LB 1063 (1992)
March 4, 1992
CLERK: Mr. President, Senator Warner would offer AM3252. (Amendment appears on page 1149 of the Legislative Journal.)
SPEAKER BAACK: Senator Warner.
SENATOR WARNER: Mr. President, members of the Legislature, this is the amendment that I indicated earlier this morning was left out of the amendment. It was consistent with the handout that you had that had the breakdown of the provisions of the amendment we've been dealing with today, but this is an exception for the limitation that is in 1063 as far as the counties. And what this does, it permits the property taxes to be collected in a county to be above the lid, an amount equal to the loss in state aid that would occur...
(No overlap in tapes. Some debate may be lost.)
(Senator Warner speaking) ... collect, could collect will be equal to the increased valuation because of the depreciable agricultural equipment prorated by counties but they would be able to utilize that additional valuation to make up for the loss of the state aid and this is essentially a technical amendment that keeps the county harmless 'in terms of total dollars that they would be able to collect in the form of property tax.
SPEAKER BAACK: Thank you, Senator Warner. Discussion on the Warner amendment, Senator Schmit.
SENATOR SCHMIT: Just for the record, Mr. President, and members, it may hold the county harmless, it does not hold the taxpayer harmless. It allows the taxpayers the privilege of having an increased levy to make up for the money which has been lost by virtue of previous amendmentswhich have been adopted by this body, thereby increasing the tax burden on individual taxpayers within the county. It reaffirms my earlier conviction that in one way or another we will continue our inexorable rise in the spending at both the state and local level.
SPEAKER BAACK: Thank you, Senator Schmit. Anyone else wishing to address the amendment by Senator Warner? Seeing no one, do you wish to close, Senator Warner? Waives closing. We will now vote on the amendment by Senator Warner. All those in favor vote aye, opposed vote no. Record, Mr. Clerk.
CLERK: 16 ayes, 0 nays, Mr. President, on adoption of Senator Warner's amendment to the amendment.
SPEAKER BAACK: The amendment is adopted.
CLERK: Mr. President, I have nothing further pending to AM3048 at this time.
SPEAKER BAACK: Okay, we will now proceed with AM3048, the amendment by Senator Warner as it has been amended. Senator Moore.
SENATOR MOORE: Mr. Speaker and and members, we're now on the Warner amendment and, Senator Warner, if you'd yield to a question, please. Is this the amendment that changes to a new state depreciation schedule, is that the cleanest way of saying that?
SPEAKER BAACK: Senator Warner.
SENATOR WARNER: Well, I ... yes. That's not accurate, but it's close enough.
SENATOR MOORE: Yeah, that's why I prefaced it that that's not accurate but it conceptualizes what we're talking about. And I guess the reason I wanted to wait till now to raise this issue is you may. remember when the 3-R plan came out of the 3-R Committee, the two biggest arguments that were given to that plan was, one, the first week, this plan will cost agriculture only $3 million. That was the first argument that the administration gave for this plan. It was very resounding, said a number of times in the paper and the press and said time and time again. Second argument was that now finally you can let the federal government do all the enforcement on your personal property tax collection. The problem has been in past years, the reason we were... you know, less than half of it was ever reported, there was no way to do it. Under this new plan the federal government will do it for you and the whole thought was there originally, and I misunderstood originally, but originally I was under the impression that under your federal tax form it listed off what exactly you'd depreciated. Obviously all ... well, originally I thought the State Department of Revenue would get from the federal government a list of the things you're depreciating. That is not what happens. The Department of Revenue only gets the dollar amount you depreciate. And then obviously one of the ... I think one of the amendments, I think maybe Senator. Hillman has an amendment to deal with of subpoenaing a worksheet or making sure that is requiring that's part of it. Once again, one of the major arguments early on on why this was so great and why this is the next best thing since
a lot of things for taxes in the State of Nebraska was it's so easy to enforce, it's so simple to enforce, it is a simple piggyback system much like our old income tax system. Senator Warner's amendment you deviate from that significantly. And now you're... as are continually plotting to try and cover up, go forward, say why we need to do this, we continue to get further and further away from our basic arguments-on why this is good. And, Senator Warner, would Senator Warner yield to a question? If Senator Warner could yield to a question.
