LB 1063 (1992)
March 5, 1992
SENATOR CONWAY: The motion is to advance LB 989 to E & R for engrossment. All those in favor say aye. Those opposed nay. It advances. We'll now move on to General File, LB 1063. Senator Warner.
CLERK: Mr. President, may I read in a couple of...
SENATOR CONWAY: Mr. Clerk.
CLERK: Thank you. Two new resolutions, Mr. President. LR 253 by Senator Rogers. (Read brief summary of resolution.) Second resolution by Senator Rogers. (Read brief summary of LR 254. See pages 1156-57 of the Legislative Journal.) Both those will be laid over, Mr. President.
Mr. President, 1063 was discussed yesterday. At that time Senator Warner's amendment was adopted. The first amendment I have pending this morning is by Senator Moore. Senator Moore would move to amend the bill, Mr. President, with AM3138, found on page 1012 of the Journal.
SPEAKER BAACK PRESIDING
SPEAKER BAACK: Senator Moore.
SENATOR MOORE: Mr. Speaker and members, as I have said on this floor before, I've always taken a good lesson from LBJ and the advice, as you walk into a room and in 15 minutes you can't tell who's with you and who's against you, you better be out of politics. W611 I Maybe better be out Of politics for another reason, but I can count, and I withdraw the amendment.
SPEAKER BAACK: Thank you, Senator Moore. Mr. Clerk.
CLERK: Mr. President, the next amendment I have is by Senator Rod Johnson. Senator Johnson, I had a note on this that he wishes...wished to withdraw the amendment, Mr. President.
SPEAKER BAACK: It is withdrawn.
CLERK: Mr. President, the next amendment to the bill is by Senator Hefner. I have a note on this, Senator. He wished to withdraw.
SPEAKER BAACK: It is withdrawn.
CLERK: Mr. President, Senator Lamb would move to amend.
SPEAKER BAACK: Senator Lamb. Did you wish to withdraw, Senator Lamb? It is withdrawn.
CLERK: Mr. President, Senator Hefner, a second amendment with a note that he wishes to withdraw.
SPEAKER BAACK: It is withdrawn.
CLERK: Senator Moore, AM3189, Senator.
SPEAKER BAACK: Senator Moore.
SENATOR MOORE: This is the amendment that I believe appropriates a million dollars to the Attorney General? Well, I can probably count on this one, too. But I'm going to run this one, I think it needs to be discussed a little bit. This amendment would appropriate, from this body, a million dollars to the State Attorney General to defend LB 1063. The reason I say that is that we know, given the.. we know, given the variety
of problems LB 1063, from the 775 exemption, which though I pulled the amendment, I think that still is the coal train that Senator Conway referred to the other day, that the 4-R Act can drive through. I think you have a tremendous amount of problems with my green tractor being taxed. Senator Schmit, now that we have a green tractor. Senator Schmit's red tractor not being taxed, I think you had the same problem with the 4-R Act that still majority of personal property is not going to be taxed in the State of Nebraska. You know that... or we know that there are a variety of litigants out there that will take LB 1063 to court. And I know that a lot of those corporations, particularly the centrally assessed corporations, are going to have a legal expense and a legal department a mile long that will spend a lot of money. I think if we're really sincere about putting 1063 on the books, if we're really sincere about keeping the railroads and the centrally assessed taxpayers on the tax rolls, under 1063, you better be willing to hire a good attorney to make that argument and win it, because the other side is you're going to have a lot of money and going to spend a lot of money to win that one. And I think it's important that if you really believe 1063 is the way to go, you better be willing to spend the money to defend it. And as far as the million dollars, I would argue the variety of amendments that this body adopted yesterday, from the new depreciation schedule to the sales tax scheme and things like that, that it's going to... the fiscal note by itself for that is going to cost a lot of money before it's all said and done. And so if we're willing to spend money, state General Fund money, to make this thing work, we ought to be willing to spend some money and appropriate money to the Attorney General to defend it. With that, I'd ask for adoption of the amendment.
SPEAKER BAACK: Thank you, Senator Moore. Discussion? Senator Hall.
SENATOR HALL: Thank you, Mr. President and members. I rise to talk about Senator Moore's amendment. From his comments it appears that he's seeking outside counsel, even though I think there are some very competent people in the Attorney General's office. What Scott does through his amendment is really point out what's going to happen. The argument is going to be that by some, when we're done here, that the issue is over and done with, and we've solved the personal property tax problem. That will be far from the truth, and that's really what Senator Moore's amendment points out more than anything else, is that
this is just the beginning of another series of legal battles revolving around this issue. And I think that because we are attempting to, in some fashion, other than a uniform one I would argue, and one that taxes the vast majority of personal property, we are going to have problems and the issue is going to be before the courts. It's just that plain and simple. What Senator Moore does is say, well if we're going to have that problem we ought to recognize it. It's a lot like the argument on the ... if it's good enough to exempt personal property tax, then why not do it on automobiles. You know. And then why not have the fee schedule in there as well by the proponents on the other side. Recognize what you're going to be looking at. You're going to be looking at huge legal expenses, a tremendous amount of time that the AG's office is going to have to spend defending this specific proposal. The constitutional amendment, I would argue, as well. They're going go hand-in-hand together. And know that full well. And I appreciate the amendment that Senator Moore offers probably a little tongue in cheek, but it does put the body on notice that it may not be in this amendment, but it may be in an appropriation bill next year that funding like this will have to be allowed, because you're going to see that issue before the courts, it's only a matter of time.
SPEAKER BAACK: Thank you, Senator Hall. Before we proceed any further, I would like to introduce some guests of Senator Wesely. They are in the south balcony. We have 13 tenth through twelfth graders from Northeast High School in Lincoln and their teacher. Would you folks please stand and be welcomed by the Legislature. Thank you for being with us. Next speaker is Senator Warner.
SENATOR WARNER: Mr. President, members of the Legislature, I, too, assume from Senator Moore's comments this is sort of a discussion item as opposed to a serious one. I would assume, number one, that it couldn't be serious, because at least historically we have...there are some constitutional restrictions to putting an appropriation in to substantive law where it affects a constitutional officer, in this case it's the Attorney General's office, which at least casts doubt on it as a matter of practice of putting it in substantive legislation rather than an A bill. And I would imagine that Senator Moore, as Chairman of Appropriations, has taken that into account. And I can appreciate doing this for discussion. But it seems to me there's another responsibility that goes with this. I would like to ask Senator Moore, if he would yield, how much the
Attorney General's office has spent in the litigation that has occurred in the 4-R Act, LB 7...LB 1 of the Special Session, the cost that we can anticipate for LB 829, which has two or three lawsuits, because obviously that would give us a clue, and those are monies already appropriated. And I'm sure as Chairman of Appropriations you would not want to put money on top of money that they already have appropriated and have been using on an ongoing basis for lawsuits relative to the property tax issue. So could you give us an idea what the Attorney General's office has spent?
SPEAKER BAACK: Senator Moore.
SENATOR MOORE: I do not know the answer to that, but I do know we've lost all those cases.
SENATOR WARNER: You do know what?
SENATOR MOORE: I do not know the answer to that, Senator Warner. But I think the ones you listed, we pretty well lost them all.
SENATOR WARNER: Oh, yes, that's right, that's why we're here, Senator Moore, on this issue is because we lost. I couldn't agree...I couldn't agree more with that. But, you know, I understand if we're not dealing with this issue as a technical appropriation, as a talk item. Let me say this, anything we do, I've said this in several speeches, the goal of this whole project is to give some stability to tax policy as far as the courts are concerned for the State of Nebraska. And anything we do, in the way of a constitutional amendment, or implementing legislation, there isn't any question in my mind but what there will be a series of court cases, because the stability to the system will never occur, will not exist until such time that the courts have accepted the constitutionality of what this body does and what the people of this state do in the event there is a constitutional amendment. And even that doesn't assure. As the Supreme Court said, in 1974, that what was done in 1972 was okay, and most-of us thought that that was the law of the land, approved by the Supreme Court, until in the last few months, the last few years, and certainly since July when they specifically reversed the decision that was the opinion of the court in 1974. The point is that, yes, there will be, no doubt, costs for litigation to go through the courts of this state...
SPEAKER BAACK: One minute.
SENATOR WARNER: ... on the constitutionality of whatever we do. And there will not likely be any more or any less cost to this solution or any other solution that we make. And I suspect the only way you can avoid any court costs, based on current decisions, is to do nothing. Put everything on and I think you can probably guarantee that you will not have a court case. But do nothing and you still might have a court case, because I could see where someone would come back and say, as we had discussion the other day, household goods and personal effects. The court,, two members suggested that might not need to be taxed, really wasn't addressed, and you'll never really know without a court case. I guess the bottom line of it all is that there is going to be some court costs; but it would be totally erroneous and inaccurate to suggest that 1063, as it is currently,...
SPEAKER BAACK: Time.
SENATOR WARNER: ... would cause court costs as compared to other solutions which would have an equal cost, if not greater.
SPEAKER BAACK: Thank you, Senator Warner. Senator Schmit, you're next.
SENATOR SCHMIT: Mr. President and members, it's easy to be casual about such things as the defense of this bill by the Attorney General. The facts are that it is a serious business, and the Attorney General will be in court before the ink is dry on the Governor's signature if that unfortunate occurrence should take place. And, of course, the railroads will be there with their very able and eloquent attorneys. And it may very well be that we think that, and I do not fault the Attorney General's staff, but I can tell you very frankly in my opinion Attorney General Spire gave away the "trail car" case when he .stipulated to the fact that 75 percent of the personal property in Nebraska was not being taxed. What lie did not point out was that the farm equipment was paying sales tax, which is not true of the railroad equipment. Might very well have been that had we had a different individual in the Attorney General's office, (-)I, had all of those many rural farmers and cattle feeders had someone assisting the Attorney General, which is what happened in the coal slurry pipeline case, we might have had a different kind of reaction from the Supreme Court at that time. And the
railroads would not have, perhaps, been quite as successful as they have been. And so, certainly, as we proceed with the litigation that will eventually follow here, and hopefully at some point rural people will get some backbone and take some of these issues to court themselves rather than to continue to pay, and pay, and pay. But I do not take this lightly. I don't think that Senator Moore, Senator Warner, or anyone else take it lightly. I know there will be costs there, it will not come in as a deficit appropriation. It's always interesting to me that the Attorney General can come in with a deficit appropriation, something which didn't used to happen. But the cost will be substantial, will be far in excess, and I think Senator Moore, of the very modest $1 million which he has discussed here. And so before we proceed we ought to know if there's going to be another negative impact on the General Fund, and it's going to come from the Attorney General's office in the form of a deficit appropriation.
SPEAKER BAACK: Thank you, Senator Schmit. Senator Warner, did you wish to speak further on this?
SENATOR WARNER: I had a question, information, Senator Moore, if you'd yield.
SPEAKER BAACK: Senator Moore.
SENATOR MOORE: Yes.
SENATOR WARNER: Senator Moore, you were asking, yesterday, whether or not I knew the administrative costs on 1063, and what might be submitted, and as I indicated, as we both agree, that the process is that as amendments are adopted then agencies will ... by the Legislature, submit updated estimates of cost. And the fiscal office, at that time, does their work. I'm wondering, is the Attorney General, has he ever filed a fiscal impact on 1063, or any of the other bills that are pending before the body that lie would have anticipated increased costs for the operation of that office?
SENATOR MOORE: To my knowledge no, and your knowledge is probably greater than mine on that, but to my knowledge no.
SENATOR WARNER: So, this is not being generated from tile agency. YOU know if normal process then, I would assume we Do should make sure, and perhaps you could direct the fiscal office
to contact the Attorney General on each of the bills that are before us dealing with personal property tax, requesting whether or not any additional appropriation, in the opinion of the Attorney General, is necessary.
SENATOR MOORE: That would be a possibility to pursue. I would argue that most of them are not in the limelight and debate on the floor for two and a half weeks, but that's...I mean what you're saying is absolutely true.
SENATOR WARNER: No, riot for two weeks. I was just wondering If you would make sure that tile fiscal office makes sure that those sheets that are sent to agencies would be also sent to the Attorney General's office, that would cover all the various bills, if there are significant differences in perspective litigation costs between them. That would be helpful and certainly would give an indication if one approach is more expensive to litigate than another, I can't imagine that. But I suppose it's possible. But my specific question is, would ... could I ... or do I need to make the request, or would you make the request that all of these property tax bills would be ... a request would be made to the Attorney General if they have any fiscal impact.
SENATOR MOORE: If you're talking about all the property tax bills, yeah, we could do that together, if you want to, or I will do that, if that's what you want to do. That's no problem.
SENATOR WARNER: That would be appreciated, if you would do that.
SPEAKER BAACK: Thank you, Senator Warner. Any other discussion on the amendment by Senator Moore? Senator Moore, do you wish to close?
SENATOR MOORE: Mr. Speaker and members, as I mentioned in my opening, the problems of this bill are numerous, certainly in my opinion, from the LB 775 situation where you do not have ... even purport to have uniformity within class, from the 4-R problem with which the majority of personal property is not being taxed, even though one of the major arguments in support of the bill is that it will keep such railroads on the tax rolls, those railroads will go to court with a string of powerful attorneys. Arid in my opinion, and my opinion only they will win that case. You have the problem of using a depreciation schedule, and in
previous Supreme Court cases which have called them to question, and I certainly believe the list goes on and on. I certainly would disagree with Senator Warner, if indeed the body would choose, or still would choose to exempt all personal property from taxation, and if indeed we would as well deal with the motor vehicle situation, I don't think your lawsuits would be that much, that's... once again that's my opinion. But, nevertheless, as Senator Warner had mentioned, this is not actually the time ... proper time to introduce this amendment. But I think it is the proper time to have the discussion and forewarn the body that if we really want to keep 1063 on the books, I think it indeed is going to spend some time in court, if that ever happened. With that, I withdraw the amendment.
SPEAKER BAACK: It is withdrawn.
CLERK: Mr. President, Senator Elmer would move to amend the bill, AM3218. Copies were distributed yesterday to the membership.
SPEAKER BAACK: Senator Elmer.
SENATOR ELMER: Mr. Speaker, members, ladies and gentlemen, this rural senator, that the people think is kind of touched once in a while, has before you an amendment that could be the way that we can fund this state in the future and not be so dependent on property tax. We all realize, whether you live in Lincoln, or Omaha, or in any rural part of this state, that property is being asked to furnish way too many dollars for services that have no relation to property. This has a fresh approach. Fifty years ago and more the United States was a property oriented nation. Today it's a service and mercantile. ..service and mercantile oriented nation, along with Nebraska. With the record keeping systems stems that are required by the federal government to keep track of economic activity, and the advent of electronic computing systems, it's easy to identify a new base out there, economic activity. The economic activity that I look at in this particular amendment is gross receipts, and it doesn't matter whether you're a church or a massage parlor, you have some gross receipts. This amendment would propose to recognize economic activity in the state as a viable alternative tax base and proposes a 1/2 of 1 percent tax on gross receipts, collected as an income tax. The gross receipts would be defined as all revenue received from the sale of tangible property, services rendered, salaries, wages, compensation, interest,
capital gains, rent, Social Security benefits, retirement compensation, investment income without deduction, exception, or exemption. It's collected by the Department of Revenue just as income tax is. This tax would import tax dollars in two ways, we all know how Wyoming export tax dollars through severance tax. This imports tax dollars by being deductible from the federal income tax when it's paid, and secondly, by collecting from large corporate entities and multistate corporations, such as IBM, General Motors, Kawasaki, John Deere, and all of those people that sell goods in Nebraska, that same 1/2 of I percent. This is constitutional from the United States point of view, this is constitutional in Nebraska now, with no constitutional amendment. Gross receipts establishes a valid-tax base that recognizes that mercantile and service base. It would generate, according to the legislative fiscal office, approximately $750 million, which in this amendment is put into a School and Community College Operation Fund. This fund would fund the operation of and the transportation required for the community colleges and the K-12 public school systems in this state. The net effect would be, in exchange for the 5/10 of 1 percent, a reduction in real property tax between 50 and 60 percent in every case across the State of Nebraska. The revenue from the gross receipts tax would be deposited in this fund, and distributed in the following manner-school districts and community college boards would prepare their respective budgets, just as they do currently, under the lid constraints that they operate under currently. The school districts and community colleges would forward their budgets to the various county boards, as they now do. Each county board would levy the tax necessary, as always, with the exception that the school operation portions of the budgets that are submitted would be compiled into a single county total and submitted to the state. The Department of Revenue would Add all 93 county school operational askings to obtain a total for the state. Each county would then be assigned a proportional percentage of that total. As funds are received from the gross receipts tax, the department would forward to each county their respective share, up until 100 percent had been met. The counties would then distribute the money to each district within their jurisdiction. As you can see from the examples in the handout that you just received, the impacts of reducing property tax 50 to 60 percent, and leaving on the property those taxes that are justly paid by property for fire protection, police protection, paving, sewer, capital construction, -and bonded indebtedness, and the operation of the general ongoing county government, the maintenance of the
county roads and the county sheriff's offices would remain as they... and be paid for as they are now. The big winners in this are people who have low incomes and lots of property, or low income, such as a retired person and own a home. Their property tax would go down half, while the 1/2 of 1 percent they pay on their gross receipts is far less than what they would sac ... what they gain in less property tax. And you ask who pays the difference, well, of course, that's readily seen. The large service oriented, high volume, retail corporations would pay more. The Sears and Roebucks, the McDonald's, the Wal-Mart's, the Target's, the K-Mart's. People say well this will us at a disadvantage competitively. I say that's untrue, because every business of that type in this state would pay exactly the same amount, 1/2 of 1 percent of their gross receipts with no exception. There is no advantage between Safeway and Hinky Dinky, no advantage between Sears and Montgomery Ward, no difference between Pontiac and Kawasaki, they all have the same. And the advantages can be greatly seen. Our tax problem would be solved, we would not have to have a constitutional amendment, we would get to the basic root of our trouble, that property tax is too high, and I realize that people have a lot of affection for the system that we have, because it's predictable, we know what it's going to do. And, in essence, that says an old tax is a good tax. Well, an old tax can get to be ancient, decrepit, overworked, under... you know, it just is time to' look at something that could be a step toward the future. Michigan has something a little like this in the unitary business tax, but not quite ... not quite the same. This is not a value added tax, this is not a transaction tax, this is a simple, 1/2 of 1 percent of that top line in everybody's tax statement, your total income. I would genuinely like to have some people look at this, give it some consideration, and realize....
SPEAKER BAACK: One minute.
SENATOR ELMER: ... that this type of a tax, that recognizes service and mercantile activity, can be viable. I'd ask for your discussion and comments. Thank you very much, Mr. Speaker.
SPEAKER BAACK: Thank you, Senator Elmer. First speaker is Senator Hall.
