments or houses taxable and depreciable and all of that? You know if you...

SENATOR HALL: No, not unless they are considered a fixture.

SENATOR COORDSEN: Not unless they are considered a fixture, so just the only things that are.

SENATOR HALL: Anything that you could take out of the house, Senator Coordsen, would not be considered taxable.

SENATOR COORDSEN: Okay. Thank you. I wasn't clear on that. I knew some items in a house were and some weren't. And the point being and the reason I'm glad that Senator Elmer did bring this up at this time is that this gets to the issue that we're talking about and that is the ultimate unfairness of the whole system of taxing one class of personal property or personal property because of whom it belongs to and not an investment by someone else whether that be household goods or intangibles or anything else that people hold as personal property. it's simply not fair to proceed in the manner that the body of this Legislature seems intent to do at this time, is to penalize, to penalize business and agriculture in Nebraska simply because that is the mechanism that some of our citizens have chosen to make their living by and yet others with a different occupation would bear very little burden of increased taxes or in many cases, a reduction in what they're paying, a shifting of the burden to someone else because of profession. I think it is unprofessional conduct on the part of this body. I think it is not a clear thought process on the part of the administration to be promoting this particular effort. If we're going to, as a matter of policy choice, decide that personal property, personal

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property should be part of the valuation base for the support of the local service of government, then do that. If you do not believe that to be the rational course, then don't penalize certain groups of people simply because that's how they make a living. I'll be voting for this amendment to make that point. Thank you, Madam President.

PRESIDENT MOUL: Thank you, Senator Coordsen. Senator Moore.

SENATOR MOORE: Madam President and members, I certainly applaud Senator Elmer for bringing forth this amendment. I think it has been good discussion, as is really today I think it has been outstanding discussions and the part that I find most fascinating is the circular arguments that many supporters of 1063 have laid forth. You know today, this morning, when the amendment was before us to exempt all personal property, very outstanding speeches given by, just read MAPCO, folks, read it, read it. It says personal property and real property are both tangible property under Nebraska law and must be equalized and taxed uniformly pursuant to the Nebraska Constitution. Well, that's what MAPCO said, therefore, it says you've got to tax it all. Then when... you know, that was ... Senator Landis says you're foolish to even think anything else than that, when I asked, push other things, well, they don't mean household goods but yet what does the court say about household goods? What do they say about household goods and the other exemptions? What did they say? They said, pursuant to 77-202 household goods and certain property owned by nonprofit, religious, educational, charitable, horticultural or cemetery organizations is exempt from taxation. The validity of these exemptions has not been challenged in this court and to our knowledge has not been challenged in federal court. Then nobody asked us that. We're taking a walk on it. That's what it's saying. It's that simple. That's not an issue. That was not at issue. It is saying that nobody asked us that and then you go on, and that's when Shanahan's dissent comes into... is a dissent. You're absolutely right, Senator Kristensen, it's a dissent and, yeah, I'm sure Senator Cullan would wish that dissent was real but his dissent was saying, hey, wake up, people. If the court means this, they've got to do it all. And they didn't do it all because they weren't asked. To be consistent, they are going to do it all and the crux that has made me so upset over this is that the lobby figured that out a long time ago. They figured out, that out a long time ago that we've got to do something now when it is a very narrow part at issue. And for us to bring

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that up though, we're absolutely wrong, we're coercing the body, that we're no more coercing the body than what we already are trying to do. I mean, I think we're coercing the body when we failed to adopt Senator Hall's amendment. We're coercing, not the body, the public, by voting for that amendment and it is no more unreasonable to say they're all there than it is MAPCO because the big four were all that were at issue there. And Senator Elmer brings forth the amendment that I think lays it out very plainly, and oh, don't talk about...don't try and lead people to believe that may be what happens, because that's probably what is going to happen. And when you read that decision, you read the statement that almost all personal property must be taxed, you read the decision, it says, nobody asked us, it's not been at issue and no federal court has ever found it being a problem. Then you read the Shanahan dissent, it is very obvious that it all is at issue and that if somebody challenged it, I don't know who is going to challenge a court's, a church's exemption, but if somebody does, given what is laid out in Enron, was laid out in MAPCO, it's got to go too as does the 775 exemptions. That's why the Constitution must be changed is to keep all those things protected. And ... I didn't say that, Senator Hall. Many will argue that and that's what infuriates me is that and to make sure that we can sell this to the public and since a small minority of the public is involved in agriculture, we have to go around, beat the drum and say agriculture is going to pay some out of this bill. And for those reasons, that is why I've been adamant, I continue to be adamant and I will continue to fight this because there is no reason you have to do this. And Senator Elmer is absolutely right...