SPEAKER BAACK: Senator Warner, would you respond, please.
SENATOR WARNER: Yes.
SENATOR MOORE: Senator Warner, as you're aware, I think, Thanksgiving weekend or the last week in November, there was an amendment, there was some serious talk back in Washington, D.C. of raising that base exemption of what you could claim from $10,000 to $100,000. Correct, Senator Warner? Do you remember that as well?
SENATOR WARNER: No.
SENATOR MOORE: I forget the... on automatic depreciation, I forget the terminology, it has escaped me off the top of my head.
SENATOR WARNER: I do not specifically recall, Senator Moore, but there's no doubt that the Congress talks about a lot of stuff they're going to do that we never hear of.
SENATOR MOORE: I know, but one of the ways to spur investment is to raise that dollar figure. My question to you, Senator Warner, is if that dollar figure is raised dramatically or raised only double from ten to $20,000, you'd no longer be showing those things on your worksheet on your federal tax form. What sort of enforceability still lies under your amendment if the federal government changes a thing like that, will that make the enforceability from the federal level almost impossible to track?
SENATOR WARNER: Senator Moore, if I'm understanding your question correctly, even if Congress made such a change as you propose, I believe you would still have to have the worksheets to reach, to show that you, if you're taking 100,000
depreciation, you'd have to have the worksheets to show it. Actually the question is irrelevant to 1063 at this point because with the state depreciation schedule the two pieces of information that you would need from the...as far as the IRS is concerned is date of purchase and a dollar amount. To that you then apply the state depreciation schedule.
SENATOR MOORE: And so it's your opinion that changes like that on the federal level would not impact on by ... particularly with your amendment would solve any sort of problem and you're no longer piggy-backed off those, that would not be a problem, federal law changes would not have an impact now, Senator Warner?
SENATOR WARNER: Well, the other thing that those, even if those accelerated depreciation is permitted, the record of the individual taxpayer for IRS of that equipment will stay on their books, has to stay on their books because if they would sell those items even though they had the 100,000 depreciation, they have to have the record for recapture of any income that they would incur by selling them at a ... for a value greater than the depreciated value. The record, in other words ...
SPEAKER BAACK: Time.
SENATOR WARNER: ...would still be there.
SPEAKER BAACK: Thank you, Senator Moore. Senator Warner, you're next.
SENATOR WARNER: Mr. President, members of the Legislature, the ... I guess we're at the point for the adoption of the amendment to the bill as a whole. Obviously, I don't suppose there is a need to further discuss today, but I do want to go back generally what is included in 1063 or this amendment which will become 1063. First, it essentially, in principle, is the same as the bill that was introduced in 1063 which is ... and it is for the purpose of indicating how a constitutional amendment may be adopted, would be adopted if it's approved by the Legislature, both the constitutional amendment as well as the implementing legislation. It does do the following things. it does set tip a two-tier system for this year of reporting, depending on what happens to a constitutional amendment. Under the one provision if a constitutional amendment fails, then it rolls back, delays the date of reporting personal property at a
market value concept as required by existing law from March 1 or March 31, if the assessor has permitted that, to June 1 of this year and then it also rolls back other dates for setting levies that would be necessary because of that delay there. As the bill is drafted, however, if the constitutional amendment is on the ballot in May and if it is approved, then we go to the system of reporting and taxing personal property on the basis of two choices, either it is depreciable personal property and subject to a tax collected, levy collected locally, retained locally, or it is nondepreciable property in which case it would be a class that would be exempt or would not be paying personal property and, of course, that is the basis for eliminating inventory, both in agriculture and business from personal property tax and a number of other items as well. It is also the basis in which personal property, once it is depreciated out, it no longer has to pay a personal property tax. The state depreciation schedule as it is established in the bill, I didn't touch on with the comments to ... with Senator Moore, but there are several ways in which depreciation can be utilized under federal income taxes. That question was raised by the Attorney General's Office in a letter that you will recall that we needed to have a single system. I was looking into a single system in any event as were a number of other people because of an equity issue that you could have the same kind of equipment actually depreciated in different basis. So the system that is included here is 150 percent accelerated depreciation schedule; exact percentage of depreciation by year is included in the amendment which I'm sure all of you are familiar with. In addition, the tax commissioner under the amendment is-given the authority to set the life cycle for different types of equipment but it is recognized and I believe after hearing that that life cycle will be the same as the life cycle included in IRS, life cycles for different type of equipment, there would be no justification for a different life cycle in any event, but should Congress do something that ...