SENATOR HALL: Thank you, Mr. Speaker, members. The proposal that Senator Elmer offers, the gross receipts tax, is an issue that probably, unfortunately, is ahead of its time.
had ... there was a similar proposal, although much different, but similar in its effect to say we ought to look at a new taxing system in this state, we ought to look at new ideas, we ought to look at new approaches as opposed to rethinking the old system that we have in place. We ought to move to the future. And that's just what Senator Elmer does in this approach. fie says, let's take a look at something other than the old system of taxing merely property, a few sales transactions, and then income. Let's look at gross receipts in this case. It ... I mean the biggest advantage of this kind of a proposal is the reduction of property tax that an individual would see. It is clearly, has always been, and always will be the one thing that members of this body continue to talk about year in and year out, election after election with regard to the cost of property taxes and how excessive they are. There is very good arguments for keeping some types of government revenues raised through property taxes. I'm glad to see that this is not a complete Wipe Out of property taxes, if YOU will, but that it does allow for a reduction, a very large deduction ... reduction in property taxes. The question here is, and it will continue to be, and I think it Should be addressed, and I'm going to address it in an amendment later on, that what happens and how do we pay for the costs of education. Clearly, they represent the largest share of the property tax bill. It has continued to be an argument as to whose responsibility it is. The State of Nebraska has moved a long way over the past 1059, in taking over a greater share of that responsibility. What proposal that Owen puts before us does, it says, look, we need to pick tip more of that cost of education at the elementary and secondary level. I would agree with that. The gross receipts tax is one way to approach it. There are other ways that need to be addressed. I think that 1059 was the first step, not the final step, with regard to addressing the cost of education. And you address the cost of education through additional revenue sources at the state level, therefore hopefully reducing the reliance on property taxes, which has been a problem all along, and frankly it's one of the reasons we're here today, as was said earlier, in looking at 1063 and some of the other bills behind it. So, with that, I would like to hear some discussion with regard to what other folks feel about these types of proposals, because clearly they are easy to disregard because they are new proposals, they are new ideas, they are new concepts as it relates to what we understand and are comfortable with in our old tax system. But I don't think they should be discounted just merely for that purpose. I really applaud Senator Elmer for bringing this
forward, because I think it says that the State of Nebraska has to start looking at the tax system that we have as a whole. We've got a land mass big enough for two and a half Pennsylvania's, we've got a population that isn't the size of about 25 ...
SENATOR WARNER PRESIDING
SENATOR WARNER: One minute.
SENATOR HALL: ... Cities in this country, and yet only 700,000 pay taxes, the other 900,000 are either too young or too old, too poor, or they're exempt. And we continue to pick those same pockets. That's not a problem, we'll do that under any tax system. But what we have to do is pick those pockets in a more equitable fashion. The proposal that Senator Elmer puts before us moves in that direction.
SENATOR WARNER: Senator Schmit.
SENATOR SCHMIT: Mr. Chairman and members, I deliberately did not turn my light on for some time, thinking that there would be many individuals on this floor, having heard the debate of the past several days, who would have a lot to say about this tax. Actually, Senator Owen Elmer is trying to attach a jet airplane to a horse and buggy bill. The horse and buggy bill is going back to the old system. And, of course, Senator Warner, being a very traditional kind of person, it is entirely fitting and proper that lie would have that kind of bill. Not exactly consistent, but fitting and proper. I would suggest Senator Owen will get some support, and very few votes because we are all resistant to change. And we have all seen that when new proposals come before this body and are adopted by the body that the result is usually something different than what we had anticipated. Senator Owen Elmer's bill is a bill which reverts a long way from the traditional. And I do not know if it will tap any of those other taxpayers that are not now paying taxes. The concern that was expressed by Senator [fall relative to the method of funding education is one which, of course, we have struggled with a long time. Senator Withem and others tried to address that under 1059, and then, of course, we did not fully fund 1059. As I indicated yesterday, although I have frequently disagreed with the bills that were passed into law that addressed taxation in this body, 1, nonetheless, am resistant and reluctant to amend those bills and make major changes. And
I think that this body has an obligation to try to fully fund 1059 because of the fact that we promised, to local resident taxpayers, some significant relief. And then, of course, we chickened out, I guess you might say, when it came to providing the money, and we will continually do that. I think that Senator Owen Elmer's bill deserves to be discussed at great length. And I know that I have been provided substantial amounts of information on the bill. I, frankly, do not understand the full impact of the bill yet. I have a hunch, Senator Owen Elmer, that it would impact more heavily upon my district than the original projections indicate, but it may not. But the facts are that we would not know unless we implemented something like it. I think that some times, and it has been said frequently, that you need to develop a crisis before this Legislature moves, and there are those who would think we are probably as near that crisis as we can get, but I don't really think so. You have to... you get to the crisis when the public responds and reacts very, very proactively, and we've not yet reached that. I think that as these bills move across the board and the public becomes more and more aware of what will happen to them, and the facts that more revenue will be raised than they had anticipated, and that each of us will be called upon to make a substantial, additional increase in our contribution, something such as Senator Elmer offered here will become more acceptable. I would like to know, and it's impossible to know, exactly how much impact 1063...
SENATOR WARNER: One minute.
SENATOR SCHMIT: ... will have upon each of us, individually. asked questions yesterday as to the percentage of personal property that will be taxed under 1063. Nearly as I can tell it's about a third, I think, of the personal property will be taxed. And, of course, that will change, ism afraid, dramatically, as Senator Hall has pointed out, as we become adept at determining how to circumvent the depreciation process, which in itself is in its infancy, and which has not been tested and will not be tested until such time as this bill, if it should become law, is on the statutes. And so, Senator Elmer, again I'm anxious to hear more comment about the bill, and appreciate your discussion of it, and certainly I am not going to close my mind to the bill as an amendment to 1063, in fact I would not close my mind to any amendment...
SENATOR WARNER: Time.
SENATOR SCHMIT: ...to 1063.
SENATOR WARNER: Next, Senator Elmer, followed by Senators Schimek, Withem, and Crosby. Senator Elmer.
SENATOR ELMER: Thank you, Mr. President. To continue in the vein of my opening, the impacts ... the impacts of this, of course, is just like any, any other tax. The people who are at the ends of the production chain, the ends of the consumption chain feel the accordion like effect of any tax that we pay, whether it be a property tax, whether it be a sales tax, whether it be sin tax, whether it be use tax. A farm operation that I am very familiar with is one of the ... at the production end. They produce products for a market they have no control over. The products are perishable, they have to sell them whether they want to or not. If the prices are low, many times the cost of the production of that good is higher than they can get paid for. Under this system an average farm would have its property tax reduced about 55 percent. In return for that it pays 1/2 of 1 percent of everything it sells, livestock, land, grain, whatever, 1/2 of a percent. In almost every case those individuals with high values of property holdings would have an advantage, under this bill. But on those products sold we realize until the meat they sell gets to the packing house, or the grain they sell gets to the miller, that 1/2 of 1 percent will back... back and lower the price they get for their goods. On the other side of it, from the packing house, or from the miller to the consumer then it's passed onto the consumer and you and I, as a general public, pay it, as we do now, even though most of it is hidden. But the thing that this does, it spreads an obligation that the citizens of this state have, especially in education. I sincerely believe that educating our kids, both K-12 and college, is the obligation of the citizens of this state as a whole, not just those few who happen to own property. Numbers of kids in school have no relation to property, and it's unfair to have property paying for it. And this idea would allow that to happen, would allow that to happen. Senator Hall, are you still in the Chamber? Senator Hall, in the event that we're not successful with the bill this year, do you feel it would be proper to begin a good study to see if this type of a tax could be viable, could be usable and be acceptable?
SENATOR WARNER: Senator Hall, do you yield? Senator Hall.
SENATOR HALL: Yes, thank you, Mr. President. Senator Elmer, I ... clearly I believe that the discussion needs to continue about the tax system in Nebraska. It is far from perfect. The 3-R Committee, unfortunately, did not have the time necessary to do the thorough examination...
SENATOR WARNER: One minute.
SENATOR HALL: ... thorough examination that was necessary to talk about 'these' kinds of proposals. We had to focus our attention on the personal property tax problem. I would say, yes, I firmly believe that there needs to be continued examination, and this would clearly be justified is part of that process.
SENATOR ELMER: Thank you, Senator Hall. And I'll wait til closing to continue the rest of my comments. Thank you.
SENATOR WARNER: Senator Schimek.
SENATOR SCHIMEK: Yes, thank you, Mr. President, members of the body. I'd just like to thank Senator Elmer for bringing this proposal to us today. I think it's intriguing. I think that it deserves further study, in fact some of the things I'm going to say now are probably repetitive of the conversation you just had with Senator Hall. I think that an idea like this is perhaps analogous to a good cup of coffee, Senator, that it needs to percolate long enough in order for us to get that good cup of coffee. we can't ... we can't shorten the time. And I would encourage the Revenue Committee to continue processing this. Another thing that I'd like to say with regard to this idea, it's...one of the things about this whole tax crisis that perhaps is most interesting is the fact that some of these ideas are coming from the grassroots level. And I had thought for quite a period of time that our tax system needed to be looked at in the larger picture, and that we needed to make some major changes, But I thought, maybe mistakenly, that we needed an actual crisis to get us to make some of those major changes. And perhaps that thinking was wrong. Perhaps, because we are in crisis, we can't throw out the horse and buggy type of tax system that Senator Schmit suggested. Perhaps we can't make that major change right now, we need to solve the crisis. But perhaps with time, and perhaps with that grassroots interest and activity we can take a look at the larger picture. I'd also
agree with Senator Hall that we do not... should not necessarily say no to the idea that we have increased state aid for the public school system. I think that's something that we continue to look at. So, in conclusion, Senator Elmer, I'm not ready to vote today 'on this tax proposal, and I doubt that there are very few people on this floor that are. But that certainly doesn't preclude my voting for something like this in the future. I think it's a very intriguing idea. Thank you.
PRESIDENT MOUL PRESIDING
PRESIDENT MOUL: Thank you, Senator Schimek. Senator Withem.
SENATOR WITHEM: Yes, Madam President, members of the body. I'm just going to be very redundant with what Senator Hall and Senator Schimek just got through saying. I am not going to support the Elmer amendment, I think, given the fragile nature of what we're trying to do here and our need to accomplish something by... at least by tile November election, that I think that we cannot impose this sort of solution on the citizens, expect them to understand it. And I'm not sure I think it is particularly a better policy or a poorer policy than we currently have before us. But one of my frustrations as a member of the 3-R Committee was that we spent a lot of time the first several months of that process gathering alternatives ... gathering information, understanding current tax sources, looking at alternatives, one of them which I was particular intrigued with that Senator Elmer did mention in his ... in his opening was the Michigan single business tax concept. And I found it to be an intriguing idea and thought our committee should have looked further at that approach. We kind of had a couple of nice presentations, and then said, eh, too complicated, and put it aside. One of the approaches that ... one of the values of it was that it did not impose a property tax on inventories, but the wealth recognize d by holding an inventory was, in fact, taxed through the single business approach. Liked the idea, thought we should have, as a committee, been a little more creative in the approaches that we look. But political reality sat in during the summer, and we realized that the -real nub is going. to be what do you do with personal property. And we were never able to get beyond that and reach a consensus. The same stumbling block that's hit us between the 1120 approach, and the 1063 approach, hit us during the 3-R approach, and we never got beyond that, we never got into looking at creative tax solutions. And I know, Senator
Elmer, people are saying, well, we have a crisis before us, so now is not the time. The crisis goes away and they will say, well gee, Senator Elmer, we don't need to change our tax structure now, we don't have a crisis. And I don't know how you deal with that chicken and egg concept. It's just that I think in... in deciding what it is we need to do to deal with the immediate problem before us, it forecloses options like this, but I hope by foreclosing options like this today doesn't mean that more creative, more imaginative questions should not be considered by this Legislature as we go on. And I think the value of this amendment is one of raising that, and I think it is good we have had this discussion. After having said that, I will confess to you something you probably suspect, and that is I am not going to vote for your amendment, but I think it is good that we've had the discussion, and you brought it forward.
PRESIDENT MOUL: Thank you, Senator Withem. Senator Crosby, followed by Senators Wehrbein, Moore and Lynch. Senator Crosby.
SENATOR CROSBY: Thank you, Madam Chair and members. Well, I appreciate Senator Elmer bringing this tax ... this particular amendment and allowing us to talk about it. I have had a few phone calls about the idea and the concept, and also, obviously, not the same people who have been talking about LB 1063 don't want to talk this morning, so I got my light on in time to say something. I really ... there is two or three things that hop out at me. To begin with, the promise that real estate taxes for homeowners would go down. I have heard that promised before. Forgive me, Senator Elmer, so far it hasn't happened, so you will have to allow me to be a little bit skeptical. And I did read the part about the fact that they would prepare ... all the boards, including school boards, would prepare their respective budgets under the lid constraints currently in place. That sounds good. All of these points sound really good, but I have a few concerns about, and I know this is called the transaction tax, and that is how it has been presented to me. Well, you have a lot of transactions, you include churches, and I assume that would be hospitals and nursing homes, and so on. For me, it is another half percent on the sales tax, and it could be raised at any time for reasons that a lot of good people could come tip with. And the church, in particular, Catholics answer to... Catholic Church answer to any problem, money problem, normally, is to have a special collection. I can just see my pastor sending out another little envelope saying this is the special collection for the transaction tax. He is not about to
come along and say, well, I will figure out someway to get that out of receipts. He won't do that. Each one of us would have to come up with a little more money, and I think that would happen in a lot of things. The other thing I think, since this is aimed at schools, the school districts, and money for elementary and secondary schools, oh, what a difference that would make in Lancaster County if this actually happened and it paid for the schools and property owners would be relieved of that. It would go, 65 percent or more. But I don't see how we can hold that 'promise out to homeowners right now because this actually... this concept has not been given the light of day with...I think school districts, everyone has to be involved in coming up with the real answer and the real plan that would make this idea work. So I won't support it today but I do think that... I have one quick question, if I have enough time. Senator Elmer, are you back there? This is just a little... one little questions, for instance, if an employee is paying money into a retirement fund, is that a transaction that would have this half percent?
SENATOR ELMER: Senator Crosby, it would not be. Would not be, because ... and tile question you asked about a church. You make a donation to the church, the church didn't sell you anything tangible, so that would not have a tax. Only the income from investments that a church may have would be subject to the 1/2 of 1 percent.
SENATOR CROSBY: We still Might get that special collection. At any rate, the other thing I wanted to know is that, for instance, schools get other income. That would stay in place, right?
SENATOR ELMER: The schools that ...
SENATOR CROSBY: I mean from fines and that kind of thing.
SENATOR ELMER: ...yes. We are talking only about the portion of the property tax that is paying for the operation of the school. And you realize under this, 1059 is abolished ...
PRESIDENT MOUL: One minute.
SENATOR ELMER: ... because it is no longer needed.
SENATOR CROSBY: That was my last question. Okay, thank
you ... did you say one minute or time?
PRESIDENT MOUL: One minute.
SENATOR CROSBY: Oh, thank you. Thank you, Senator Elmer. That was my last question, that 1059 would not be in place, is that what you said?
SENATOR ELMER: Yes, that is affirmative, Senator Crosby.
SENATOR CROSBY: So, then that is another reason I think we would really... I just don't think we can do that off the top of our heads today or add this to 1063, but, certainly, we need to have it, and whatever the Revenue Committee would look at a study or whatever, because whatever we do this year, we are going to be next year. I hope all of us will be back next year, or some of us. We are going to have a lot of the same problems to face and this may be part of a good answer. Thank you.
PRESIDENT MOUL: Thank you, Senator Crosby. Senator Wehrbein.
SENATOR WEHRBEIN: Yes, Madam Speaker and members. I have several questions of Senator Elmer. I guess I would preface my remarks by saying that I probably am not inclined to vote at this time either until this is perhaps more fully understood, not only by this body, but across the state. And one of my apprehensions has been on many things and the many changes we make here, that with computers whirring literally day and night to understand some of the decisions that we make or either... or propose in here, sometimes we have a tendency, the figures, if some ... the figures don't always come out like we anticipate they will and we make some errors in here, and then, of course, we catch political repercussions. And I am concerned about a major change like this may be. But be that as it may, I'd like to ask something, would this have some of the drawbacks perhaps that a sales tax would in terms of distribution, even in spite of the way you are proposing this? In other words, those areas that are heavy in transaction areas, so to speak, would also contribute more proportionately than those that don't have the amount of transactions going on, is that a potential?
SENATOR ELMER: In the proportional amount that they pay as a gross receipts tax compared to those that have very small amounts of income, that is very true. And like I said in my opening, the individual corporations that would be paying more
proportionately, or the large retail chains that have extremely large amounts of merchandise sold and have a small amount of real property to pay tax on.
SENATOR WEHRBEIN: Okay, thank you. So, how would this relationship be to a sales tax? Are you proposing that our sales tax would stay on as it is and this would be an addition, mostly in place of property?
SENATOR ELMER: In this, you have to realize, too, that this bill that is being proposed here would replace... that would essentially replace 1063 is designed to be the least disruptive in administrative...administrations and in other methods of collecting taxes. So it is a straight 1/2 of I percent of gross receipts that goes directly to the root of the property tax problem, and every penny then would be property tax relief. The other taxes remaining in place, then, keep the rest of the balance in place. Income tax, there is a value ... there is a reason to have income tax. There is a reason to have some sales tax. There are good reasons to have some property tax. The user taxes, such as motor vehicle, fuel tax, and those types of things are fair. The sin tax, of course, you would say that should go to mitigate or alleviate the sin, but on the other hand, the more tax you put on perhaps reduces consumption. So there is a place for all those taxes, and this is ... and I will address some more of this in the close, so that you have more time.
SENATOR WEHRBEIN: I have a couple more questions, just to understand the mechanics. If I sell a load of cattle, it will be a deduction off of that by the packer, right?
SENATOR ELMER: If you sell ...
SENATOR WEHRBEIN: I will pay it.
SENATOR ELMER: If you sell a load of cattle to the packer, say you get $50,000 for that. Well, you'd owe $250 on gross receipts tax ... no, is that right?
SENATOR WEHRBEIN: Probably 25.
SENATOR ELMER: $25 in gross receipts tax on that $50,000 sale. Now recognizing that the packer is going to have a half a percent when he sells it to the retail chain, you probably would
see that much of a reduction in the price that...
PRESIDENT MOUL: One minute.
SENATOR ELMER: ... you are being paid because he could go to a neighboring state and not have to pay it. So you, as a Nebraska citizen, in reality would be paying I percent on that sale on your cow, but in return, your property tax is less than half of what it was.
SENATOR WEHRBEIN: If we buyers get our figures straight, probably is 500 or 250, so...and the other thing then, if I was to go to the hardware store and buy a hammer, that would add onto my sales tax, and then I would have a transaction tax, too?