PRESIDENT MOUL: One minute.

SENATOR MOORE: ... if you want to listen to MAPCO, if you want to paint the picture clearly to people, you need to adopt Senator Elmer's amendment because it's all at risk. And all of a sudden when it's all at risk, the situation and the voting public in this state changes dramatically, it changes dramatically, the situation in this body changes dramatically. And we don't know, but why do you want to solve this problem very quickly, very quickly I might add when we don't know if we can exempt it all, we don't know if these things are taxed, we want to brush it under the rug, change the Constitution and back when we were for changing the Constitution to keep the status quo, I supported it and I will again today. We're changing the

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Constitution and at the same time changing policy, that's what upsets me, that's why I will continue to oppose this, that's why we should support Senator Elmer's amendment.

PRESIDENT MOUL: Thank you, Senator Moore. Senator Hefner.

SENATOR HEFNER: Madam President and members of the body, I rise to support Senator Elmer's amendment to Senator Warner's amendment because I think if we're going to put all back on,. we should mean all. We should include household goods and I realize it may be hard to assess that, but like Senator Schmit said, let's do it the way the insurance companies do, that isn't too bad an idea. Now 50 percent of the valuation of that house that you live in is too great, well let's drop that. Let's put on 20 percent then, or 30 percent, but we can do that here. I believe, like Senator Scott Moore said that everything should go back on and Senator Owen Elmer said lie didn't have time to get the amendment drafted to include everything else, well let's adopt this amendment first and then when we're debating the bill which should come tip a little later on, then we can add the others to it. But I think if we mean all tangible personal property, then we should say and do it all and so I would certainly support this amendment. The Revenue Committee just recently heard Senator Wehrbein's bill to add household goods to the property tax rolls and I didn't have any problem with that. I think that's the way to go and I would encourage you to support Senator Owen Elmer's amendment.

PRESIDENT MOUL: Thank you, Senator Hefner. Senator Schmit.

SENATOR SCHMIT: Madam President and members, Senator Wehrbein said when he introduced the bill to return the personal prop. . the household goods to the tax rolls no one supported him and no one opposed him, he didn't even close. Do not be discouraged, Senator Wehrbein, frequently ideas such as that are ahead of their time or else they are so politically dangerous that no reasonable person wants to touch them, does not mean they do not have merit. I would suggest that, as I said before, the issue whether or not to tax personal property is a measure raising revenue ought not to be a rural versus urban issue. The issue we're talking about here today is whether or not we return to an outdated, outmoded, antiquated system for supporting government by the taxation of property or do we move, as has been indicated on this floor by a number of individuals toward another source of income, namely income taxes and/or sales

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taxes. This. Legislature many years ago before any of us were here except Senator Warner decided that sales taxes and income taxes ought to be utilized. Most of us have at one time or another endorsed that proposal and that concept. We continued to endorse that proposal through '71, '77 and later years. All of a sudden now because of some arbitrary treatment which we, and I was a part of it and I'm as guilty as anyone, we're aware of but which we hope would probably not bother us, we find ourselves embroiled in the all or nothing debate. Only in this instance all or nothing isn't really all or nothing. We want to pick and choose. We want only to address those four items included in the MAPCO. Were not farmers or rural people so fragmented they would do exactly as the railroads did, pipelines and the telephone companies, they would challenge the issue in court. Instead, agriculture gets what it deserves in all honesty because those of us who represent agriculture on the floor here do not have the resources to challenge in the court system the unfairness of the exemptions on intangibles, the unfairness of the exemptions on household goods or other property while taxing those items that are necessary to earn a living. No one would seriously argue that $100,000 worth of household furniture is necessary to the living style of the average Nebraska family as many homes in this state possess that amount of furniture and much more. Yet that same amount of money invested in business equipment or in agricultural equipment would be taxed and taxed severely tinder any kind of a system which we propose. What we are proposing to do here is if we're going to go back to the antiquated, outdated system, then let us go back all the way. Let us not just go part way because there will come a time, as Senator Moore has pointed out, when someone will exercise the challenge and we ought not to just do that which the court directs us specifically to do. It reminds me of telling your children to pick up their clothing, then you have to point at each sock and each shoe with a yardstick to get them to do it. That's exactly what we are doing here. The court has said bang, bang, bang, those four points and so we say well let's not look at the rest of it. I would hope that before this session is over, this Legislature ...