SPEAKER BAACK: One minute.
SENATOR WARNER: ...was not sound, as Senator Moore has suggested, the tax commissioner would, or the State of Nebraska would not be bound on that life cycle to follow what Congress had authorized or IRS did through rules and regs, but I would anticipate that in every event, unless it was something of the nature that was inappropriate, that those life cycles would be the same. And, of course, the summary of what was done today
probably doesn't need to be repeated. That is all fresh in our minds, but I would hope that the amendment to the bill would be adopted.
SPEAKER BAACK: Thank you, Senator Warner. Senator Schmit, you're next.
SENATOR SCHMIT: Frequently on this floor we talk about the impact of various tax programs upon individuals. One of the questions I asked of a number of accountants over the last several weeks was what impact this would have upon the cost of calculating an average tax return for an average farmer or even. a businessman? And without exception, each accountant said there would be an additional charge, of course, and that charge varied from a 50 dollar estimate to several hundred dollars minimum. Frequently on this floor in our attempts to try to extricate additional revenue from the citizenry, we strike upon various schemes and we advance those schemes into bills and they become law. Therefore, in addition to the other taxes that are going to paid by those individuals who pay these taxes, add on to that tax the cost of ... the additional cost of searching the record to be certain that no one escapes so that there are no penalties involved. The accountants have told me, of course, we pride ourselves upon our integrity, we pride ourselves upon the validity of our work and we are going to have to be certain as the taxpayer comes to our office with the returns that we are not losing something in the process and, therefore, it's going to be ... it will generate additional work. That work will have to be paid for and that will be added to the cost of calculating your return. It's a far cry from the day when John Eberly or Dick or Vi or Jack used to calculate my return and charge me seven bucks and I went out the door in 20 minutes. And so I want the record to show that this little amendment here will, of course, precipitate additional work for accountants, additional work for those individuals who prepare tax forms and additional expense for the taxpayer. I suppose we can charge it up to economic development for accountants and CPAs, but it is at a cost to the the individual taxpayer.
SENATOR CONWAY PRESIDING
SENATOR CONWAY: Senator Hall, you're next, please.
SENATOR HALL: Thank you, Mr. President and members. I rise in opposition to the amendment to the bill which becomes the bill.