SENATOR ELMER: No, you'd just pay the normal 5 percent sales tax because that hardware store would take his total sales at the end of a particular period, depending on the volume he does, and pay a half a percent on ...
SENATOR WEHRBEIN: So it would be a cost of doing business in his case.
SENATOR ELMER: It would be the cost of doing business, but on the other side of that, of course, he doesn't have to pay any personal property tax and about half as much real property tax.
SENATOR WEHRBEIN: Okay, now what if I sell a load of corn to my neighbor?
SENATOR ELMER: Well, if you return that...
PRESIDENT MOUL: Time.
SENATOR ELMER: I will address that in my closing, Senator.
PRESIDENT MOUL: Thank you, Senators. Senator Moore.
SENATOR MOORE: Madam President and members, as Senator Schmit had said, it is probably an odd time to be having this discussion of Senator Elmer's proposal on a bill like this, because Senator Elmer's proposal is probably an innovative step forward, whereas 1063 is certainly a step backward in tax policy. But having said that, and Senator Withem had mentioned that the 3-R Committee had looked at a few innovative things and
then, basically, got bogged down with the issue of personal property, and that is where it all stopped, and that is the price that unfortunately we are going to pay. I think we are missing the opportunity to do something like this. I think there was some conceptually... I know I, myself, was willing to do some things that in a normal situation I would not do to move our tax policy continuing forward. LB 1063 fails in that, and the opportunity will be lost if this bill passes. Having said all that, I think there is one thing is important, that Senator Elmer's bill, as long as it is... I know Senator Elmer's proposal is really far different than the full blown transaction tax that some people have talked about, it's far different from that, but I think both of these concepts, it is important for the public understand. I know I have had several questions about why aren't you looking at this, why aren't you considering these type of things? Why aren't you doing some of these things? And the simple fact is that these are, indeed, dramatic changes that need to be looked at significantly as far as the distribution of this money, how the incidents will be across taxpayers, the impact it will have on borders beyond Nebraska. And it is things like that that we do need to take a look at, and I think it is important that we probably do take a look at those things. For the people that support Senator Elmer's bill, and as well as those that brought to us the transaction tax, you have to realize that thus far we have only just really looked at the tip of the iceberg on what exactly is entailed in those things. I think it is important that we do continue to look at those things. People have to understand that all the time the 3-R Committee spent, it would take much more time than that, particularly on a full blown transaction tax, as well as Senator Elmer's proposal. I agree to take a good, long, hard look at that before we seriously consider doing that, and I know that Senator Elmer and Senator Hall already had the discussion. I think that look probably should ... a good, hard look should take place soon. With that, I cannot support Senator Elmer's amendment because I simply do not know enough about it at this point in time.
PRESIDENT MOUL: Thank you, Senator Moore. Senator Lynch.
SENATOR LYNCH: Madam President and members, I intend to support Senator Elmer's amendment because somebody has to vote with him for going to all the work that fie did to draw attention to this kind of an issue, plus I think it is a heck of a lot better alternative than everything we have talked about so far, but we
are going to use the excuse that we don't have time to help the voters understand what they are voting on as an excuse not to do this is certainly not the right reason either. I don't think there are 100 percent of the senators on the floor, or off the floor right now, that understand exactly what we are doing either. You know it is a fact of life if we want people to understand how they will be affected, we have to make sure we have that obligation, and this debate on the floor with this issue identifies that. We are maybe riot prepared to do either. In fact, as you all know, there will be some people who will support 1063 and maybe a constitutional amendment who will advertise and politicize the issue with the full intention of hoping that people do not understand what they are voting for because we are really riot changing a heck of a lot. Most of the debate has simply had to do with how to protect the exemptions that exist and how to shift those responsibilities without admitting it. I think the 3-R Committee and everybody else had enough time to understand other alternatives, and Senator Elmer's proposal is one of those, but we never took the time, and that is the problem. We are simply limiting what we are willing to talk about, and by doing that, we, obviously, have to admit to everybody in the state that we are riot providing any kind of stability from a tax point of view for anybody. That whatever we do, based on what we have all heard so far, certainly is not. a permanent solution at all. It is not substantive at all. Whether we understand it or not, what Senator Elmer recommends does more to do that than anything we have discussed so far. What I would like to suggest is, unfortunately and it couldn't have happened, is that the proposal by Senator Elmer could have been provided in such a way that it could have stood on its own and competed with everything we are talking about at the present time. So what we want to do is to make sure that ill of us understand the responsibility we have, and not try to fool people into thinking that what we are trying to do will have long-lasting effects and offer stability for all of us in the future. It has already been discussed this morning that many of the 'amendments we have proposed are probably going to be subject to litigation, and, in fact, Senator Moore even suggested we'd better come tip with some more money to provide for our obviously competent Attorney General, enough money to hire somebody who is equally as competent to help defend us against those kinds of litigation. But let's not fool people also into thinking that what we are trying to do is to help them through this terrible issue in such a way that it will, in fact, go away. Owen offers us a chance with this
proposal to do something very positive. It is too bad we won't have an opportunity, and it is unfortunate that those that did have the time or were given the charge ...
PRESIDENT MOUL: One minute.
SENATOR LYNCH: ... of taking the time to understand did not spend enough time on this kind of an alternative which would have started us off in the direction of being fair to everybody, and not just trying to protect some that already have some exemptions, possibly at the great expense of all of those who are already paying and have always paid 100 percent of their fair share. So, Owen, I am going to vote for you. It might be Just you and me but I think it is a good idea.
PRESIDENT MOUL: Thank you, Senator Lynch. Does anyone else wish to speak to this amendment? Seeing none, I will recognize Senator Elmer for closing.
SENATOR ELMER: Thank you, Madam President. I sincerely appreciate everyone here who has gotten tip to speak to this particular idea. I think it has a good deal of support in your hearts. You like the thought and it intrigues you. Don't let that go away because what we are doing, either whether it is LB 1120 or 1063, we are just putting patches over Band-Aids that are Oil top of the barb wire on the old Model T. And that old Model T may struggle along another year or two, but, eventually, there is going to be too much demanded of property. What we are doing in 1063 now is retrogressive. It is becoming more archaic than it has been in our tax system. We need to be able to tax those people who benefit from the opportunity to do business in our state, and not own very much property in relation to that tremendous volume of business. This recognizes that. Senator Wehrbein, you asked me a question and I promised I'd answer it in closing. You say you make a sale of several cattle directly to your neighbor, or corn, or grain, whatever. Well, if you think you can get away from not reporting that to the Internal Revenue Service, you will avoid this tax too, because this is based directly on the top line of your income tax calculations and worksheets. You add everything tip you have sold during the year and that is your gross receipts and that is what you'd pay on. And this can only work if there are no exemptions, and can only work if the tax is very small, because if you start jacking it up too much, then goods become out of line with everything ... with all the states that surround us, and I
recognize that. But, Senator Lynch, I appreciate that, and I would suggest, I am going to ask people to vote on this, and I would like to ask you to do one favor for me. When you initially push your button, if this thought intrigues you and you think we should look at it seriously, please push your green button, and give us an indication, and then change it to red. Thank you, Madam Speaker.
PRESIDENT MOUL: Thank you, Senator Elmer. We will now vote on the Elmer amendment. All those in favor please vote aye, opposed nay. Senator Warner.
SENATOR WARNER: For a point of information, is this on the adoption of the amendment?
PRESIDENT MOUL: Yes, it is.
SENATOR WARNER: I'd ask for a call of the house, roll call vote. It strikes the bill and inserts the amendment, Mr. Clerk, for clarification?
CLERK: Yes, sir.
SENATOR WARNER: Thank you.
PRESIDENT MOUL: Okay, we have a request for a call of the house. All those in favor of a call of the house please vote aye, opposed nay. Please record, Mr. Clerk.
CLERK: 23 ayes, 0 nays to go under call, Madam President.
PRESIDENT MOUL: The house is under call. 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. Senator Warner.
SENATOR WARNER: On further reflection, Madam President, I'd withdraw the motion if it is not too late.
PRESIDENT MOUL: We will proceed with call of the house and roll call vote.
SENATOR WARNER: Okay.
PRESIDENT MOUL: Okay, Senator Warner, Senator Moore, would you please check in. Senator Ashford, Senator Bernard-Stevens, Senator Beutler, please check in. Senator Chambers, Senator Schmit, Senator Rod Johnson, please check in. Senator Wesely, Senator Horgan, please check in. Senator Bernard-Stevens, would you please check in. We are still looking for Senators Ashford and Wesely. Senator Warner, would you like us to proceed while we are looking. We will proceed with the roll call vote on the Elmer amendment to LB 1063.
CLERK: (Roll call vote taken. See pages 1158-59 of the Legislative Journal.) 19 ayes, 16 nays, Madam President.
PRESIDENT MOUL: Motion fails and I will raise the call. I would like to direct the senators' attention to the area under the south balcony. A special quest today of Senator Labedz is Jack Foral of Omaha. Would you please rise and be recognized. Welcome to the Chambers. Thank you. Next amendment, Mr. Clerk.
CLERK: Madam President, Senator Coordsen would move to amend the bill. (See FA293 on page 1159 of the Legislative Journal.)
PRESIDENT MOUL: Senator Coordsen.
SENATOR COORDSEN: Thank you, Madam President and members of the body. This amendment is on page 73 of AM3048, line 14, it's in Section 46, and the amendment would change the word "increased" to the word "decreased" in line 14. And I will read for you the section. "Nebraska adjusted basis shall mean the adjusted basis of property as determined under the Internal Revenue Code of 1986, as amended, as the code exists on the assessment date," Current language is "increased by the total amount allowed under the code for depreciation or amortization or pursuant to an election to expense depreciable property under section 179 of the code, as amended." The bill, or the amendment, which is currently the bill, provides for, I believe, some unique changes in how we determine values for personal property tax purposes. It is my impression, from reading the bill, that any real or any personal property, business or farm, that is currently being depreciated, would be required to be valued under the new mechanism for personal property tax purposes by the county assessors, as well as additions to those mechanisms. The proposal in Sections 46, 47 and 48 is a rather dramatic change for business equipment from the current system that has been agreed to by most of the county assessors in Nebraska, whereby
if you are a businessperson and you purchase an item of income-producing business property that in most of the counties that property is brought onto the tax rolls at 70 percent of its purchase price, and then the assessor depreciates that over a period of ten years at a rate of 5 percent a year, and you remain then for as long as that property is in your business and in use in your business at a property tax rate of 20 percent of that value. LB 1063 in its current form, then, provides for a, what could conceivably be a reduction in the business equipment that is currently being assessed, and that that equipment that is being held or has been held longer than seven years would no longer be part of your adjusted base for the purposes of personal property tax computations. So it may well be that we would have a decrease in valuation for business equipment. I wanted to mention that in the context of what the amendment does. The Internal Revenue Service Code provides in what is called Section 179 that a taxpayer, at least a taxpayer with less than $200,000 of claimed depreciation, can elect to expense up to $10,000 of the total amount in one year, and then the rest is depreciated by a variety of systems that are provided for. We are narrowing that selection of systems down to the 150 percent declining balance. The language in the....and that, basically, the $10,000 is used to expense items, two different things, one is to expense items that are relatively low in cost but have a useful life of more than one year, more than one year. And you have either your class, three year, five year, seven year class lives that are applicable as far as federal code is concerned. This language, as I understand it, that is currently in the bill would require a recomputation for personal property tax valuation purposes of a lot of currently existing property, as well as create an infinitely more complicated system for the taxpayer in future years. Now, of course, the other use of 179 in items that cost in excess of $10,000 is a reduction in the value for federal tax purposes of that particular item. For an example, a $50,000 lathe in a machine shop could be reduced by up to $10,000 leaving $40,000 residue for that business owner to claim over the class life of that property. I think if we follow more closely the available options under the Internal Revenue Service Code we will have two things, one is a simpler system, one that is more understandable by those who must comply, and one that creates a lesser burden on the part of the taxpayer in either bringing back in or changing from the current system of either no property tax, in tile case of agriculture equipment, or a different system on the part of business equipment. I don't know what the impact this
has on the personal property tax valuation available to the State of Nebraska. That is conceptually possible to calculate for business equipment. All of the alleged figures for agriculture equipment have got to be little more than an educated guess because I am not aware of any system of making an accurate determination of what possible value there is out there. Now have I lost all of you so far? Yep, good, but I think that this would be an improvement. It would simplify the system, make it more understandable and more acceptable by the people who must comply. So with that I would encourage the adoption of the amendment.
PRESIDENT MOUL: Thank you, Senator Coordsen. The speaking order now is Senator Lamb, Hall, Schmit, Warner, Withem and Nelson. Senator Lamb.
SENATOR LAMB: Thank you, Madam Chair and members of the Legislature. I rise to support Senator Coordsen's amendment. Actually, what it does, it puts the state depreciation system more in line with the federal depreciation system. Under the federal guidelines, if I buy a tractor, I can depreciate it an additional $10,000 the first year. That is total. But if I bought a tractor, a combine, and a cultivator, the total amount of additional depreciation I can take is $10,000. It is an additional depreciation which in our 1063 is not allowed. So we are really making depreciation more strict on the state level than it is oil the federal level because this extra $10,000 is not allowed. I am not sure that the amendment does what Senator Coordsen wants it to do, but that's the intent of it, to make the state depreciation schedule compatible, equal to the federal depreciation schedule, so that taxpayers get the advantage of that additional $10,000 of depreciation the year that they buy these items. I think it should be a part of our code. We should not be more strict, in my opinion, than the federal code, and so this would allow us to do what the federal people allow us to do.
PRESIDENT MOUL: Thank you, Senator Lamb. Senator Hall.
SENATOR HALL: Thank you, Madam President and members. Senator Coordsen, would you respond to a question?
PRESIDENT MOUL: Senator Coordsen.
SENATOR COORDSEN: Certainly.
SENATOR HALL: Senator Coordsen, if I bought less than $10,000 worth of depreciable property in a given year, I would be able to write that all off then in a single year, is that correct?
SENATOR COORDSEN: Oh, if you had enough income. You can't write ... it is ...
SENATOR HALL: Right.
SENATOR COORDSEN: ... only available in the year of purchase if you have enough income, and then it's an election process. You don't have to, you may.
SENATOR HALL: Right, I can use that option if I choose, and if I do meet the income standard?
SENATOR COORDSEN: That is right.
SENATOR HALL: Thank you very much. I would rise also in support of the measure. I think Senator Lamb pointed out clearly that it is nothing more than mirroring what currently is available to individuals at the federal level. I think it makes good sense. We are using, basically, the federal table, although as Senator Coordsen pointed out, we are narrowing the options. This is one option that I think will help individuals and will I guess reduce the complications and the confusion as it relates to the federal table with a number of options and the state table which has a much more limited scope. So I would rise in support of the Coordsen amendment.
PRESIDENT MOUL: Thank you, Senator Hall. Senator Schmit. Senator Warner.
SENATOR WARNER: Madam President, members of the Legislature, I would rise to oppose the amendment for a number of reasons. The first one, those of you who will recall the Attorney General's opinion in regard to using federal depreciation as LB 1063 was originally introduced, if you'd go back and read that, one of the constitutional questions he raised was the fact that under federal depreciation guidelines there are several, at least four that I can think of, that the individual has the option of using, depending on the type of business they-are in, and one of the questions lie raised then was that that was a constitutional problem, and you couldn't do it. When we talked about going to
a state schedule, I talked about it on terms of equity so there was similar depreciation rather than different kinds, and there was an equity issue, but there was the constitutional issue as well. And under federal guidelines, business, for example, can use a 200 percent. In some cases, it is a straight line. It is 150 percent, generally for ag, but there is another set of circumstances in ag that is different, that you may have the opportunity to elect. The bottom line is that that Attorney General's Opinion said we couldn't. It raised a serious constitutional question to do what I understand Senator Coordsen wants to do. Secondly is the reference to the 179 exemption. As it was explained, that is not permitted under 1063 as it is presently written. Actually, you do not accelerate depreciation under 10,000, you expense 10,000 of depreciation, if you meet all the various guidelines, and, again, you are going then go into a lack of uniformity. Tile way the bill is designed is that new equipment that is purchased, and whether you are in agriculture or in business equipment, any depreciable property would be uniformly depreciated as far as the concept is concerned that you would use, and the only thing that varies is the life cycle for that particular piece of equipment. In addition, if you would expense the 179, it probably has a significant reduction oil the amount of property that would be subject to tax and certainly there is the equity issue where the individual who can use it would not be treated the same as the individual who could not. But the tie to the federal income tax for purpose of reporting in 1063 is tied to the two important things that you need, and that is date of purchase and purchase price. That can be cross-checked for accuracy, but then to go further and, again, to pick tip the other provisions of depreciation oil federal income tax is going to lead you right into the problem that the Attorney General indicated. Also, if you allow the election in the case of business equipment, which under new equipment depending oil what the individual has opted for, the new business equipment could be accelerated at a 200 percent, which is a much more rapid rate than the 150 as provided for in 1063, and if you did that, yes, you would be able to ...
PRESIDENT MOUL: One minute.
SENATOR WARNER: ... write that off more quickly. This concept of how to treat 179, 1 guess I don't know if we've talked a lot about it oil the floor, I think made reference to it, but it is one that if you want any kind of uniformity of treatment to,
over the long haul to depreciable personal property, the bill needs to remain as it is and the only tie to the federal depreciation schedule should be for the two purposes I indicated, which is date of purchase and purchase price.
PRESIDENT MOUL: Thank you, Senator Warner. Before we continue with debate, I would like to direct the senators attention to the area under the north balcony. A special guest today of Senator Schellpeper is Jerry Atkinson of Norfolk. Would you please rise and be recognized. Welcome to the Chambers. Thank you. And in the south balcony, special guests of Senator Doug Kristensen are 16 students from Wilcox High School with their teacher. Would you please rise and be recognized. Welcome to the Chambers. And just arriving in the south balcony are representatives of the Nebraska Nurses Association, who are attending the legislative session today as part of Nurses Day at the Unicameral. They are special guests of Senator Don Wesely. Would you please rise and be recognized. Welcome to the Chambers. Thank you. I will now recognize Senator Withem.
SENATOR WITHEM: Yes, Madam President, members of the body, Senator Coordsen, would you respond to a question?
SENATOR COORDSEN: Yes.
SENATOR WITHEM: Yesterday I distributed on the floor some numbers done by the Department of Revenue based on a series of assumptions they made of amount of taxable property on the various segments of our economy based on ... depended upon what different bill we had approached. With your amendment, do you have any idea of what it would do dollarwise to the base of taxable personal property in the state?
SENATOR COORDSEN: No, and neither does the Department of Revenue (interruption).