PRESIDENT MOUL: One minute.

SENATOR SCHMIT: as pointed out by Senator Coordsen, will follow not the path of expediency, but the path of reasonableness and will move away from the taxation of property as a basis for the support of government. If the more people

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who are involved in the support of government, the less likely there is to be extravagances on the part of those of us who spend the money. I support the Elmer proposal.

PRESIDENT MOUL: Thank you, Senator Schmit. Senator Schellpeper, followed by Senators Withem, Hall and Robinson. Senator Schellpeper.

SENATOR SCHELLPEPER: Thank you, Madam President and members, I rise to support this amendment also. I think if you really want to help a bad bill and make it better, this will make it a lot better. And if you want to have a CA that the people will vote to approve, you need to have this amendment also. This is going to make sure that the CA is approved by the voters. If there had been a court challenge to 775 to the intangibles, to household goods, to earth moving equipment, that would also be going back on the tax rolls but they were not challenged and they need to be challenged also. This is a way to get at the household goods. I think the others need to be challenged too. If we're going to come up with a law or a tax solution that will stand the court test, then you need to make sure that this amendment goes on because it's something that needs to be part of the whole package. You can't come in and do a little piece here and a little piece there. It needs to be like the Supreme Court said, all needs to go back on or all needs to go off. This amendment is a good amendment,, it's a fair amendment, it's a better tax policy than what we have at the present time. Thank you.

PRESIDENT MOUL: Thank you, Senator Schellpeper. Senator Withem.

SENATOR WITHEM: Madam President, members of the body, just one other comment, I hope I won't use all of my time regarding why this amendment is not to be included is another distinction that the court has used, maybe not as much in MAPCO as in earlier decisions in distinguishing different types of property. They make a reference to income producing property and the rationale in excluding the personal property on pipelines I believe was because of what this Legislature had done in the arena of income producing property. I believe maybe, Senator Kristensen, if I'm right or wrong, that might have been when they began to make the distinction between household goods and personal effects because they are not income producing property. I am yet to be convinced that there is a need to do this and I don't understand

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why, when you have a lot of the state already up in arms not knowing what it is is actually going to happen with this amendment and legislative bills and whether they pay personal property tax or whether they don't, why we need to add this other element of uncertainty to the picture and it just doesn't make any particular sense to me at this time to do this, to go and particularly when we talk about things flying politically or not flying politically to go back home next week and explain to your constituents back home that you've given them the opportunity to once again pay property tax on their refrigerators, their fur coats, their diamond rings and all of these other things we talked about. It just makes absolutely no sense and I've yet to be convinced it's a good idea and I would suggest to people that they do not support this particular amendment.

PRESIDENT MOUL: Thank you, Senator Withem. Senator Hall.

SENATOR HALL: Thank you, Madam President and members, I rise to oppose the amendment as well. I guess I don't understand the rationale because I fully expect after this amendment to see an amendment that would strip, for example, on page 78, subsection b, lines 15 to 20 of the bill that spell out exactly what will happen if the constitutional amendment doesn't pass. If we're not to put into place those provisions that, what if -scenarios, if you will, then I would fully expect to see the proponents of this measure strip all those provisions from 1063 or the amendment to it so that there is not any, I guess, scare tactics with regard to how people vote on the constitutional amendment or not. And the issue with regard to, you know, just so people are informed, Senator Withem, on the issue of dissenting opinion since much of the discussion refuting that has been from concurring opinions, I guess I would argue that what's the difference between a concurring opinion and a dissenting opinion with regard to the weight of it, there probably is no difference. It's the majority opinion, what it took to get everyone to buy into the final product that lays out the groundwork or the rationale for the decision by the court. All the concurring opinions do is say, here's why I did what I did. All the dissent does is say, here I went in a different direction. I would argue that the dissent and the concurring opinions hold the same amount of weight and much of the arguments in opposition to these proposals have been extracted from concurring opinions and hold no more weight than a dissent does.

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PRESIDENT MOUL: Thank you, Senator Hall. Senator Robinson, followed by Senator Bernard-Stevens.

SENATOR ROBINSON: Call the question.

PRESIDENT MOUL: Do I see sufficient seconds? I do. We'll now vote on the motion to cease debate. All those in favor please vote aye, opposed nay. Have you all voted on the motion to cease debate? Please record, Mr. Clerk.

CLERK: 26 ayes, 0 nays to cease debate, Madam President.

PRESIDENT MOUL: Debate has ceased. I now recognize Senator Elmer for closing.