It is a movement with the adoption of the previous amendments to a system that again I argue is a step backward for the state, that it clearly will be ... have a difficult time if there is a corresponding constitutional amendment or when there is one. At the polls the voters will look at it, clearly the urban voters ought to look at it with a very jaundiced eye in my opinion. They need to be made very, very comfortable with regard to the fact that the base is going to raise the revenue projected. And then they also should look at what I would call discriminatory tax policy in the way that sales tax on farm machinery is going to now be treated. It's going to discriminate against a business other than a farm machinery operation that has to pay sales tax on their equipment, just plain and simple. For example, the... let's go back to the old tractor or the bulldozer example. Sales tax on one, sales tax credit on the other. Both of them, if they are depreciated, I guess under this proposal are now going to be paid. The question is, what's the useful life, for example, of that one bulldozer in the construction business where it may very well be about five years as opposed to another piece of equipment in an agricultural type setting, one where the useful life could be as long as 14 to 18 years and maybe even longer in terms of combines. Senator Schrock pointed out that much of the equipment is only used on a very short time frame, year in, year out. It allows that equipment to last, to have a very long useful life. That means that that depreciation will fall off at the end of the table but that property is going to continue to be used, it's going to have a life span. What it means is the base is going to fall away. There isn't necessarily going to be replacement purchases made in all these cases to allow for that base to continue to be there. When the base falls off because it has been depreciated out, the revenue, there is no corresponding measure in the bill yet to require for the revenue to either basically be capped, budget be capped, the revenue expenditure be capped, or the only other option is to have real estate taxes go up at the local level. You're talking about local taxes and that's what is going to happen. Property taxes, real property taxes are going to go up under 1063. Nobody can argue that they are not going to ... that that is not going be the case. It's flat out a shift. it's a flat- out shift from personal property to real property. It's going to happen. It's going to happen over a short period of time. It's going to happen automatically in the urban areas I would argue and it's going to happen over a longer period of time in some of the more rural areas, but happen it will and that shift will take place and that's exactly what 1063 does. And it further
erodes the state tax base using both the sales tax exemption for farm equipment and the income tax credit, if you will. It just means that we're in a worse situation. The state is in a worse situation and a local government is in a worse situation under this proposal. So at least we're treating...
PRESIDENT MOUL PRESIDING
PRESIDENT MOUL: One minute.
SENATOR HALL: ... both entities in an equal fashion. Everybody has a worse tax system under 1063 than they did before. I clearly would argue that the MAPCO tax system is a much better system, it's much more reliable. It's there, it would help out everyone except those who unfortunately have to pay which we always seem to want to worry about, except for that individual taxpayer, that individual. homeowner who continues to bear the brunt of the tax base and always will because of proposals much like 1063 that we have to sweeten as much as we can in order to find the votes necessary to force them through. It is poor tax policy and I would urge the body to vote against it.
PRESIDENT MOUL: Thank you, Senator Hall. Senator Moore.
SENATOR MOORE: Yes, Madam President and members, if I could continue my dialogue with Senator Warner if possible if lie's available.
PRESIDENT MOUL: Senator Warner.
SENATOR MOORE: Senator Warner, we've established throughout this debate the desire and how the ability to use federal IRS depreciation worksheets and other things will significantly enhance our ability to enforce LB 1063. 1 guess my question is, is it... would not the same hold true for our old taxing structure, Would not those worksheets also have shed a great deal of light on the amount of personal ... I mean, on the amount of personal property that would have been on in 1990 and. before in business equipment? Would that have also... I mean, is that a true statement, Senator Warner?
SENATOR WARNER: Senator Moore, are you asking me if those worksheets would have been useful if we were taxing at market value?
SENATOR MOORE: Yes.
SENATOR WARNER: No. It would only identify the equipment existed, but it would not have a relation to value because depreciated value would be ... could very likely be significantly less than actual value.
SENATOR MOORE: Well, but even under the 1063 formula in business equipment, we are going to, according to the Department of Revenue, we are going to collect far more. Under 1063 we cut the tax base arguably by more than in half, but we're going to collect more money. Now the argument is that if you could use those same figures and apply it to the old formula, you still should find, should have found a lot of that business equipment or...
SENATOR WARNER: That...if items are on the depreciation schedule on business equipment and are not on the personal property schedule, I guess I would agree that it could have been found that way if that was what was done, if I understand your question correctly.
SENATOR MOORE: Yeah, and the statement is that you know once again you don't have to go to this ... if your desire is to get better enforceability and the ability to find property, you do not have to go with the new tax system under 1063. Once again we could go back to Senator Hall's amendment last week', go straight back to the status quo and some of the benefits of 1063 could have been applied to that. We could have located a lot of -that missing business equipment that way without going the full step that 1063 does. That is just one point. Second point, Senator Warner, as far as the total of this amendment, do you have any estimates as the Department of Revenue's cost to implement, because now we have the new state depreciation schedule? We have the myriad of things which was contained in the "so-called compromise" amendment. Do you have any estimates as to what the General Fund impact will be to administer this?