SENATOR WITHEM: That's fine. I guess that is enough for me at this point to indicate that I am not supportive of the amendment. I will be totally honest with everybody that this is a segment of the bill that I am not the expert on, but what it appears to do is by changing one word on page 73 of this bill provide for a decrease in the taxable base of our state, and we don't have any Idea of what that base ... what that decrease will be. No criticism of taking advantage of the rule that allows senators to offer amendments at any time, but I would point out
that as of nine o'clock this morning this was not an amendment before the body. It is on a yellow sheet of paper, has not been distributed, although Senator Coordsen has accurately described what the amendment would do to the bill. We have had no opportunity to assess the impacts of the bill. Perhaps it offers a slight change in how a particular small portion of the property tax base would be dealt with and perhaps there is no problem. Perhaps it is what we have all lovingly begun to call in here, perhaps it is a Conway amendment. Senator Conway has an excellent ability to understand these measures and to offer amendments that sound good on first blush, and then we read about them in the newspapers the next day of what it is we have done. On a bill this technical and this involved with one of the most technical aspects of the bill, I am not going to vote to support it at this time. I am open. I am willing to learn more about what striking the word "increased" and inserting the word "decreased" does to the bill. I would urge you to, if you are supportive of the bill and you are not aware of what the full impacts and ramifications of this amendment are, as I am not, that you vote no now. one of the values of a Unicameral in which we have General File, Select File, and Final Reading was, Senator Wesely would like us to say First Reading, Second Reading, and Third Reading, is that we have opportunities to introduce ideas for consideration. We don't have to buy into them during our first stage of consideration. There is an opportunity for later exploration. Let's ... you know, I would hope Senator Coordsen would have considered lie has put us on notice that this is a change he thinks is valuable. We have a little bit of discussion here. I'd suggest perhaps lie withdraws this amendment, gives us an opportunity to get a fiscal impact statement so that we know exactly what it does, get an opportunity for briefings by Senator Coordsen, people in the Department of Revenue, so we really understand what it does. At this point, I am not...
PRESIDENT MOUL: One minute.
SENATOR WITHEM: ... willing to on...trying to think of a sensitive sort of analogy to use here that won't offend different categories of people. I was going to say buy a pig in a poke, but I don't want Senator Rogers to get upset. I was trying to think ... trying to think of other sorts of things to comment on, so I will go ahead and use that if he agrees. I am not prepared to buy this pig in a poke at this time, not knowing what it does. So I am going to vote no on it at this time.
Thank you all very much.
PRESIDENT MOUL: Thank you, Senator Withem. Senator Nelson, followed by Senators Coordsen, Lamb, Wehrbein, and Hall. Senator Nelson.
SENATOR NELSON:- Madam Speaker, I would probably like to support this but Senator Withem, I agree, he may not know very much about some depreciation, but he posed a good question. The 179, and Senator Warner is correct, it is an expense. It is expense at the top of 2106 and then you go down with your depreciation, and that is taken off first, but this would be a major, a major change. Nearly every farmer or businessperson uses the 179. Sometimes that is about all of the depreciation that they may have for the year. I don't know, another concern that I have is one risk that you take in using Section 179 property, if the person does, be it farmer or business, and you should accidentally go bankrupt in the next three years, and I do think some of that will happen, or if you dispose of tile item before it is entirely depreciated out, that goes in as straight income, and that is a major, major thing to the person that uses that Section 179 property in the first place. So you kind of have to weigh the judgment, am I sure I am going to use this planter for seven years, or am I not sure? Or am I going to have tile pickup for five years? So it is another thing that we need to discuss, and Senator Coordsen was right to Senator Hall's you have to have tile income to use it.
PRESIDENT MOUL: Thank you, Senator Nelson. Senator Coordsen.
SENATOR COORDSEN: You didn't want me to holler that loud, did you, Madam President?
PRESIDENT MOUL: No, your microphone is on now.
SENATOR COORDSEN: Senator Warner referred to a Supreme Court case back in the seventies that gave rise to the Attorney General's Opinion relative to this. I would suggest that the basic language of Section 46 indicates a reliance upon the federal code and a fundamental basis for determining value. Tile question raised, what is the increase or what is the decrease?, I would suggest to you that if we are going to ask for information that we also ask for information as to the decrease in business equipment value, switching from the historical formula that was used by the county assessors, and the rather
significant changes that are going to be brought about in currently held property by the language in AM3048, or the current bill. We don't know. I was a little surprised that Senator Withem indicated the discomfiture with floor amendments. I didn't really realize that they were out of order on the floor of the body. It must be a fairly recent, recent change. What this amendment would do, again, is bring a more understandable process of valuation in place for the people who must comply, and bear in mind this bill does provide for a significant increase of personal property tax on a segment of our economy that has riot been taxed in this manner for a* large number of years. To do that, and then to make that system more complex, to bring into a valuation for personal property tax items of farm equipment that are of such durability as to have a longer class life than one year, that have not been on the depreciation. schedule for a number of years, it could be as far back as seven years before they would be ... that had not been valued creates, I believe, a confused situation for the people who must comply. The changes, whatever those changes in valuation might be, bear in mind, are going to be changes in valuation that are currently not taxed, riot valued for taxation oil tile lowered level. There still will be a significant net increase. The question was raised as to the cost of this, insofar as a reduction in the amount of property that is going to be valued. I would indicate to you that I am not aware of any, of any accurate method that is available to the Department of Revenue from information perhaps coming from the Internal Revenue Service that has any degree of accuracy by basing an estimate of nondepreciated .property, the residual value upon claimed depreciation. It is a very, very difficult thing. I would contend that the impact to agriculture is quite probably much higher than the figures that have been offered and that no one has talked about the reduction in personal ...
PRESIDENT MOUL: One minute.
SENATOR COORDSEN: ... property valuations for businesses in the state, something that I really don't object to, if that brings about a fair system. But we don't know. But we do know that the current language creates a situation that is infinitely more complicated and much more misunderstandable by the public, much harder to enforce, much harder to comply with than what this change would bring about. Thank you.
PRESIDENT MOUL: Thank you, Senator Coordsen. Senator Lamb.
SENATOR LAMB: Thank you, Madam Chair. Now I have the old numbers and the new numbers. Before we got the state depreciation schedule, the Department of Revenue said that business equipment would be increased by $2.1 billion statewide. Now with the new schedule in 1063, they are saying it is even-steven. The exact number is $305 million gained, instead of $2.1 billion gained. Now the ag numbers stay the same under the proposal in 1063, as was previously estimated using the federal depreciation schedule, $1.8 billion. So by adopting LB 1063, we are reducing the valuation gain of business equipment by almost $2.1 billion. Now Senator Warner says we cannot use the 179 exemption because it would not be uniform. Well, I say it would be uniform because it applies to everybody. It is a system. It is a system just like the schedule that is in 1063. It is a system. It does give a break to smaller businesses, to smaller farmers because after you get over $10,000, why you have used it all up. So those small businesses, it makes a lot more difference to them than it does the large ones. So there is no reason we cannot incorporate it, as I see it, into the state system just as it is in the federal system, because although the Attorney General-did say that we cannot use the federal system primarily because there are at least four different systems of taxation in that system, we are talking about one system here, but it would incorporate the 179 exclusion. So that argument does not make a lot of sense to me. Now, certainly there would be reduction in revenue or valuation statewide, but I think what we should look at is the fairness issue. If we can do that on the federal level, and the first proposal by the 3-R Committee was that we use the federal depreciation schedule and the 179 exemption is in there, why can't we put* it in here now? Now it is not all that complicated. Senator Withem says you can't have a little amendment that comes up before the body and vote on in one day. ,Well, yesterday we had a complicated amendment to 1063, which none of us had seen until we got here yesterday morning, and, lo and behold, it was adopted. It was adopted in almost its entirety yesterday. So this is something that does need to be adopted. It would put us in line with the federal code and it would give small taxpayers a break, and I think that that is what should be done, and I hope you will adopt this amendment.
PRESIDENT MOUL: Thank you, Senator Lamb. Senator Wehrbein.
SENATOR WEHRBEIN:' Madam President and members, I have some
questions. I don't know who to ask and I guess I will start, Senator Warner, maybe you can answer a couple of questions that I ... I have been listening and now I got confused. Is this saying... I guess my first question is, and it is not directly to do with depreciation, but if I buy... I had a call last night, a neighbor bought a 44-40. He saw one sell last week for $25,000, and one this week for $15,000. Now will each one of those be able to put that on their depreciation schedule as what they paid for it? I want that answer recorded if I ...
SENATOR WARNER: Yes. Am I on? Yes.
SENATOR WEHRBEIN: Okay, so even though there is a 10,000 disparity between the values, that person putting that on the depreciation schedule will be allowed to use that?
SENATOR WARNER: Under all conditions, what the individual pays for a piece of equipment is, in fact, its value when it ... particularly when it is obviously at a hand's length transaction, such as an auction, right.
SENATOR WEHRBEIN: Okay, thank you. Then the other thing is, as I interpret this, is we start into this, if I have got... let's use the old 44-40 again. For those that don't know, it is a John Deere tractor. You got a ... if you have had it on three years and we start into this January 1st of 1992, is this ... does this statement in here say that you will start and have to recover previous depreciation for Nebraska's purposes...
SENATOR WARNER: When?
SENATOR WEHRBEIN: ... and for the next five years, or do you take it off of the depreciation schedule as you have it on right now?
SENATOR WARNER: No, you would initially start with the basis of the state depreciation schedule of tile purchase price that you used federally and the date, and apply that to the state depreciation schedule, which in most cases since agriculture is on 150 percent, it would be the same as what you have done. But -if you were, and it slips my mind the other option that you'd have, in agriculture has for depreciation, it could conceivably be different. But the answer to your question is that you would use, as across-the-board thing, you would use your purchase price, and the day that,. if it was three years ago, apply the
state depreciation schedule and come up with a current value for tax purposes. But in agriculture's case, in most instances, that will be the same number because of the 150 percent is what agriculture generally uses, but there are some exceptions.
SENATOR WEHRBEIN: Okay, thank you. Then I wonder if that affects, Senator Coordsen's amendment, as I read what you are getting at here, you are going to decrease that total amount and I assu... are you talking specifically the up to $10,000 expense in this case or does this carry further? Is it more involved? Senator Coordsen, please.
SENATOR COORDSEN: Okay, it is on. Senator Wehrbein, in this particular -use,- it would ... it would also allow for depreciation or amortization that had been taken in prior years. That is -insofar as Section 179, it would only apply in ... it was just my understanding that it would only apply... it would imply both in prior years and future years.
PRESIDENT MOUL- One minute.
SENATOR WEHRBEIN: Section 179 is only the accelerated...1 can't remember that term, but that accelerated tip to ten ...
SENATOR COORDSEN: You are allowed to expense up to $10,000 with a set of guidelines.
SENATOR WEHRBEIN: And that refers only to that issue in this case?
SENATOR COORDSEN: Well, no, it refers, in the case of current inventory of business equipment to the depreciation that has been claimed, the net book value for a determination of value coming into the depreciable tax system that is provided.
SENATOR WEHRBEIN: So it would decrease ... your effect of your amendment will be to decrease the...increase depreciation more, increase the declining amount of value in the machine or business equipment by changing the words.
SENATOR COORDSEN: It would decrease the baseline value...
SENATOR WEHRBEIN: Yes.
SENATOR COORDSEN: ... that the assessor used to compute the 1992
PRESIDENT MOUL: Time.
SENATOR WEHRBEIN: Thank you.
PRESIDENT MOUL: Thank you, Senator Wehrbein. Senator Hall.
SENATOR HALL: Madam President, I move that we recess till one-thirty.
PRESIDENT MOUL: Do you have items for the record, Mr. Clerk.
CLERK: Madam President, new A bill. (Read LB 1138A for the first time by title. See page 1161 of the Legislative Journal.) And a new resolution, LR 255. (Read a brief explanation. See pages 115960 of the Legislative Journal.) That will be laid over. That is all that I have, Madam President.
PRESIDENT MOUL: Thank you, Mr. Clerk. You have heard the motion to recess until one-thirty. All those in favor please say aye. Opposed nay. We are in recess until 1:30 p.m.
PRESIDENT MOUL PRESIDING
PRESIDENT MOUL: Good afternoon, ladies and gentlemen, and welcome to the George W. Norris Legislative Chamber. We will proceed with roll call. Please record your presence. Record, Mr. Clerk.
CLERK: I have a quorum present, Madam President.
PRESIDENT MOUL: Thank you, Mr. Clerk. I would like to call the senators' attention to the south balcony. Special guests today of Senator Crosby are 77 fifth graders from Calvert Elementary here in Lincoln-and their teacher. Would you all please rise and be recognized. Thank you very much for being here. Thank -you. We will now proceed with General File and debate on a Coordsen amendment to LB 1063. Speaking order now is Senator
Schellpeper, Senator Warner, Senator Wickersham, and Senator Coordsen. Senator Warner. Senator Wickersham.
SENATOR WICKERSHAM: Thank you, Madam President. Over the lunch hour I had a chance to visit with Senator Coordsen about his amendment and in part it's very attractive to me and in part I think it creates some problems. The part that is greatly attractive to me is the concept of taking advantage of something like a 179 deduction, that is $10,000 that you're entitled to. exempt from the property valuation system in the year you acquire the property. And, in fact, I have an amendment to that effect that I was intending to offer on Select File. If Senator Coordsen's amendment passes, I won't do that, it would be unnecessary. But that proposal is one that is extremely attractive to me on a conceptual basis because it allows for those persons who are going to get into business, and I don't care whether it's a store in town or it's going to be a farm. Some opportunity to enter into that business and have a small incentive from the State of Nebraska and from the residents of their county and their other taxing districts to get started, to go into business, to take the risk, to make tile investments and to help our economy grow. I think we have every reason to grant those kinds of incentives even though they may be in relatively small amounts. In fact, I favor granting those incentives in small amounts as opposed to the large amounts that we will sometimes grant to others. We will not blink an eye and give away millions of dollars but at the same time we will haggle and worry about whether we can give somebody a $10,000 deduction as is being proposed by Senator Coordsen and as I intended to propose myself. In part, Senator Coordsen's amendment goes further than what I had previously thought I would be willing to do, but after discussing with him over tile lunch hour I think I approve more and more of his proposed amendment. Senator Coordsen is concerned about what is going to happen to the property that is already five or six years old and will come into the system. flow are we going to treat those people? They, in many cases, may have already expensed the property under tile federal code. We have been talking about this as a depreciation scheme. We have somehow perhaps raised their expectations that if five years ago they expensed an item, that it will not be subject to tax under this proposal. As the proposal currently stands it would be subject to tax if it was seven-year property and only purchased five years ago. Senator Coordsen's amendment would take care of those folks in some small way. I think perhaps based on the expectations we have given them, they Are
entitled to be taken care of, simply to avoid the explanations, the undue difficulties that the county assessors and others will have in implementing this system in midstream. So without any great deal of hostility toward the concepts that are embodied in 1063, 1 think the Coordsen amendment has a great deal of merit and will vote for it.
PRESIDENT MOUL: Thank you, Senator Wickersham. Senator Coordsen.
SENATOR COORDSEN: Thank you, Madam President, to again reiterate for the body a little bit in the rationale behind this particular amendment, that if, in fact, 1063 in its current form becomes the law of the State of Nebraska, it will dramatically alter the method of valuing business equipment, both in this year and years to come ahead, but also dramatically alter the method that has been historically used by the assessors to value business equipment in the past. In addition to that, we will be bringing into the property tax mix on the local level, the valuation mix, items of personal property that have not been assessed for property tax valuation for some 15 or more years, nearly 20 in a certain percentage cases. What this amendment would do, again, is to address some of those concerns. it treats both business and farm equipment the same way whether you're going backwards or forward. The only thing going forward would be, that would be of major significance, would be the up to $10,000 or the Section 179 write-offs that would be reported to the county assessor when you establish the base line value for beginning the 150 percent declining balance, mid-year conventions, switching to straight line depreciation for tax purposes. That is proposed in this. A comment was made earlier this morning about this probably being unconstitutional. I rather suspect that the Attorney General's Opinion was referring to the case of the Meyer v. McNeil case back in 1970 when the Legislature did, in fact, try to base valuation, of farm equipment tip on the federal depreciated values and the court found that they were trying to create a sub-class within a broader class and, in fact, was in violation of the uniformity clause in our Constitution which somehow seems a little bit familiar at this time. Bear in mind that this case has very, very little bearing upon the discussion today because 1063 cannot become law of the State of Nebraska without a constitutional amendment authorizing the separation of the classes of property within the Constitution and providing the direction for the Legislature to use. So that's really not a
valid argument in what we're talking about today. We're talking about in the event 1063 becomes law, how do we want it to work? And the more simply it can work, the more simple it is, the less it disturbs what the current and past practices have been, the more acceptable it will be for those who must comply with it. Thank you, Madam President.
PRESIDENT MOUL: Thank you, Senator Coordsen. Senator Warner.
SENATOR WARNER: Madam President, members of the Legislature, I again rise to oppose the amendment. I appreciate that we're talking about a somewhat complex issue perhaps, but it's perhaps not all that complex either. If you look at page 699 of the Legislative Journal is the letter that I was referring to and not reading it in its entirety, but the first full paragraph on that page points out the issue that was raised generally by the Attorney General's letter and I think it probably is more of a Fourteenth Amendment issue than maybe even a state constitutional issue with the Constitution change, although it could conceivably be both and that's why I raised the question and it points out very plainly that if you do what is suggested by this amendment and go back, do not go back, then you are automatically initially picking tip in the state depreciation schedule the very inequities potentially constitutional issues that was avoided, intended to be avoided by going to a state depreciation schedule. It's not going to be an issue, if I could speak to the 179 section, depreciation, accelerated depreciation where you expense. If you meet the criteria, you can expense in a single year. That, too, does not create a problem because obviously you had to have kept a record of those items in the event of recapture was necessary and you was going to sell them or trade it. Then the recapture provision of the federal income tax would come into play. The way the system works with the add back, striking the work "increase" to "decrease" the way the bill would work is that you have your item, a piece of machinery, if you had purchased it in 1989 which would then next year be, what, three years old, you simply would take that purchase price, go to the chart that is included on the bill on page 74 and 75, that machine was three years old and you take the percentage that is listed in the bill times the purchase price and you have the valuations. It's a very simple complication to make. And the important part is that all people would be started off on the same level basis irregardless of how they had applied depreciation for federal income tax purposes. Again, I will repeat that the important thing for the tie, the
federal income tax only relates to purchase price and date of purchase and to do what is suggested by this amendment is going to be, I'm sure, a built in inequity that would be significant and inappropriate. So I would hope that the body would not adopt the amendment or the concept because it would be, in my opinion, could very significantly fundamentally flaw the bill. We may have to add a million and a half in order to defend all this, Senator Scott, instead of your million. But the...