SENATOR ELMER: Thank you, Madam President, I think there has been a good healthy debate here about the issues that we are addressing and it still boils down to the propriety of taxing personal property. If some personal property is exempt from taxation, why isn't all of it? It doesn't make any sense and that's why we're here. Let's talk about household goods for a minute. Household goods are the same thing whether they're in a private home or in a furnished apartment. In a furnished apartment the landlord owns the apartment and the furniture within it. Because he is renting that to some other individuals than himself, that furniture is business property, it's part of the depreciation schedule as being depreciated. He is paying business taxes on it. The very same piece of furniture owned In a home is not being taxed. That's exactly why the pipeline won its case in the Supreme Court is because some things were being taxed of the same type and others were not. This is a good example of how this personal property gets all tangled up, it's very difficult to tax and tile same argument applies to intangibles. It seems to me that if an apple is an apple in one bin, it's an apple in the other bin and if we're going to be talking about an even, fair tax system, then each of us should look at it in the same light of what it does, how it does it and tile potential down the road. And I sincerely believe that if you really want this constitutional amendment to pass, that we all really believe needs to happen, we do want to resolve our constitutional dilemma. We want to have the people pass a constitutional amendment that will allow us to put a sane tax policy into this state and I can't help but think that if this amendment is adopted that we'll have a greater chance to get the

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constitutional amendment passed, and we'll have a greater chance to equitably solve the problem. And with that I'd ask for the members to support in adding this amendment to Senator Warner's amendment and making a good, solid bill out of this. Thank you, Madam President.

PRESIDENT MOUL: Thank you, Senator Elmer. We will now vote on the Elmer amendment to the Warner amendment to LB 1063. All those in favor please vote aye, opposed nay. Have you all voted? Senator Warner.

SENATOR WARNER: Madam President, I request a call of the house and a roll call vote.

PRESIDENT MOUL: We'll now vote on the request for a call of the house. All those in favor please vote aye, opposed nay. Please record, Mr. Clerk.

CLERK: 24 ayes, 0 nays to go under call, Madam President.

PRESIDENT MOUL: The house is under call. Would all unexcused senators please return to the Chambers and record their presence. All unauthorized personnel must leave the floor. Senators, please check in. The house is under call. Would the senators please check in. The house is under call. Senator Beutler, Senator Chambers, Senator Robak, Senator Wesely, Senator Hillman, would you please check in. We are still looking for Senators Chambers and Robak. Senator Warner, Senator Robak is on her way if you wish us to proceed. We'll proceed with a roll call vote.

CLERK: (Read record vote. See page 1086 of the Legislative Journal.) 17 ayes, 22 nays, Madam President.

PRESIDENT MOUL: The amendment fails and I will raise the call. Next amendment, Mr. Clerk. Items for the record, Mr. Clerk.

CLERK: Madam President, your Committee on Education whose Chair is Senator Withem reports LB 1045 to General File with amendments; LB 1238 General File with amendments, those signed by Senator Withem. Health Committee reports LB 1173 indefinitely postponed signed by Senator Wesely and LB 1062 to General File with amendments. And Senator Wesely has amendments to LR 210 to be printed. (See pages 1087-88 of the Legislative Journal.

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And, Madam President, new A bill, LB 1019A introduced by Senator -Wesely. (Read by title for the first time. See page 1088 of the Legislative Journal.)

Senator Hall, you have the next amendment with a note to withdraw. Thank you. Madam President, Senator Rod Johnson would move to amend. Senator, I have AM 3240

PRESIDENT MOUL: Senator Rod Johnson.

SENATOR R. JOHNSON: Thank you, Madam President, members, this has been a long anticipated amendment that deals with sales tax on farm machinery and equipment. It-is probably the pivotal issue in a number of people's minds on whether or not they might support 1063 depending upon how we treat machinery relative to when you buy it, not simply to own it. It is my opinion that there are some things happening right now behind the scenes to address this issue and a compromise may well be worked out on this very issue. But I've got to tell you, I don't know what the rest of you have been hearing out in the country or the districts you represent, but in the district I represent and the areas that I have traveled there is a great frustration, a growing frustration that we're losing everything, that we've lost in LB 1120, that we're getting it put to us through LB 1063 and that we just simply can't win on any of these things and it just seems to me that we can improve the perception at least of LB 1063 if we do something with the sales tax on farm machinery. The real concern I guess that many of the farmers that I've talked to have said is to me, Rod, explain this to me. You're going to tax me on the sales tax when I buy the machinery, then you're going to tax me for owning it on the depreciation schedule and I just simply can't afford to do that anymore, that's just illogical to me, I just simply will not support that. I've got to tell you, quite frankly, it is very tough to go home and say that LB 1063 is something I can vote for with this kind of taxation in it. It just goes against the grain of the people I happen to represent. Now I realize not all of you represent people who own farm machinery and I remember Senator Vard Johnson one time saying we need to show political courage in addressing this issue and it's easy to have political courage when the people being affected by the courage that you're being asked to exercise are people that you don't have to represent. But in this case, I ask the body to repeal the sales tax on new and used equipment when you purchase it. That's a fairly large