SENATOR WARNER: Are we talking about the A bill?
SENATOR MOOR E: Well, it's going to be the A bill. The A bill is... ... I'm assuming this amendment is going to increase the A bill cost, the General Fund Cost, the administrative cost of this bill. My question is do you have an idea of how much It is going to be?
SENATOR WARNER: No, I do not, Senator.
SENATOR MOORE: Okay.
SENATOR WARNER: I have asked to have it, but as you know, both the fiscal office and any agency of state government prepares those once the amendments are adopted on the floor, then you get a fiscal note that reflects the amendment that the Legislature has adopted. I have verbally asked for an indication of a cost, which I have not yet received, but I can also understand that there is no way to calculate it. We could now because it's in a form now that where ...
PRESIDENT MOUL: One minute.
SENATOR WARNER: ... a calculation could be, or an estimate could be estimate could be made.
SENATOR MOORE: I understand that, Senator Warner. It was not intended to be a trick question. You are right, I did not know the answer to that. I was simply asking if you could shed any light on that and under both of you ... you and I are in the same position, we don't know the answer to that, I understand that.
SENATOR WARNER: Senator Moore, I didn't assume it was a trick question. I was just trying to indicate to you that I remember how the system worked.
PRESIDENT MOUL: Thank you, Senators. Senator Schmit.
SENATOR SCHMIT: A question of Senator Warner, please. Senator Warner, if we disregard the automobiles and the household goods, what percentage of the remaining personal property will be subjected to taxation under LB 1063?
SENATOR WARNER: I'm sorry, Senator Schmit, I didn't ...
SENATOR SCHMIT: If we disregard all automobiles and, of course, household goods which are not taxed, what percentage of the remaining personal property will be subjected to taxation under LB 1063 as it is drafted today?
SENATOR WARNER: That question was asked the other day. As I re ... the total valuation of taxable depreciable personal
property was in the vicinity of $6 billion in round figures and I frankly do not recall. I should have anticipated the question obviously. I do not recall, Senator Schmit, what the anticipated, or what the estimated value of inventory is statewide which would be the major item left plus the agricultural equipment and livestock, of course, that have not either depreciated out or are not subject to tax because they weren't subject to depreciation. I don't have that estimate.
SENATOR SCHMIT: But if we do not know the amount of that dollar figure, then, Senator Warner, how can we calculate the amount of revenue that is going to be raised by local government?
SENATOR WARNER: Senator Schmit, we do know what ... I gave you the number of the statewide valuation of the book value which is taxable, which is approximately with business equipment and farm equipment and livestock that comes tinder the definition of depreciable personal property, was in the vicinity of $6 billion statewide.
SENATOR SCHMIT: Very well, that $6 billion, is that taxable value, Senator?
SENATOR WARNER: Senator, that is the definition I was giving you, was the words taxable depreciable value, yes.
SENATOR SCHMIT: And upon what do we bass-- those conclusions, because there have ... and to my knowledge not been those factors available to us.
SENATOR WARNER: Senator Schmit, there has been numerous estimates made' and referred to here on the floor time and time again as to the value of business equipment statewide that would come tinder the definition contained in 763 as well as the impact on agriculture statewide and the combination of the two, I'm rounding it off obviously, but it was in the vicinity of $6 billion of valuation.
SENATOR SCHMIT: Is it now true, Senator, that those estimates have varied widely between the Department of Revenue and our own fiscal office?
SENATOR WARNER: There is a position as I recall some months 'ago that the fiscal office was using something to the effect that only 60 percent or .10 percent, I don't recall now, I believe
40 percent was what they were indicating was currently on the tax rolls, or not currently, of course, they are all exempt now, but at one time and that as I recall the numbers that they increased that to 60 percent on the basis that it would be a 20 percent improvement in the filing of ... of the accuracy of the filing of personal property that...