PRESIDENT MOUL: One minute.
Senator Warner ... I do not believe, while you can have sympathy for the concept as it is discussed as a legal and a tax policy matter, I do not think it would be appropriate to adopt.
PRESIDENT MOUL: Thank you, Senator Warner. Senator Withem.
SENATOR WITHEM: I'd 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: (Mike not turned on immediately.) ... want to speak on it.
PRESIDENT MOUL: Thank you, Senator Withem. I'll recognize Senator Hall. Please record, Mr. Clerk.
CLERK: 6 ayes, 7 nays to cease debate, Madam President.
PRESIDENT MOUL: Thank you. The motion fails. Senator Hall.
SENATOR HALL: Thank you, Madam President and members, I rise to support the amendment. I think that the, specifically for the arguments that the opponents put forward with regard to the attachment of the amendment, I guess the way I understand it is that if there is any amendment, any adjustment, any tinkering at all with the system as it is Put in place, that it potentially runs afoul of the Constitution. And I have a difficult time with any, I guess, tax system that is put in place and is not able to be adjusted at any point in the future as it relates to the Constitution. The argument there is, I guess, that the 1063 becomes law until the Constitution is changed or 1063 is repealed or both. Maybe it would have to be both. I don't
know. But in talking about a depreciation provision that is currently allowed tinder the federal law, you're talking about a, I think I heard Senator Warner say a Fourteenth Amendment argument, Federal Constitution. I don't know, I guess if the issue is not a uniform issue as it relates to the federal depreciation, why isn't there a problem at the federal level with the Fourteenth Amendment to the Federal Constitution, whereas in this state provision where we would basically just be mimicking the federal provision as it relates to this one $10,000 exemption, how is it that it doesn't run afoul of the federal Fourteenth Amendment tinder the federal depreciation table but yet would be a problem here placed in the state table with a federal application even though it mirrors that federal provision? I don't quite understand that and I'm sure it will be clarified for me, but it doesn't quite make sense and I think it just...it shows the problems that 1063 has in terms of its application and the way we're going about this entire process, that we are crafting a bill and then based on amendments in the Journal today, crafting a constitutional amendment in the way the CA was introduced on its face that allow us to jury rig the entire operation for, again, 3 percent of the entire revenue of the state, 3 percent, and expect the voters to support that. I guess I will take another long, hard look at 1063 when it advances, if it does today, and look at what comes out of E & R in terms of a white copy just so folks understand what happens if a constitutional amendment passes and what happens if a constitutional amendment doesn't pass because I don't know that there will be arguments on what just is the tax system in the state if a constitutional amendment doesn't pass, and those need to be debated before 1063 is voted on at a final level. But I guess I'd, again, going back to the specific Coordsen amendment, I don't know why the ... if it's a federal provision in a tax code now that meets the Fourteenth Amendment of the Federal Constitution, why is it, if we place it in the state table, why does it have all of a sudden a problem when a federal application is brought forward ...
PRESIDENT MOUL: One minute.
SENATOR HALL: ... on that state table? I'm not quite following that argument and I'd appreciate any clarification.
PRESIDENT MOUL: Thank you, Senator Hall. Senator Warner.
SENATOR WARNER: Madam President, members of the Legislature,
Senator Hall specifically, if I understand your comments correctly, it is that because the different kinds of depreciation are not a problem within federal income tax, therefore, it is not a problem in 1063 and the difference of course is that the provisions of a federal income tax is a totally different issue. You're attempting to transfer a federal income tax provision and put it into a state personal property tax provision and that's where you create the inequity within the state's personal property tax division, not because of the federal income tax may be treating things differently and, as a matter of fact, when you look at many of the federal income tax provisions as they affect different businesses, there are a variety of businesses that are treated differently under federal income tax and there is compensating other offsets that a business or an individual can use that, at least in theory, ends up with a level of some type of prescribed equity within the system. The problem lies in trying to move, as you would with this amendment, to move those inherent provisions in the federal income tax over to the state personal property tax and the, if you read that first paragraph, the last line it would result, the adoption of this amendment would result in identical properties could be subjected to grossly different tax burdens and that's where I said that maybe it's a Fourteenth Amendment problem as well, or certainly it could be a state tax problem because of treating property in a like class differently. I can't urge too strong to reject this amendment because it will create numerous problems for the citizens across the state in lack of any kind of comparability between different taxpayers.
PRESIDENT MOUL: Thank you, Senator Warner. Senator Hefner. Does anyone else wish to speak to this amendment? Seeing none, I will recognize Senator Coordsen for closing.
SENATOR COORDSEN:- Thank you, Madam President, members of the body, run through several things quickly in closing, a recapture of taxes relative to the 179 deduction of whatever. it's a common fallacy that somehow or the other people make money with depreciation. Not really true. Whether it's a 179 or whatever mechanism of depreciation is used, if you sell a piece of business property, farm property that has been depreciated or any other mechanism allowable to use, and that sale price is greater than what its book value is, whether the book value is zero or something more than that, then you pay income taxes on it, federal, state. In addition to partnerships or private individuals there is also Social security taxes due on that if
you're still have an income that leaves you subjected to that. Constitutional question was raised. Folks, 1063 is unconstitutional. If it wasn't we wouldn't need the CA. The idea behind 1060 ... the CA is to make the aberration of tax policy contained in 1063 that is taxing people on their property based upon their operation constitutional. So anything we do to 1063 by amendment within some minor constraints would be constitutional because the bill itself on its face under the current Constitution is not constitutional. It addresses a problem that I find existent in it and that is that 1063 will not affect me very much. It will not affect a lot of established businessmen very much except that if they've been in business a long time, it may well result in a reduction of their personal property taxes. But it does have a significant negative effect on new people entering a business or farming in that they will pay a significantly greater percentage of their income for personal property taxes than those of us that have been around a long time. Now that in the minds of many of you may be fair. It depends on your operation, but it is possible to, for that to happen. It is certainly the way it works for new people. Whether that applies equitably to old, the older, more established businesses and farms is a matter of how that business and farm is operated. No one has addressed this morning, this afternoon, the effect of 1063's new formula on the valuation of business equipment. How is that going to change relative to the system that the assessors had historically used? The old equipment will no longer be part of the base. I don't know where those figures come out. I don't know that anyone else does right as of this moment. Further complicating the issue is that we're trying to return to the property tax base locally equipment that has not been taxed for a long, long, long time and how to do that fairly and equitably and in a manner that is understandable, understandable to the people who must comply. I'll guarantee you when the county assessor faces a farmer...
PRESIDENT MOUL: One minute.
SENATOR COORDSEN: ... who expensed a $250 used post hole digger six years ago and find that it has to be brought back on at a percentage of that value, things are not going to be happy on the local level. This would avoid that sort of thing. It does not treat business and farms different. It retains the balance of method. It applies equitably and equally to both classes of personal property. 1063 in and of itself creates numerous
problems. I do not believe that this amendment will create more problems. As a matter of fact, it may well make the bill more livable for those that must ultimately comply. This is not a scholarly exercise on the floor of the Legislature. At some point in time what we do, the people of Nebraska...
PRESIDENT MOUL: Time.
SENATOR COORDSEN: ...must live with. I would entourage the advancement of this amendment. Thank you.
PRESIDENT MOUL: Thank you, Senator Coordsen. We will now vote on the Coordsen amendment to LB 1063. All those in favor please vote aye, opposed nay. Have you all voted? Senator Coordsen.
SENATOR COORDSEN: Call of the house, roll call vote, regular' order, please.
PRESIDENT MOUL: We have a request for a call of the house. All of those in favor please vote aye, opposed nay. Please record, Mr. Clerk.
CLERK: 21 ayes, 0 nays to go tinder call, Madam President.
PRESIDENT MOUL: The house is under call. 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 tinder call. Senators Ashford, Chambers and Robinson, please check in. Senator Warner, Senator Wesely, Senator Wickersham, Senator Rod Johnson, Senator Cudaback. Okay, we'll proceed with a roll call vote in reverse order, regular order, I'm sorry, regular order on the Coordsen amendment to LB 1063.
CLERK: (Read roll call vote. See page 1162 of the Legislative. Journal.) 21 ayes, 17 nays.
PRESIDENT MOUL: The amendment fails and I will raise the call. Are there further amendments, Mr. Clerk?
CLERK: Madam President, Senators Hall and Schmit would move to indefinitely postpone. Senator Warner, you have the option to lay the bill over.
PRESIDENT MOUL: Senator Warner.
SENATOR WARNER: Yeah, we can take it up, Madam President;
PRESIDENT MOUL: Senator Hall.
SENATOR HALL: Thank you, Madam President, members, I rise to support the motion to kill LB 1063. 1 think that the last vote, unless I'm mistaken, I think I'd go back and look at the green copy. That amendment that Senator Coordsen offered was constitutional enough to be in the green copy of the bill. The issue here is one of how do we go about this process in terms of making tax policy? And, ladies and gentlemen, we haven't gone about it, I don't believe, in anything that represents a rational manner. What we have done is we've said we want to tax personal property. You know, the court has said, the process that you've used for taxing personal property is unfair because you haven't treated individuals who pay that personal property tax in a fair manner. You've got a history of exempting personal property and what we have gone about now through 1063 is saying that okay, by gosh, we're going to find a way to tax personal property. We don't care what it takes, we don't care if we have to change the Constitution, we don't care if we have to provide that tile special legislation clause of the Constitution doesn't apply to personal property, again, 3 percent of all the revenue in this state. We don't care that the uniformity clause doesn't have to apply to 3 percent of the revenue in this state when it deals with personal property. We don't care if the commutation of taxes clause to the Constitution applies when we're talking about personal property. We are going to tax personal property one way or another. We're going to narrow it so much in terms of how, not only the statutes deal with taxing personal property, but we're going to ask the voters to go to the polls and frankly bastardize the Constitution so that we can tax 3 percent of tile revenue that is raised in this state in a manner differently than we do any other type of revenue as far as tile protections in the Constitution apply. And that's what we're doing in 1063. That's exactly what we're doing. We're saying that we're going to use depreciation, an expense, we're going to tax an expense. I missed the handout that showed how many other states in the Union do this, how many other places in the country use a net book value approach with regard to taxing personal property. I don't think there are many. The issue here is, is this a rational, reasonable, fair approach to taxing personal property? No, it's not. The argument has been ad valorem basis isn't a
good reason for taxing personal property, that personal property is a liar's tax, they don't pay it, it's not collectible, it's not worth anything in terms of the cost to go out and collect it, when for some personal property whereas other types of personal property, it makes sense to allow self- assessment. And, frankly, those arguments used on the old system are still applicable under 1063 as it is currently drafted. The use of net book value or depreciation is not going to garner any additional revenue, even though that's what has been argued here. The numbers that have been given to you are their best estimate, their best estimate meaning the Department of Revenue. I guess I would argue that that's what you're banking on right now, another version of a liar's tax is all it amounts to. And it fails to appear to me how we can take what has currently been a business tax on business property under the old personal property tax system, shift some of that, and nobody has answered the. question on how much of it is represented by agricultural machinery that is being depreciated. Shift that away from business to the agribusiness sector, in other words, out of the urban setting into the rural setting and not have that affect real estate taxes on the residential homeowner. And that's exactly what is going to happen here. And then to sweeten the pot what we do is we say we're going to take and we're going to exempt the sales tax on farm machinery, we're going to let you write it off as a credit against your income tax. Well, again my urban colleagues, I don't understand it. Who is going to be paying the sales tax then on the business equipment? Are we going to be able to write that off against our income tax? No, that's not in the bill. Can I write the sales tax on my car that I have to use for my employment off against my income tax? No, I can't do that under the state system. It's not allowed for. But we're going to argue that that's a good proposal for the residential homeowners in our district. It's not, ladies and gentlemen, it's not. A much better approach is to let it all go back on. Is that good tax policy? It's getting better every day. The more I look at 1063, it's a much fairer application of tax policy in this state than what 1063 is represented before its and the way it has been amended. It is not, it is not something that you're going to be able to sell to the people. You can build a campaign war chest, you can go on the radio, you can go on the TV, you could get the bumper stickers printed, but I guarantee You when it comes to a vote of the people, they are going to know what is going on. They are going to understand it and it won't have to be from folks inside the body to go out and chastise what is being presented in the
form of a constitutional amendment, it will be the people themselves, the same kind of people that came down in big numbers to talk about alternative taxing methods before the Revenue Committee. Those are the kinds of folks at the grass roots level that are going to beat this all to hell. They're going to beat it straight up, no matter how much money you throw at the proposal because they're always going to win. They've got a vested interest. The people who are supporting the 1063 proposals only have an interest in the bottom line. They only have an interest in what the shareholders think. They only have an interest in how much is left in the bank account at the end of the year to pay for their benefits, their bonuses and the shareholders profits. The people back home worry about who is paying the tax? I don't have the benefit to write that off is what they're going to say. I don't have the benefit of a depreciated asset. All I do is go to work, all I do is have F.I.C.A. taken out, have the state income tax, the federal income tax, all I do is go to the store and pay the sales tax and all I do is look at how much my property tax bill costs me twice a year, or how I'm paying it and actually having to pay interest on it maybe depending on my loan set tip. That's what they see and those are the people that are going to go to the polls and those are the people that are going to vote and they're going to look at this proposal that has been put together and crafted in 1063 and the accompanying constitutional amendment and they're going to say, who does this represent? It represents 3 percent of all the revenue that is raised in this state and they're going to say, phooey, why do we need it, why do we need it? So what if it all goes back on? So what if it all goes back on? I don't have the ability, I don't have the Legislature down there carving out exemptions for me. They are not willing to do that even though I represent all the people in this state, 1063 and the constitutional amendment that goes with it only represents a few people in the state, a few people that pay personal property tax that don't want to have to pay it on everything in a uniform manner. If uniformity is what we want, let's uniformly put it all back on. Let's uniformly put it on at a different rate, at a lower rate. That's what the court was saying. Or let's exempt it all because that's what the court was saying too and that's what the Constitution allows this body to do. What you do by supporting 1063 and what you do by supporting the constitutional amendment is argue that the Legislature doesn't have the power to tax and to exempt, the Legislature doesn't have the power to classify. That's not true, we do. That's not true, we do have that ability. We're
not even going to let ourselves find out if we have that ability. We're going to rush to judgment in terms of 1063, we're going to rush to judgment on a constitutional amendment and we're going to say that this is a better tax policy. Ladies and gentlemen, it is not a better tax policy and I would urge you to reconsider and vote for the motion to indefinitely postpone. I'd give the balance of the opening to Senator Schmit.
PRESIDENT MOUL: Senator Schmit, it's one minute.
SENATOR SCHMIT: That's all right. Ladies and gentlemen, Senator Warner made the comment this morning that he had thought we all understood the amendment. I have read the amendment. I want to ask you here today how many of you have read pages 93 through 110? Senator Wehrbein, have you read those pages? If you have not, you're hair is going to be as short as mine is by the time you get through reading it. We do not have a choice here, ladies and gentlemen, of personal property tax or no personal property tax. if you vote... if you get a constitutional amendment and the people support it, then we have limited personal property taxes. If the people oppose the amendment and it fails, ladies and gentlemen, it all goes back on, cite pages 93 through 110. This amendment...
PRESIDENT MOUL: Time.
SENATOR SCHMIT: ... is cleverly done, ladies and gentlemen, mostly if you don't know what you are doing. You'd better read it because it's going to be read back to you time after time after time. I'll speak later.
PRESIDENT MOUL: Thank you, Senator Schmit. Senator Warner, as introducer of the amendment would you like to address it now or respond now?
SENATOR WARNER: Mr. President, members of the Legislature, a couple of comments, first, on things that were said. The comment was made that the amendment we just voted down, Senator Coordsen, was in the green copy and that's correct, it was. And the reason it is not in the amended copy is the Attorney General's Opinion I kept referring to. That's why we went to the state schedule because the Attorney General raised serious questions on that provision in the green copy and that's why I had to oppose putting it in now. I assume pages 93 through 110
is reference to the fact that it puts all property back on, is what the comment was if the election fails. Well, members of the Legislature, it is on now. It was on January 1, 1992 And the only reason that that whole series of sections covering personal property tax at market value, the reason it is in the bill is to delay the date from either March 1 or March 31 depending what your local assessor did to June I in order that there is an opportunity for the voters to consider a constitutional amendment and then we know which systems that we have. If you leave everything out, if you leave everything out dealing with the current system that the court has imposed upon us of the bill, then ... it's in effect now and the reports are due now. It's a false issue to imply that 1063 somehow or other puts everything on. It's on now, at least business equipment, inventory, farm equipment and livestock are on now. We do not tax at expense in 1063. The utilization of depreciation schedules is you're mixing income taxes with property taxes. Depreciation schedule is the method that is utilized in 1063 to determine the value of property as a depreciation method and that depreciation method is applied to the purchase price of that property together with the life cycle that it might have. It's not the old liar's tax. There's an ability here that anything that is put on a depreciation schedule for state or federal purposes, and obviously they'd be both. It does provide a system of checking. If does provide a system for valuation based upon purchase price and it is much simpler to administer than the old system which admittedly that everyone if they ever worked with it knew was full of problems. It does tax everyone the same in terms of valuation over the long haul as opposed to the old system that did not. Well let's talk about the option, the option that we've spent the first week on was a tax increase on everybody, the sales and income tax increase on everybody. At one point it was a 1 percent sales tax and take everything off. Later it was amended to be a combination of sales and income tax, but that's the one that the people are not going to vote for. Why would anyone go Into the polls, likely to go in who does not have personal property, would they vote for a constitutional amendment if the result of that they knew their .sales or income tax or both were going to go up? I think not. I'm sure they would not.
PRESIDENT MOUL: One minute.
SENATOR WARNER: And yet here under 1063 that personal property, depreciable personal property will be taxed in a form that is
much better than the old system, but it's not shifted, it's not shifted to the population generally. The collection of tax remains in the case of business equipment where it was. In the case of agricultural equipment it puts that on because you need the two uniformity classes that are contained in 1062, personal property classes that are contained in 1063 depreciable equipment and nondepreciable equipment as the two general classes of personal property. I'd urge the body to reject the kill motion and that we could get to the constitutional amendment. This is a much better system in terms of who tax is shifted to...
PRESIDENT MOUL: time.
SENATOR WARNER: ... than any other proposal we have otherwise considered.
PRESIDENT MOUL: Thank you, Senator Warner. The speaking order now is Senator Haberman, Elmer, Moore, Lamb, Rod Johnson, Schmit, Coordsen, Landis, Withem, Hall and Bernard-Stevens, Senator Haberman.