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dollar figure as far as lost revenue. My amendment does not address a replacement source of revenue. That is probably the biggest deficiency of my amendment. It is not that I am opposed to looking at alternative revenue sources from both business and agriculture to provide for this exemption on the sales tax, but it really addresses two things. You know as I see it, one, it addresses a perception of unfair treatment under 1063 by the 3-R proposal on machinery and, secondly, it addressed the issue of border bleeding that we have talked about many years in this Legislature, that a number of implement dealers along the borders of our state have suffered because the farmers or customers can simply go across the line, go into a state that does not tax machinery and buy it there. Now granted, you're supposed to pay that tax when you bring it back into Nebraska, but obviously sometimes that does not happen and probably rarely happens. The key thing about this whole amendment I guess in my perspective is this is not something that I would call window dressing, something I could offer, if it fails, I can go home and I can say well I tried my best to get machinery off. I have told a number of people I want to win on this one and not win just today, but to win it all the way through the passage of LB 1063 which I am convinced based upon all these votes that have been going up on the board for the last seven, eight days, appears to be the vehicle we're going to ride to address this issue. And whether I agree or disagree with that bill, this is a critical vote for me as to whether or not I personally would be willing to support 1063. It's a big issue I think to a lot of the rural folks that feel like we are simply having no voice in this process at all, that we're simply being handed to taxation that we simply do not agree with and as I said in my opening, I guess I look at this as the critical component of LB 1063 in my mind and in some other people's minds that I've talked to. So with that I'd like to move the amendment. I would like to hear the discussion. As I said, I believe there is an amendment forthcoming from Senator Warner and some others that addresses this issue, maybe in a way that it may be more palatable to some of the folks who may vote against the outright repeal of sales tax on new and used machinery. So with that I would move the amendment.

PRESIDENT MOUL: Thank you, Senator Johnson. Senator Landis, followed by... Senator Hall, do you have a point of personal privilege?

SENATOR HALL: Madam President, I would ask for a point of order

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and ask for a ruling on germaneness with regard to this amendment. The provision with regard to the sales tax exemptions shows up in Section 77-2704 of the statutes. That provision is not within either the amendment Senator Warner offers as I understand it or LB 1063 as it was pulled from committee and I would ask for a ruling of the Chair with regard to this issue as to whether or not the sales tax provision is germane to the bill.

PRESIDENT MOUL: Thank you, Senator Hall. Senator Johnson, would you respond.

SENATOR R. JOHNSON: It is true that I am adding a new section to this bill, but I guess I would simply say that we're discussing the issue of taxation of machinery, on the one hand on the depreciation schedule, the other now on this issue when I buy it or purchase some machinery, I was told that the germaneness question might come up and I will live with whatever the Chair rules because as I said earlier I think there is an amendment forthcoming on sales tax on equipment that may address this in a slightly different way than the way that my amendment is drafted, so with that I will. live with the ruling of the Chair.

PRESIDENT MOUL: Thank you, Senator Johnson. Senator Warner, since this is your original amendment, do you have a response?

SENATOR WARNER: Madam President, the issue has become... well, certainly I would abide by whatever the Chair decides, let me take a real firm position here. As there is no reference to sales and income tax, I do not believe, in the bill as it is written. Amendments could be written so that there is no question of whether it's germane. I haven't seen this one. I suppose the broad issue that it does deal with Chapter 77 is there, but I have great confidence in the Chair and her advice and I would certainly abide by that.

PRESIDENT MOUL: Thank you, Senator Warner. Senator Hall, I will rule that the amendment to the amendment is not germane. Senator Johnson.

SENATOR R. JOHNSON: Madam President, I'd ask the Clerk to prepare a rule suspension so that we can take this motion up, but I will not, I guess, object to the ruling of the Chair but I will ask the Legislature to suspend the rules for the

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