PRESIDENT MOUL: One minute.
SENATOR WARNER: ... was on hand. You know, from my personal viewpoint, Senator Schmit, I tend to use a range because I know that from experience, as I am sure you do, that you are better off dealing with a range because these are estimates, they're good conscious estimates. They're not intended to be misleading, but a range is a more appropriate number to deal with.
SENATOR WARNER: If I could ask one quick question yet, Senator. If there is $6 billion of taxable valuation out there, what is the nontaxable valuation of those same types of property?
SENATOR WARNER: The nontaxable of the same kind of property? I indicated, Senator Schmit, I ...
PRESIDENT MOUL: Time.
SENATOR WARNER: ... personally do not happen to know the number. We can certainly try to find a number that reflects nondepreciated value which would include inventory, equipment that is depreciated out and livestock that is not being depreciated, but I don't know that value off the top of my head.
PRESIDENT MOUL: Time.
SENATOR SCHMIT: I hope someone does.
PRESIDENT MOUL: Thank you, Senator Schmit. Senator Withem.
SENATOR WITHEM: I would 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. Senator Withem.
SENATOR WITHEM: I'd ask for a call of the house, please.
PRESIDENT MOUL: We have a request for a call of the house. All those in favor please vote aye, opposed nay. Please record, Mr. Clerk.
CLERK: 20 ayes, 0 nays to go under call.
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. Would the senators please check in. The house is under call, We're looking for Senators Abboud, Ashford, please check in. Senator Beutler, Senator Morrissey, Senator Rod Johnson, Senator Will, Senator Wesely, Senator Withem.
SENATOR WITHEM: Yes, I would accept call-in votes.
PRESIDENT MOUL: We are accepting call-in votes on the motion to cease debate.
CLERK: Senator Byars voting yes. Senator Will voting yes. Senator Beutler voting yes. Senator Abboud voting yes.
PRESIDENT MOUL: Senator Rasmussen, would you check in too, please.
CLERK: Senator Rasmussen voting yes. Senator Rod Johnson voting yes. Senator Schrock voting yes. Senator Wesely voting yes.
PRESIDENT MOUL: We are accepting call-in votes on the motion to cease debate. Have you all voted? Senator Withem.
SENATOR WITHEM: A roll call vote in reverse order, please.
PRESIDENT MOUL: We'll proceed with a roll call vote on the motion to cease debate.
CLERK: (Read roll call vote. See page 1150 of the Legislative Journal. 26 ayes, 10 nays to cease debate.
PRESIDENT MOUL: We have ceased debate and I will recognize Senator Warner for closing.
SENATOR WARNER: Madam President, members of the Legislature, a
brief closing. I'm sure the amendment is understood. I hope we could adopt the amendment to the bill and then we'll be in a position to consider other amendments that people wish to offer.
PRESIDENT MOUL: Thank you, Senator Warner. We will now vote on the Warner amendment to LB 1063. All those in favor please vote aye, opposed nay. Have you all voted? Please record, Mr. Clerk.
CLERK: 28 ayes, 11 nays on adoption of Senator Warner's amendment.
PRESIDENT MOUL: The amendment is adopted and I will raise the call. Speaker Baack.
SPEAKER BAACK: Yes, Madam President, I move that we adjourn until tomorrow morning at 9:00 a.m.
PRESIDENT MOUL: Mr. Clerk, items for the record.
CLERK: Madam President, thank you. Amendments to be printed to LR 219CA by Senators Warner, Landis and Withem. And a communication from the Governor to the Clerk. (Read communication. Re: LB 175, LB 878, LB 879, LB 906, LB 928 and LB 933. See pages 1151-52 of the Legislative Journal.) That's all that I have, Madam President.
PRESIDENT MOUL: Thank you, Mr. Clerk. You've heard the motion to adjourn until 9:00 a.m., tomorrow morning. All those in favor please say aye. opposed nay. We are adjourned until 9:00 a.m.