SENATOR HABERMAN: Madam President, members of the body, I rise to support the kill motion as I finally found out what has caused me to wake up every night about 2:30 in the morning, not be able to go back to sleep till about 3:30. And I knew something was bothering me but I couldn't figure out what it was and this morning the light bulb came on. I said to myself, what does 1063 do to 1059? There has got to be some sort of a connection there and I didn't know so I called fiscal, they didn't know. So I went out in the Rotunda and I talked to some of the specialty people out there and they said nothing happens. I said the taxes don't go up on any of the schools, they get the same amount of money? That's right. I don't think that's right, I said, I just don't believe that. Well they do, they get the same amount of money. I said, well we give the county board the authority to raise taxes. Yeah, that's right. But everybody gets the same amount of money. So I walked back in and shaking my head and I called fiscal again and I said, do you have any figures as to what happens? They said, no, but we can give you our best guess and I said, what's that? And he said well the small schools, the consolidated schools lose state aid. I said they lose state aid? And lie said, yeah. I said, I've been told that they don't. How do they do that? Well he said, as their valuation goes up, which will be tractors and
everything else that they... farm machinery and livestock, as the valuation goes up, they lose state aid according to the formula because-it is given out on how much is collected. And I said, well but then the theory that they don't lose any money is probably true. Well, they raise taxes. They have the same mill levy, but the valuation goes up so they collect the same amount of money. So I said, well who wins? Somebody must lose, who wins? Well they kind of stuttered and stammered around a little bit and the metro schools win, the big schools. Lincoln and Omaha schools win. So now I can possibly see one of the reasons that those folks are supporting 1063 with all their vigor because their schools make more money and I don't blame them. But I don't think it's fair. Now the Grand Islands and the Kimballs and the Columbuses and the Ords and the Mindens and the Hastings and those, they don't get any increase. They're not metro. So that's a big enough reason for me to say let's indefinitely postpone 1063. If you want to put some of your things into 1120, fine, but we don't need 1063 just for that simple reason. Now nobody has brought this forth, nobody has given us any printout, nobody has given us any figures as to what happens- And when I was out in the Rotunda talking to the experts they gave me all this flak and then finally I became angry and they said, well you didn't ask us that. And I said well next time I come out I'm going to ask you 16 questions and hope that one of them is the right one. The minute they didn't want to answer my questions or they were evasive...
PRESIDENT MOUL: One minute.
SENATOR HABERMAN: ... I knew something wasn't correct. So the small consolidated schools, the small schools, you bet, folks, they don't get her. They get it in the shorts. So for me that is a good enough reason to vote to indefinitely postpone 1063.
PRESIDENT MOUL: Thank you, Senator Haberman. Senator Elmer.
SENATOR ELMER: Thank you, Madam President. I intend to talk to this bill just once at this stage whether it's indefinitely postponed or to advance. I continue to believe that taxing personal property is a step backward toward the dark ages. It's regressing against the policy that this Legislature has set and the course that's been set. Property in itself is no measure of ability to produce income. Taxing personal property through the depreciation surcharge method will have other impacts. New equipment will be purchased only when the old cannot be
resurrected through repairs, depressing business and agricultural new machinery sales in this state. It also penalizes anyone entering a new business whether large or small, perhaps only if you're smaller, small enough to not be able to partake of LB 775. No matter what type of business, when you're starting up you're at a complete disadvantage in your taxes due to this type of depreciation taxing. The energy tax in here now that's on agriculture is merely takes money out of ag's one pocket and puts it in ag's other pocket, exchanging one tax for another one and is a wash. The loss of small business because of inability to make a profit, small agricultural business because of inability to make a profit when they are taxed more will accelerate from the cost of attrition that we now have. You know, the prospect of not achieving a "solution" this session is worse, however, for all concerned. The results occurring to both business and agriculture if inventories are taxed are far worse from what the state, for the state than what 1063 as amended would do. As for the economic impacts on business, personal agriculture are recognized down the road as they are recognized, this Legislature will hopefully recognize the mistakes being made and rectify them. The prospects of passing a CA I have the opposite opinion of Senator Warner, that with LB 1063 there in front of the public as what we would do if the amendment is passed, would almost ensure its failure. All things considered, 1063 is a terrible tax policy for the state. 1120 was much better as was originally proposed and doing nothing would be horrendous. But perhaps that's what would result if we do nothing here. People, no matter where you talk to them, say, I don't mind paying the tax as long as everyone else pays it. People, 1063 does not do that. It taxes some people but it doesn't tax others in a similar way. This tax is regressive, it's unfair and we have the same basic problem that we talked about this morning. Fifty to 60 percent of the property tax that is being paid is for education. Education has nothing to do with property, people. That is a general obligation...
PRESIDENT MOUL: One minute.
SENATOR ELMER: ... of the people of the state. That's why 1120 is the better way to go. At least 3 percent, only 3 percent more of the obligation for education would be paid by the general public through some changes in sales tax which are minor, which are minor. I will vote for the indefinite postponement.
PRESIDENT MOUL: Thank you, Senator Elmer. Senator Moore.
SENATOR MOORE: Madam President and members, you know 72 years ago the people of the State of Nebraska adopted a Constitution at that time that contained the uniformity clause. I am not that well read on Nebraska constitutional law, but I can only assume there was a good reason they adopted that uniformity clause and the reason was to protect Nebraskans from someone getting preferential treatment by the Legislature. As we've debated this and as the public has debated this and as the press has spewed this out across the front pages as they should, there's been a great deal of discussion about what we're going to do to the Constitution. There's been very little discussion about the uniformity clause, why it's there and why we should change it. Now last year in June and July in this session, at that point in time I was willing to change that. I thought it was at that point in time we were trying to basically get back to the status quo and do something in state tax policy there. Since that time we have changed that dramatically and what 1063 does and the corresponding constitutional amendment that comes up next is that it has... it will ask people of the State of Nebraska to take out the uniformity clause, take out their protection of some special interest or someone getting preferential treatment in the Legislature, to take that out, totally out. Whether that has been adhered to directly or not, is a question obviously. But you're going to take the uniformity clause out and what does 1063 do? 1063, it's been said many times on this floor, will try and treat everybody fairly. What it's going to do, it's going to treat all depreciable property the same because we all know there is one exception to that. There is one basic exception of treating everybody the same. It's the 775 amendment. I like 775. 1 voted for 775. 1 have gotten yelled at so many times in my district for voting for that and I'll stand there and defend it and I still will. It's nothing against that bill personally, if you can have a personal objection to a bill. The problem is you want to change the uniformity clause of the Constitution to allow us to treat everybody the same but one. The one entity that can afford $20 million, the one entity that can create these jobs, very worthwhile, but that's just like the railroad was 100 years ago. People were concerned about that. People don't like it to happen. With the combination of 1063 and the constitutional amendment we're asking people to turn their backs on that while at. the same time with 1063 we do exactly what the
uniformity clause was put in there to keep us from doing. That's one of the biggest problems I have with 1063 and that's one of the biggest problems I have with changing 70 some years of the Constitution. I think the people of the State of Nebraska need to think long and hard, before they want to relegate to us the ability to hand things out like that. And in 1970 they did. You said you could classify personal property, 1970 they did say, yes, you can exempt all personal property but at least at that point in time they were promised we were going to still treat everybody within a class somewhat the same. 1063 is a total deviation from, that policy. Also, the last 25 years in this state we have marched onward in what I think is developing a tax policy that does get away from the horse and buggy days, does get away from the feudal days when a property was wealth and marches on toward a sales tax system, more based on sales and income tax, better based on the ability to pay. We've been going that way, oh, for the last 25 years and -even before that with some of the exemptions and intangibles prior to that. With 1063 ...
PRESIDENT MOUL: One minute.
SENATOR MOORE: ... once again, 72 years in the Constitution, 25 years of tax policy. It finally stops moving forward, at least in my opinion, as far as moving us backwards. And I know that many people want to believe the choice is this or things going back on or Senator Warner rightfully states, given present law, they are back on. I certainly feel the choices are more than that. And I think the body should indefinitely postpone LB. 1063 and I think to (inaudible) 1063, coupled with the constitutional amendment, asking people to repeal the uniformity clause so we can give, treat everybody the same, treat everybody equally with one exception, I think you're going to be asking the people to do a little much and I don't know why the people would want to do that.
PRESIDENT MOUL: Thank you, Senator Moore. Senator Lamb.
SENATOR LAMB: Thank you, Madam President and members, you know I don't know how I'm going to vote on this really because as many of you know, early on I came out in support of the concept and I know not very many people are listening, but I think Senator Crosby will listen to me if I call her name and then I'll have at least one person that is listening. Henry I think, Henry listens part of the time too, but when we were talking
about using the federal schedule the numbers we had were that the 3-R proposal would increase business equipment valuation that's on the tax rolls by $2.1 billion and agricultural machinery by $1.8 billion. Butt now the Department of Revenue people told me that because of changes that have come about because of 1063 which has its own depreciation schedule and not the... rather than the federal schedule, the business equipment increase is almost nil, $305 million as compared to what they were estimating at 2.1 billion. However, the ag increase stays the same at 1.8 billion. So you see the bill has changed considerably in the meantime and not for the better in my opinion. It's for the better for urban businessmen, but not for rural people. Now, and then again yesterday it was further removed from what I thought was going to happen. When we had the amendment which partially exempted sales tax on farm machinery, look what happened. You know we had said that farm machinery was going to get somewhere around a 12, $14 million hit when equipment came back on the tax roll and so to compensate for that we would take off the sales tax on farm machinery. It seemed good, almost the same numbers, not quite, a little bit more loss to the treasury because of the sales tax reduction on farm machinery, but then we got a proposal yesterday that was put forth in very strong terms as take it or leave it, take it or leave it, take it or leave it. And what did that do? Well it added a sales tax on agricultural energy of $4.5 million. That's completely funded by agriculture. Then a reduction in state aid to counties, $3.5 million. Well now how did that' affect agriculture? Well because of the formula by which that reduction takes place, it's based on agricultural valuations in each county arid the fiscal office tells me of that $3.5 million, agriculture absorbs $2 million, $2 million. So we have $6.5 million total in that bill which comes directly from agriculture arid then we're only going to get 80 percent reduction in the sales tax on farm machinery so, you know, I have been led astray. I feel I have been led astray by those people who have hinted that this was going to be the trade-off. It absolutely is not a trade-off. It's absolutely...
PRESIDENT MOUL: One minute.
SENATOR LAMB: ... unfair. V. It's because the votes are in here that that liar, happened that the urban votes are here arid that has happened arid some of the people out behind the glass are not doing a thing in trying to rectify the situation that is happening here. So that's causing a lot of consternation on my
part because although I have been in support of the concept, we are getting down to the details now that are much different than what were first proposed and then we just had Senator Coordsen's amendment which should have been adopted, was not adopted, it's fair, it's equitable, it could be made to work. Senator Warner says it does not work at this point. I don't argue with that, but there is no reason it could not be made to work so that we could have the same exemptions under the state's ...
PRESIDENT MOUL: Time.
SENATOR LAMB: ...schedule as we have under the federal schedule so that's where I feel that several ways I've been led astray on this bill.
PRESIDENT MOUL: Thank you, Senator Lamb. Senator Rod Johnson.
SENATOR R. JOHNSON: Madam President, members, I rise to oppose the indefinite postponement motion. I think Senator Lamb has hit upon the key and maybe the most critical part of this whole debate and that is the votes are not here for those of us who want to look at alternative ideas. However, I am not convinced at this particular point that throwing out or doing away with LB 1063 is the right path to take. I think we can still work to try and improve upon the Warner amendment which we adopted earlier. I'm not terribly comfortable with the way that it has been drafted, but on the other hand what you're looking at, if you want to take a real hard line position is about $30 million, $30 million under this plan as I understand it ag will have to pay something around 10 million, maybe more, maybe less depending upon how you calculate it all. The problem I have is though, if we fail in here to do anything it virtually guarantees, as Senator Warner said, that we're going to implement what the court has told us is going to happen and to me that looks like 45 to 48 million depending upon the figures you have on agriculture. To me that's unacceptable. I may have to pay some and even though I don't like it, I have real problems with the idea of bringing all of it back on and imposing not only the 10 million that we're talking about here, but an extra 30 to 35 million that would also come on if we do nothing. So from my standpoint even though I would like to see some changes yet in 1063 and we will have another opportunity on Select File to do that, I'm not willing to throw it out at this particular point. I still want to see us work to try and compromise. I know that compromise is in the eye of the
beholder, but I'm really nervous that if we bog down here and if everyone takes a real hard line, ultimately we and ag are going to pay more than we want to pay even under this proposal. So from that standpoint I guess I would oppose the kill motion and I'd like to see at least the bill advance today to be honest with you.
PRESIDENT MOUL: Thank you, Senator Johnson. Senator Schmit.
SENATOR SCHMIT: I fin d it totally amazing that Senator Rod Johnson would say that we will take a greater hit if we do nothing. Ladies and gentlemen, you heard Senator Warner's explanation as to why the language is in there. For the whole session we've been talking about well if we don't do something, it's all back on, it's all back on. Senator Warner is right, it's all back on now but we're standing tip here trying to work out some kind of a system that will take us back to the days when we were not taxing a lot of the personal property. Ladies and gentlemen, particularly those of you from rural areas, when 829 was introduced and we ... some of us bought, not myself, bought the fallacy that we will just repeal all of the personal property tax exemptions and Put them all back on and then in 1991 we'll all get together as a big happy Legislature and work out some kind of a program, somebody had sawdust for brains. Somebody didn't know what the hell was going on. Now, ladies and gentlemen, it's good to be nice on the floor of the Legislature, it's fine to be a gentleman and a lady, but when your people are being robbed and spit upon it's time to start fighting back and there are people on this floor who started this program years ago to repeal the personal property tax exemptions. They have never given tip. Fifteen years ago when we passed 518 1 warned the Farm Bureau and all of my good friends, I said, unless you remain vigilant, you will never retain those exemptions, but they became fat and lazy. Yeah, they got excited about other nonsense and so today what are they doing? They're supporting 1063. And on the front page of the Farm Bureau Newsletter it says, even the farm state senators agree that we have to pay more taxes. Well, not this one, not Senator Schmit. And Trent Nowka doesn't quote me and let the record show lie doesn't. It's like my friend Herb Schimek who is, I think is the best lobbyist in the entire system. You don't see Senator Schimek saying property taxes are, pardon me, Senator Schimek, Mr. Schimek, saying property taxes are too high, therefore, teachers must take less pay. I've not heard that from Herb and you never will because Herb fights for his
people and lie knows wile-it is fair and what is equitable. Here we have rural people selling out their constituents and I hope they put that in their newspaper. And ladies and gentlemen, if you think that the constitutional amendment can, by not adopting that and riot putting it on the ballot can stop the. implementation of 1063 and the restoration of everything, let me tell you this. We don't have to do anything with the constitutional amendment. If a petition drive puts a constitutional amendment oil the ballot and amends one comma of Section 8, one comma, you're in business. You are in business. Read the bill, read the bill. Senator Warner has drafted it expertly. It is expertly drafted and it does exactly what Senator Warner wants it to do. Ladies arid gentlemen, it does exactly the opposite of what I want it to do. But most of all, forgetting everything else, the most dangerous aspect of what we are doing here is what Senator Scott Moore referred to and that is to repeal the equal arid proportionate clause of the Constitution. It can hurt either the large or the small. The railroads became so victimized that the Congress felt compelled to pass the 4-R Act. We will one day need a 4-R Act at the Nebraska Legislature to protect individuals from this body. it is inevitable. Ladies arid gentlemen, those of you ...
PRESIDENT MOUL: One minute.
SENATOR SCHMIT: ... who today support 1063 thinking that you're going to got a few more bucks out of agriculture and, Senator Rod Johnson, You think we're going to save 30 million bucks. Thirty million bucks to this Legislature is like peanuts to a monkey. It means absolutely nothing. By the time we jockey the numbers around, jockey the values around, jockey the depreciation schedule around, $30 million will go on the March wind. And, ladies and gentlemen, it will be too late and you do not need to say that you didn't know what you were doing. And when the urban homeowner realizes that lie and she have been sold a bill of goods for the protection of a few inventory holders in the City of Omaha, and the County of Douglas, I think there will be some explanations in order from that respect.
PRESIDENT MOUL: Thank you, Senator Schmit. Senator Coordsen.
SENATOR COORDSEN: Thank you, Madam President and members of the body, 49 people belong to this body, I suspect more than half of which support 1063 in its current form. We are creating tax policy and in doing that I believe we would make an assumption
that each of us should be at least somewhat knowledgeable, maybe not expert, but somewhat knowledgeable in the construction and application of all of the various types of taxes. We were provided with and I address a little bit to my urban colleagues, information from the Department of Revenue, property tax division, that would indicate that the commercial and industrial property valuations would either be the same or increase under 1063. May be true. But it defies logic when looking at page 74 and applying the mechanism for valuation used in the pre- 829 years on business equipment. Certainly there are many conventions used to depreciate business equipment. All of the conventions three-year, five-year, seven-year, ten- year, 15-year, 20-year are certainly used from time to time depending upon the class life as established by the federal. government for that particular class property. But I would suggest to you that with certain exceptions most business equipment that is part of a valuation base, wherever it is located in Nebraska, Lincoln, Omaha, Gering, Humboldt, Gilead, is based upon ... would be seven-year class life property. And I am a little concerned on behalf of my homeowners and your homeowners that tile figures may not be accurate as compiled by the property tax division. When you compare the two systems, the pre-829 system used by, I understand, most of tile assessors with the possible exception of one or two counties, you'd find that in the first year of a ten-year schedule that equipment purchased the previous year and reported to the county assessor is valued for personal property tax purposes at 70 percent of its acquisition cost. 1063 proposes the value of that at 89 percent of its acquisition cost. The second year under 1063, 70 percent, the third year 55 percent and we look at the old system and we find that the third year equipment was valued at 60 percent. Then you begin to find some significant variations. Moving on down to the seventh year of 6 percent of the acquisition cost under 1063, tile old system, 40 percent of the acquisition cost and we go on out to the tenth year and it remains at 20 percent. That's not in statute, that's the method that was used ...
PRESIDENT MOUL: One minute.
SENATOR COORDSEN: ...in most counties. The figures may be accurate, but if they're not accurate, if, in fact, there is a significant reduction in business equipment by via the method of 1063, then who picks Lip the difference? Thank you.
PRESIDENT MOUL: Thank you, Senator Coordsen. Senator Landis.
SENATOR LANDIS: Madam President, members of the Legislature, we are all trying to do what we perceive as the best thing for the state, probably viewed through the eyes as we know them of our constituents, how they would see the personal property tax problems. And we come from diverse districts and those eyes vary in which community you live and which occupation you labor and I do not doubt the sincerity of the opponents of 1063, the, dire circumstances and consequences that they believe that the bill carry and the dislike that this bill has particularly among our agricultural community. Reporting for my constituents, I tell you that I think that they support 1063 because it broadens rather than narrows our tax base. I think they support 1063 because it offers the most likely prospect of finding a method of keeping Nebraska businesses competitive by forestalling an inventory tax. Third, I think they support it because it allows the railroads to be taxed and they Would rather see them taxed than not to be taxed and in so doing it also ensures the continued participation of the centrally assessed property taxpayer and, lastly, I conclude that a system other than 1063 would not pass muster with the voters in my district. When I compare tile alternatives to 1063, this is tile form in which if they felt tile Legislature was empowered to act, .,that it was going to move, they could support a constitutional amendment permitting us this kind of freedom of action. That constitutional amendment I think is necessary not only for the business community, but for the farm community and I support 1063 in its current form. I hope that we do not indefinitely postpone it, but advance it yet today.
PRESIDENT MOUL: Thank you, Senator Landis. Senator Withem.
SENATOR WITHEM: Madam Chair, members of the body, I will hopefully be brief, just indicating that I am opposed to the indefinite postponement of this bill. I've been asked by a few people, somebody needs to make a parliamentary point reminding people that this we are on General File and a vote to indefinitely postpone carries with the majority of those voting oil General File as opposed, this motion does not need 25 votes, so if people are making decisions on how to vote or not vote, assuming that 25 votes are needed for this motion to pass, they should not be deluded in that effect. I don't know if everybody is aware of that or not, but at least it has been noted. I'd like to be able to stand here as one of the cosponsors of 1063 and to tell you that in fashioning LB 1063 we have created the
perfect solution to the state's tax problems. Obviously that's not the case. As one of the sponsors to that bill, I will admit that. 1063 is the product of a lot of pushing, pulling, a lot of divergent viewpoints, compromises, people digging in their heels, solving a problem, problems are created, we fashion a proposal to solve those problems. It may not be a pretty picture at this point. I point out that at some of the changes that have been made in 1063 though, some of the very things that are being criticized. I guess what I hear as the most common criticism of 1063 at this point is on the depreciation methodology of valuation. Back up, back up a few months. Where did that idea come from? That idea came from the rural sector. It was not my proposal, it was not anybody's proposal on the committee. It came from the rural sector. We get...admittedly, we heard at the 3-R hearings, don't tax personal property, but a lot of them then followed tip and said, but if you do, do it on a fair basis, do it on property across the board and use a depreciation methodology. The specific proposal was one Senator Lamb brought to us. Now before Senator Lamb gets all upset about me pointing that out, let me make it perfectly clear he did indicate that that was part of a package and lie made it very clear that that would be a piece of a puzzle and the other pieces had to be in place. The other pieces are not in place. Senator Lamb does not support it. But the idea of using the federal depreciation charts was one that was proposed initially to the 3-R Committee by Senator Lamb. It was accepted as a way of maybe moving more toward the middle ground trying to find this elusive approach where those on one side who vehemently believe that we ought to tax as much property out there as we can to broaden the base versus those who think we ought never to tax personal property, maybe can somehow find a middle ground. It's obvious we have failed. 1063 is riot a middle ground but I would submit, given all of the elements we've had before us, it's as good as we can (jet. Right now the focus is on the warts in 1063 and that's appropriate. 1063 is before us, 1120 was before us last week, but let's compare them for a second. What's the state of LB 1120 at this point? It's an approach that we've had some votes to exempt property, but we've never been able to fashion 25 votes for replacement revenue.
PRESIDENT MOUL: One minute.
SENATOR WITHEM: It's now a bill that is sitting there on General File with a $78 million gap in it with no particular consensus on how or if that gap should be closed. We now have
1063 before us with what appears to be a slim majority of this body, feeling as though they can support it. What its advancement and what its choice by tile body will do to the support for the constitutional amendment, I can't predict. At this point we ought not to be using that as our determining factor. At this point 1063 is the only entity that has shown itself to have any type of a coalition coming together behind it. It's not unanimous, a lot of people don't like it, but it's the best approach that we have at this time and I would urge ... and I say best of the three alternatives doing nothing, repealing personal property and putting oil replacement revenues, nobody seems to want to do the former.
PRESIDENT MOUL: Time.
SENATOR WITHEM: We've proven that we can't do the latter, 1063 is what's remaining, I Would urge you not to indefinitely postpone.
PRESIDENT MOUL: Thank you, Senator Withem. Senator Hall.
SENATOR HALL: Thank you, Madam President. I rise again in support of tile motion to indefinitely postpone and I want to speak to some of the comments that were made. The issue of personal property, everyone, every single individual in this state owns personal property and the problem with tile system has been from day one is that we tax some of it and other portions of it we don't tax. And tile whole question around the court case in a nutshell is that we didn't tax enough of it. We couldn't tax enough of it to appease the court and tinder net book value you're not going to tax enough either to appease the court. That's my argument plain and simple. It just isn't going to be there. Senator Warner and Senator Withem say let's compare tile two. Senator Withem, I think you need to take another look at 1120 because it sits on General File approximately with $100 million in it. If you remember the things that were taken out of tile amendment, we went back to the green copy and it sits with $100 million in it, probably because you haven't had time to offer the amendments to strip it out, but that's where it currently sits on General File. The issue that Senator Warner argued about 1120 is will people go to the polls and vote for something that taxes everybody? Imagine that! A tax policy as novel as that, that taxes everybody. God, I mean if that isn't unique for a state like Nebraska, to have a tax policy out there that says, yeah, everybody has to
pay their fair share, everybody owns personal property, we exempt it all because frankly right now we've exempted huge amounts of it in terms of household items and other things. That's just the way it is, but we're going to now deal with this little net book value approach. I handed out to you a sheet and I'll tell you why, you know, I have a real hard time with this because look at that handout that I gave you and it shows numbers from the Department of Revenue and numbers from fiscal office and the homeowners in Douglas County, Lancaster County, down in Beatrice, Denny, and in Grand Island, their residential property taxes go up. And yeah, the folks in Senator Moore's district, the residential people, they do okay. But folks in my district are going to pay more under 1063 on their property taxes. And look over at what public service and railroads do, look at those property values. They're almost exclusively double digit drops in terms of what happens there. Then go to the center aisle and look who is paying for it all and that's fine, I think ag ought to pay more. They paid more in 1120 and it was hard currency. You couldn't escape it. You couldn't get out of it. And frankly the vast majority of ag members agreed to that but we didn't find that appropriate because we thought if we send that kind of a proposal that is straight up that says everybody is going to pay, and here's exactly where you're going to pay and everything I've ever handed out had a sector by sector analysis on who is paying what, and Senator Warner even complimented me once on that. It showed exactly where it's coming from. What this shows you, 1063 doesn't show you that residential property owners are going to pay more in Douglas County, and that's what is going to happen. No, they don't pay more in Fillmore, they drop in Fillmore, they drop in Frontier, they go down 13, 12, 10 percent depending on which, with or without railroads, and whose numbers you use as much as nearly 14 percent in Garden County. That's my problem with the proposal and those are ball park figures. That's exactly what they are because nobody knows. It could be worse, yeah, it could be better, but that's exactly what it does, and I think we have to address that. And I honestly appreciate Senator Withem's comments about this is maybe the best we can do. I guess my only response is, Ron, it isn't good enough.
PRESIDENT MOUL: One minute.
SENATOR HALL: That the citizens of this state in terms of our tax policy deserve better and frankly if 1063 has the votes, that's going to be the policy and I'll live with that. But you
know, folks, I guess I'd like to have somebody, and maybe it should be Senator Warner respond to a question on whether or not with the passage of this bill and the passage of the constitutional amendment, if we don't have to come back into session and recodify some of the provisions in this bill, that that isn't something that's awaiting us once 1063 would be passed and the constitutional amendment would be passed by the people, if we don't have to come back in or is it ... are we able to retroactively predicated on the passage of a Constitution, past legislation? I haven't heard much discussion on that and I'd be curious as to what that answer may be.
PRESIDENT MOUL: Thank you, Senator Hall. Senator Bernard-Stevens.
SENATOR BERNARD-STEVENS: Thank you, Madam President, members of the body, I rise simple to make a clarification. I was going to make some comments, Senator Withem and Senator Landis, Senator Warner have basically made the comments I would have made, but, Senator Hall, very rarely will I try to correct a distinguished Chairman of the Revenue Committee, but the LB 1120 that you refer to in not in the form that You have led the body to believe just a few minutes ago. If you remember, you are correct, those things were stripped and then the committee amendments were not adopted. But just before we IPP'd or laid it over or, and I think we just laid it over and brought tip 1063 at some point, if the body will remember there was an Ashford amendment that was divided and the first part of the Ashford amendment which reads as following, sales and use taxes shall not be imposed on the gross receipts from the sale, lease or rental of and the storage, use or other consumption in this state of business or farm machinery and equipment, that which was FA278 was agreed to. No, I'm just making a statement. Senator Hall, I'll go ahead and yield you some time. (Senator Hall speaking but not at mike.) I understand that, Senator Hall, and that's fine but when we're going basically the -implication was the bill as in its original form and it is not. There is a $78 million gap in LB 1120 and we need to make sure and recognize that fact on that amendment, not that it won't be clarified later on if we get to it later on, but that is the situation of 1120 at this point on General File. One of the comments that I was going to make, and I want to reiterate and I'll give the rest of the time then to Senator Warner so he can answer the question if lie so desires of Senator Hall, or use the time as lie deems necessary, one of the major reasons that I, and
I am not a cosigner of 1063. 1 have not been a sponsor of the 3-R process. I voted against the constitutional amendment in the last general session that we had. One of the problems that I finally came to a consensus within myself was where was the body, what were the options that we had? It was very clear at some point that 1120 was, did not have the, was not going to have the power or the muscle to advance, it was very clear that as for me the option of having everything on the tax rolls was not acceptable, not acceptable to agriculture, not acceptable to business, and not acceptable to Nebraskans for the most part, that the only vehicle we had was LB 1063, to try to find a common ground, if there could be one found for 40 votes for a CA, and that is the basis of which I and others have moved. And that is why, at this point, we need to move, in the days that we have remaining, LB 1063 because we still have to go through the process of engrossment, we have to go through the process of Select File, Final Reading, and we have the CA, and time is running out. We need to move LB 1063 today. I rise in opposition to the Hall indefinitely postpone motion. I yield whatever time I have to Senator Warner, if he so desires.
PRESIDENT MOUL: Senator Warner.
SENATOR WARNER: flow much time is left?
PRESIDENT MOUL: A minute and a half.
SENATOR WARNER: Thank you, Madam President. I'd just use the time to respond to Senator Hall's question, whether or not we have to come back into session. Senator Hall, would Also acknowledge that the provision in the constitutional amendment is intended as drafted, to ratify the passage of implementing legislation. And if you accept that as being a constitutional basis, then we do not need to come back. As Senator Hall ...
MACHINE MALFUNCTION - SOME RECORDING LOST!
SENATOR WARNER: ... as a policy concept long-run, but in this instance, in this instance I believe that the approach that's provided for in the constitutional amendment should be done, because I know it's essential that the public has an opportunity to know how that constitutional amendment will be implemented and the passage of implemented legislation, in this case, I think is important and must be done before we place the issue to the voters.
PRESIDENT MOUL: Thank you, Senator Warner. Senator Conway.
SENATOR CONWAY: Thank you, Madam President, members. Simply to be very brief, I rise in opposition to the IPP motion relative to LB 1063. There have been many statements made, some of them misleading, some of them maybe just misunderstood. But Senator Hall, in one of his earlier comments, was talking about taxing an expense item not being depreciation. If we take a close look at 1063, you'll see that we're not taxing depreciation, which is an expense item, we're taxing what is residual after we allow the expense item to be taken and subtracted from the value of that property. As we look at some of the arguments that are associated with 1063, and again the extent to which, if we were to IPP 1063, we are back to only one vehicle that's left out there, which is 1120, 1120 that I've raised before to discuss some of the problems I had with 1120 associated with the extent to which we're shifting from a property situation, which, granted, we believe that the real estate taxes and the like are too high. But I'm not sure that this is the time to make that adjustment. For the majority of the consumers in Nebraska who itemize deductions on their tax forms to transfer from a income ... or excuse me, from a property tax burden to a sales tax burden, they lose their deductibility. We shift a massive amount of economic wealth out of the State of Nebraska back to the Potomac that will never be recirculated back in Nebraska, and we do that. As I shared with you before, it's about ...it takes about $1.38 of sales tax to be equivalent to the same burden as a $1 property tax would be when you lose your deductibility. Now, granted, with businesses they can expense both of those, but the average consumer, who itemize deductions, who I think we're talking about the masses of our constituents, are in a situation where all of a sudden we're putting an extra 38 cents on them simply because we like the sound of sales tax, because it is a tax that is paid at very small increments and seems less painful than the property taxes. But only in that context, when you put it in the macro sense of the economic theory of how Nebraska is run, to lose that kind of an income base out of the State of Nebraska, I think, is hurtful to our overall economy. I think we can continue to work with 1063, as has been mentioned, advance 1063. We have Select File if there are other kinds of technical aspects that we need to do, to bring the body together to put it in front of the electorate as our implementing technique and as our means for requesting them to support the CA, we would Continue with that. We've heard
some discussion relative to the CA in terms of the uniformity clause. I remember sitting in this body not all that long ago discussing another CA on ag land valuation. And we, at that point the uniformity clause just had to go out relative to ag land valuation, because there was no other way to put that in that category. I argued against that from the day it started, and never did support that particular amendment. And now all of a sudden some of the same people are discussing, well, now uniformity is our protective device, because it happens to be applied at a different aspect of the process. But with that I rise and hope the body will not indefinitely postpone LB 1063.
PRESIDENT MOUL: Thank you, Senator Conway. Senator Hefner. I will give the speaking order now. Senator Hefner, Warner, Schellpeper, Elmer, Wehrbein, Schmit, and Landis. Senator Hefner.
SENATOR HEFNER: Madam President and members of the body, I rise to support the kill motion on LB 1063. And I want to tell you a couple reasons why. The first reason is because LB 1063 moves us in the wrong direction. A lot of us talk about we need to remove some of the burden on property, when it comes to taxes. So what we need to do is use a little more sales and a little more income tax to do this. But this here bill, LB 1063, adds back the personal property that has been exempt for a number of years. It adds back farm machinery, it adds back breeding livestock, and so I think that it goes a long way ... the wrong way. I would personally like to see about a third property tax, a third sales tax, and a third income tax for the support of local and state government. I think this would be a lot better. And I think that the majority of the legislators here would like to see that way. And I realize that we have a problem when we come to distributing that sales and income tax back to the local districts, to the local subdivisions. And I realize that's the problem. But we are working towards a Solution to that. LB 1059 was one of those, and I'll admit it wasn't a perfect bill, but I think it turned us in the right direction. I like LB 1120 because this removes all personal property from the tax rolls. I Would like to see a slight increase, half a percent increase in sales tax, and a like amount in income tax, and reimburse that back to local government for the amount that is lost by local government. Could I have a gavel, please.
PRESIDENT MOUL: (Gavel.)
SENATOR HEFNER: Thank you, thank you. The other day I had an amendment to remove breeding livestock, 'and I ... there was some senator said, well Senator Hefner, you're really going to open a big hole. Well, what about the exemptions on LB 775? We've got that whole layer already. So I don't think we'd be opening another hole with that. But I still think we need to remove breeding livestock from this bill, if we don't kill the bill, because a lot of the young dairy farmers are having to struggle out there. And they're depreciating, or most of. them are depreciating their dairy herd. And so this would... this takes ... this puts a lot of pressure oil them. And let's talk about 1059 a little bit. As I understand it, and Senator Haberman spelled this out, that as we increased the values in these school districts, the aid from 1059 would go down. And, Senator Withem, maybe you can talk about that a little bit when you have a chance to talk or, Senator Warner, maybe you could address that. I'd like to hear more about that. How much state aid would a school district lose that's in a predominantly rural area? Also, we talked about the state depreciation schedule. Now if we have to go with that, I think it needs to be amended, because it would create a hardship...
PRESIDENT MOUL: One minute.
SENATOR HEFNER: ... to those... to those farmers that have depreciated out some of their equipment, because that means that they'd have to put it back on again, and I think this would be unfair. I also think that the 3-R Committee war stacked last year. And there was only three senators that voted to go ahead with this, three senators, and now we have it before us. So I don't think that was quite fair. And if we think that we're going to tax the railroads, I think we ... I think we're way wrong, because I don't think that tile railroads will pay any move personal property tax in Nebraska, it's just that simple. They are protected by the 4-R Act, the federal 4-R Act, and so I don't think we're going to get them on the tax rolls anyway. So, with that, I just urge you to support the kill motion.
PRESIDENT MOUL: Thank you, Senator Heftier. Senator Warner.
SENATOR WARNER: Madam President, members of the Legislature, I'd like to comment briefly. Senator Heftier asked a Couple of comments on 1059, to answer, Senator, under the state aid formula a school district that does not receive equalization aid, nor some under 10 ... under either bill, either 1120 or
1063, they are increase ... or decrease in state ... they would get no increase in state aid. The difference is, however, that under 1063 that increased valuation, those taxes that they are paying will stay in that local school district. Under 1120, if you have a broad tax base, the school district not receiving equalization aid still doesn't get any more money, but the individual has sent their sales and income tax to Lincoln to be distributed to other school districts. It's also true that when the urban areas, and they did, voted for the constitutional amendment that permitted ag land to be valued at less than full market value, that had the impact of taking money away from urban areas because of the formula in 1059, the decrease in valuation would qualify a school district to receive more state aid, assuming they were getting equalization aid. So there ... it works ... there are trade-offs, both ways, that there is a sense of equity there. My other comment was to be made on the distribution, because comments have been made that 1063 some how or other will lose aid, the same criteria could be true if they do riot receive equalization under 1120, as I've also ... already pointed out. To raise the issue of the uniformity clause essentially is a false argument, unless, unless you believe that all property can be exempt now without a constitutional amendment. Arid I know some of you do. I do not share that viewpoint. In my opinion that is riot how it will be. If you do not have a constitutional amendment, I suspect, arid we'll find out under 829, 1 suspect that ... that we will find out that that provision of the uniformity clause does riot permit the total exemption of all personal property. The issue that people raise, that it's more fair for everybody to pay, arid that's a comment you hear across the state from citizens, that if everybody pays that's fair. Therefore an increase in sales and income tax is fair. What's riot fair in the eyes of the voters, though, is that they're paying additional sales arid income tax to relieve business equipment of $100 million of taxes that would have been the case prior to 829. That's the in crease, arid they will not view it as fair, that they pay to take that amount of tax prior to 829 all of business, and in those reasons I do not believe that those who believe the tax that everybody pays is fair, but it's ... in order to relieve business of significant amounts. Finally, I just want to point out, and I appreciate the sheets that Senator Hall has passed out from the fiscal office showing the impact in different counties. As is always true of these kind of handouts, don't run with the numbers. Look at the conditions on the first page, they are significant as to how the impact of this...
PRESIDENT MOUL: One minute.
SENATOR WARNER: ... and any other provision. Finally I would say that in many of things, if you've been through them many times, as many of us have, when you get different numbers, probably you ought to look at it as a range, between this point and that point is the impact, because the calculations may be somewhat different. But the conditions on this first page are significant, because there are assumptions, they're reasonable to make, but there are assumptions of, for example, number two, the projected change in statewide business equipment, public service valuation was applied equally to each county. That's not likely to be the case. It's a reasonable way to distribute, because you have no other basis to distribute a statewide figure for general review of how figures would work out. But to assume that the sparsely populated counties had the same percentage increase ...
PRESIDENT MOUL: Time.
SENATOR WARNER: ... in business equipment as the more populated counties just simply doesn't stand to reason.
PRESIDENT MOUL: Thank you, Senator Warner. Senator Schellpeper.
SENATOR SCHELLPEPER: Thank you, Mad am President and members. I rise to support the indefinitely postpone also. LB 1063 is a bad bill, it's bad tax policy. You can't put any tax policy out to the Nebraska voters and expect them to approve something that is bad tax policy. I have a couple young farmers in my district that go down the south for the wheat harvest, and they bought two new combines last year. They have already paid sales tax, they have the combines mortgaged to the New Holland. Now this bill will do nothing but devastate them, because they have no way to get anything back, because they already paid the sales tax, they're going to be paying a personal property tax on those two combines, they have to go down south and compete with farmers from Kansas, from Missouri, from Texas in these custom combining, and they have to add $1 to $1.50 an acre, they can't compete because they have to pay this personal property tax. it is just bad tax policy to do something like this. I've been in favor of taking everything off and putting Nebraska on equal footing with the other states. But that may not happen. But I
think that's what we need to do, if we're going to have good tax policy. By putting Nebraska businesses at an unfair advantage with the surrounding states is not good for Nebraska business, whether it's agriculture or business. The voters are not going to approve a constitutional amendment that is not going to help Nebraska tax problems. It's going to help LB 775 companies, but it's not going to help the Nebraska business people, Nebraska agriculture that didn't use LB 775. 1 just think that LB 1063, there has to be a better way that we can come up with a tax solution, so I urge you to indefinitely postpone. Thank you.
PRESIDENT MOUL: Thank you, Senator Schellpeper. Senator Wehrbein.
SENATOR WEHRBEIN: Madam President, members, I'll be brief, try to be low key. But I ... I think we have to... it's an over... it's a cliche, we have to face reality. And I'm just simply going to say I oppose indefinitely postponing 1063, particularly at this point. If nothing else, I think we need to keep the vehicle here. If my memory is correct, we've been working on 'this specific issue. for about a year. We passed 829 about a year ago, not quite, I think it was in May, in order to buy some -time, and here we are, a year later, and evidently we haven't bought enough time, because we still don't have the solution. I know many of you are saying we'll take it all off. LB 1123 ... or 1120, excuse me, 1120 does take it all off, but we can't agree on how to replace it. Many of you are saying let it all go back 011. When it all goes back on then you s... I truly believe that will decimate many of the rural enterprises, as well as hurt in the cities all across the state. And whether you go from Falls City, to Imperial, to Gordon, to Harrison, back to South Sioux City, back down to Plattsmouth it's going to hurt those towns relatively more than it is the larger cities. Inventory, to me, is not acceptable at all, and it will be particularly hard on the cattle feeding industry, which is a very valuable industry in this state. So then you say, well, you know really no one really intends on putting it all back on, we'll do something in emergency and we'll change it and we'll go the 829 route. But we can't agree on what that replacement is. And we're right back to 1120. And we can't agree on how to replace it. And the circle is going, and that's exactly the arguments I hear today, we're going in a circle. We've had a test vote, I'd call it, on sales and income tax which wasn't too far from what I want and many of you want, combination sales and income tax. But it didn't have the votes. And I think there
won't be that, not even talking to the CA problem that probably it would present, that ... who would vote for something. So, not even getting to that issue. And that's why I believe 1063, at this point, represents the best. I'm still open. Senator Schellpeper said we need a better method. Let's have it. We've got to have it, because I think the worst thing we can do is ... the first thing we're doing, even beyond all of this is the uncertainty we're creating in the business climate in Nebraska, whether you're an individual, a small business, a small farmer, or a large business, or an international company, the uncertainty we are creating here in Nebraska I don't think we can responsibly continue, allow to continue, whether it's through May, or particularly through November. Who in the world would invest a few thousand dollars, let alone a few million, or even a billion in Nebraska, in any kind of a business not knowing what kind of climate we're going to have here. And I'm really concerned about that. The ripple effect that our uncertainty is sending Out across this state, and this region, and this country, and perhaps even the world. I don't want to get too grandiose. But we've got to create some kind of policy and go on with it. And to think that I'm speaking only for myself is erroneous, because I hear this across my constituency, not only in my district but across the state. And I've had calls from other districts last night. I'm like many of you, I'm Sure you didn't have hardly any peace at home last night because of the telephone ringing, and it was on this issue. And many of them came down and said do what you think is best because they, 1, they meaning they don't know. . .
PRESIDENT MOUL: One minute.
SENATOR WEHRBEIN: ... what to do either, but they are becoming to realize more and more that the. uncertainty is going to be ... is worse than the cure, or the proposed cure, whatever that may be. So I urge you not to postpone or indefinitely postpone 1063, particularly at this time.
PRESIDENT MOUL: Thank you, Senator Wehrbein. Senator Schmit.
SENATOR SCHMIT: First of all, ladies and gentlemen, LB 1063 is a revenue raising measure. It will give those entities who need, they think, to spend more money access to additional funds. It's going to trigger another new wave of spending. And I hope that all of you recognize that. Some of you know it. Some of you are too naive to believe it, and some of you won't
understand it because you don't pay those taxes. Secondly, in regard to the depreciation formula, it's kind of interesting that the reason we are in the tax squabble we are in is because the court said we are not treating all of the owners of personal property equally and equitably. Time after time we went to the drawing board and tried to do something about it, finally they said, okay, we can't do it. So a logical proposal then, in my estimation, was to take it all off, because 75 percent was not being taxed. The other proposal might have been to put it all back on. But, no, those staunch defenders of the equal and proportionate clause for year, after year, after year on this floor suddenly said we'll abandon the equal and proportionate clause, we will engage in whatever chicanery, underhandedness, mistreatment of individual taxpayers as necessary to (let the votes to pass this piece of legislation. I was going to say garbage, but that will come later. The facts are these, as of now approximately one-third, less than 40 percent of all personal property will be on the tax rolls. I do not know if the removal of equal and proportionate clause will allow the Supreme Court to say, okay, you folks out there just have to take your licks; the Legislature saw fit to remove that, therefore they can abuse those taxpayers who can't defend themselves in whatever manner that the majority wishes to exercise their authority. On the other hand, maybe the Supreme Court, maybe the court will fall back upon the equal protection clause of the Constitution and say, wait a minute, wait a minute, a cow is a cow, and a cow with a calf on her, if that's going to be depreciated and taxed, then the cow in the feedlot ought to be depreciated. I found judges who wouldn't know a bull from a cow or a heifer, and they all look a lot alike. And if you can tell me why 15,000 head of cattle in a feedlot ought not to be taxed, but the same 15,000 head of cattle on a ranch ought to be taxed, and you can justify it, then, by golly, I will stand corrected. The time will come, ladies and gentlemen, when someone will challenge it, and we'll be back here again, some of us, and some of us will not, and they'll say, well, it looks like we got to straighten out the mess. Ladies and gentlemen, why put ourselves in that position? Why should we deliberately foster one inequity after another? I am embarrassed that I was a part of a procedure which took some of the taxes off and did riot follow tip and take them all off. We tried several times, we were never successful. The facts are as of now those inventory businesses are going to walk away scot-free, and it is those other entities, such as have been described, that are going to pay the taxes. And someone says,
oh, but business equipment is all back on. Oh no, Senator Moore pointed out 775 ...
PRESIDENT MOUL: One minute.
SENATOR SCHMIT: ... leaves a great big loophole. Senator Conway mentioned the sanctity of the equal and proportionate clause to some of us when we were arguing the amendment on the variation of the taxation of farmland. Ladies and gentlemen, I did not support it then, I did not support the removal of that clause then, I do not support it now. It is totally wrong. It was placed there hundreds of years ago, 125 years ago to protect the minority. And one day on this floor each of you will be in that minority position, and when that occurs you will wish to God you had the equal and proportionate clause back. Today it's fine. You say go ahead and do to those individuals what we can do, they can't help themselves. Take it or leave it one of my colleagues said. This is the best deal you're going to get. Well, ladies and gentlemen, what goes around comes around, and eventually it will come to each of our districts in due time. And when it does, it will be too late ...
PRESIDENT MOUL: Time.
SENATOR SCHMIT: ... to do anything about it. I support the motion to indefinitely postpone.
PRESIDENT MOUL: Thank you, Senator Schmit. Senator Landis. Senator Landis.
SENATOR LANDIS: (Response inaudible.)
PRESIDENT MOUL: We have a motion to cease debate. 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? Have you all voted? Please record, Mr. Clerk.
CLERK: 26 ayes, 0 nays to cease debate.
PRESIDENT MOUL: We have ceased debate. I will recognize Senator Hall for closing.
SENATOR HALL: Thank you, Madam President, members. Again, I rise to urge you to support the motion to indefinitely postpone.
I am being consistent, I have tile. kill motion on 1120 as well. The argument that 1120 didn't have the votes centered around the fact that well, we haven't debated 1063, and we're going to get to that. Arid many people said, well, we want to listen to those arguments as well. What happened was that many of the folks who were supporting tile 1120 concept said, well, it looks like 1120 isn't going, anywhere. Hopefully, they went home and got a little starch in their backbone, as Senator Schmit likes to say from time to time, over the weekend and came back and said, look , we don't have to have tax on personal property, matter of fact it's not even good policy, that we should be looking.... I agree, I don't think 1120 is tile greatest piece of legislation that ever came out of the Revenue Committee either. But the fact of the matter is it came out of the committee, it came out of the committee after a long, hot summer, after much debate, and then we had 1063 that was brought from tile committee, and that's fine. find I been here I would have voted to bring it out of committee, as the Speaker told you when that happened. The fact of the matter is we haven't addressed the bigger issue, and that's the real problem, I think, in terms of tile polls. I think the people will say really all you're doing is, as they've said before, is patching a system that's not any good to begin with, and you need to can the whole system. At least 1120 starts on that road, where 1063 does not. Arid, Senator Warner, I know that these numbers are a range, but I guess when is the last time you had it handed out where somebody left the front page on, huh? That's my question, when was the last time they got handed out with the front page? I could have tore it off Arid, yeah, they're a range, and handed it out. in my neighborhood the range stinks, the range is no good. And in my neighborhood happens to include Omaha, it happens to Include Lincoln, Beatrice, Grand Island. Are those places where people are going to go to the polls? You think if their taxes, their property taxes are going to go tip that they're going to vote for it? You think the numbers can be tailored down any better? No. Are the assumptions the best way we can look at it? Absolutely, by your own word that's right. This is not the answer, ladies and gentlemen. Arid to purport that it is, that the people are going to support this, first of all after looking at the bill, and then looking at what the constitutional amendment does or requires be done, they're going to vote no, they're going to vote no. Arid the alternative is far and away better, It's far and away better for all those people that happen to be in tile range that I'm talking about, in terms of what happens. And, yeah, maybe it does hit agriculture, but so did 1120, and it
hit agriculture in the way that they felt was acceptable to them. Yeah, they didn't like a few twists to it. Yeah, they didn't like this tax as opposed to that tax exemption being -replaced, but they can live with the concept. And now we've got 1063 in front of its, and it has an opportunity to be voted up or down. Doesn't mean 1120 is dead. LB 1120 is right behind it, and it has $89 million in it, period. It's there. It's another concept to be discussed. And I'm hoping that we will discuss it again. I again would urge you to vote to indefinitely postpone 1063. I'm riot naive enough to think that this proposal has enough votes to do it, but it's clearly going to show where people are at on the issue of taxing personal property or not in this state, and that's really what we need to do. Don't talk about eight days ago, or how much time we've wasted. You had an opportunity, in the first day, at the easiest opportunity in terms of a vote to deal with this issue. You chose not to do this. And I said you'd come back and regret that, and you'd use it against me in terms of the issue. This is a ... I guess I'm waiting for someone to stand up and say we ought to change the rules on offering indefinite postpone motions on General File where you only need a simple majority as well, because I'm using the rules to...
PRESIDENT MOUL: One minute.
SENATOR HALL: ... my advantage. You bet I am. They were used against me in terms of amendments to 1120, as it was on General File, to strip portions of that amendment. This is the way the system operates. It's unfortunate that these are the only two proposals we've been willing to look at. And we haven't looked at the tax problem on a systemic basis, because that's where the root of the problem is. But we don't have the political courage to deal with that. I would hope that we would move to indefinitely postpone the bill.
PRESIDENT MOUL: Thank you, Senator Hall. We will now vote on. the motion to indefinitely postpone. All those in favor please vote aye, opposed nay.
SENATOR HALL: Roll call vote.
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: 32 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. While we're waiting for the senators to return and check in, I'd like to direct your attention to the area under the north balcony. Special guests today of Senator Kristensen are Dudley and Marge Nelson and their son, Eric, from Axtell. Would you please rise and be recognized. Welcome to the Chambers. Thank You. I would also like to announce that we have a birthday being celebrated today. It is the 81st birthday of our Sergeant at Arms, Carl. Carl. Looking for Senators Lindsay, Chambers, and Rod Johnson. We'll proceed with roll call vote on the motion to indefinitely postpone LB 1063.
CLERK: (Roll call vote taken. See page 1163 of tile Legislative Journal.) 14 ayes, 31 nays.
PRESIDENT MOUL: The motion fails, and we will proceed with debate on LB 1063 itself. Senator Warner, would you like to open on the bill. I will raise the call. I'm sorry.
SENATOR WARNER: Madam President, members of the Legislature, I assume there's no further amendments on the desk.
CLERK: Not at this time, Senator.
SENATOR WARNER: In that case, Madam President, members of the Legislature, I'd move that tile bill be advanced.
PRESIDENT MOUL: Thank you, Senator Warner. Senator Haberman, -followed by Senators Moore, Schmit, Morrissey, and Coordsen. Senator Haberman.
SENATOR HABERMAN: Madam President, members of the body, I thought I should report oil you... to you on the advice that I got from Senator Withem to call the Department of Education and find out if there were some schools who lost state aid due to tile connection between 1059 and 1063. And the answer is yes. Also, the information given to me was that tile 3-R Committee had this information when they were meeting, that they had the printout that showed the schools that lost state aid. But nothing has ever been said to us, we've never been shown this, and we're in
the dark. So, I asked Mr. Kemper would he provide me with a printout of those schools who, indeed, did lose state aid due to 1063 and 1059. And he said, yes, lie would. So, as we advance onward and downward on 1063, as soon as I receive the material I will inform you which schools lose money, state aid due to 1063. Thank you very Much, Mr. President ... Madam President.
PRESIDENT MOUL: Thank you, Senator Haberman. Senator Moore.
SENATOR MOORE: Madam President, I have a couple questions for Senator Warner, if he'd yield, please.
PRESIDENT MOUL: Senator Warner.
SENATOR MOORE: Senator Warner, continuing a little bit of a dialogue we had last night on this issue, one of the responses on federal changes and how that would affect the amendment we adopted last night, you had responded, and I never had a chance because the question was called, I want you to finish your thought that you had about the ... if the federal government, for whatever reason, did something so bizarre or so wrong that we could still ... talking about the lifespan as you were talking about, that someone we could change. You said that we could, it would just mirror that, unless it got so bad then we could change it. I guess the question is, who makes that decision, is it the Legislature, or is there not a portion of that amendment that gives the tax commissioner that authority?
SENATOR WARNER: Tax commissioner, as the bill is written.
SENATOR MOORE: The tax commissioner...
SENATOR WARNER: The lifecycle...
SENATOR MOORE: The lifecycle ... is it just...
SENATOR WARNER: ... of different types of equipment.
SENATOR MOORE: ...limited to the lifecycle issue?
SENATOR WARNER: The lifecycle issue is the tax commissioner, but it ... there's reference, I don't have it right here in front of me, I believe that it should be IRS lifecycle is a guide. There would be a hearing, there would be no basis, in fact, for tax commissioner to use a different lifecycle. But in the event
the federal government did something that was outlandish, I believe was your words, we would not be in the position that we had to accept that outlandish action by the federal government.
SENATOR MOORE: So we would delegate that authority to the tax commissioner to make that, and that would... it would be to follow it, so it wouldn't change anything. They could... they could... tile decision would be for the tax commissioner to not follow federal IRS forms, is that correct?
SENATOR WARNER: Right.
SENATOR MOORE: They wouldn't actually be changing anybody's tax burden, or they would be?
SENATOR WARNER: I'M not Sure I follow the question, Senator Moore.
SENATOR MOORE: Well, obviously, I mean the tax commissioner, if the federal IRS lifecycle ... there was a change, and let's say it made sense, tile tax commissioner can make that change...
SENATOR WARNER: Yes.
SENATOR MOORE: ... and that would have impact on somebody's taxes, correct? Or in the long-term it wouldn't ...
SENATOR WARNER: Yes, lifecycle of equipment has an impact on the.. on tile rate of depreciation, if you go from five to seven, or seven to five.
SENATOR MOORE: You have an impact in a given year over the entire li ... it wouldn't, it would just change tile tax burden for a year, correct? I mean because we're still...
SENATOR WARNER:. Well, Se... normally, what the feds do, and it would be the same here, that if you already have a piece of -equipment that you're depreciating under internal revenue for income tax purposes, ordinarily you would have to use the same depreciation schedule you started with on a given piece of machinery. And I would expect' that if tile feds, change a lifecycle, that that would only apply to equipment that was applied. Now, there may be exceptions to that, but generally I believe that would be the case.
SENATOR MOORE: Okay. And the second, final question deals with the issue... one of the amendments that's in my drawer, I did not introduce, was an amendment dealing with intangibles, I knew I'd be faced with the argument of double taxation. And this is, once again, a hypothetical, and I don't think it's a what if, it's not a what if at all, it's actuality. But obviously, Senator Warner, as you're well aware of and the land that you own, obviously if we put improvements on land and include a pivot on that land, you know, irrigated land is valued at a much higher level than ...
'PRESIDENT MOUL: One minute.
SENATOR MOORE: ... dry land. And, obviously, under this plan, tinder the 1063 plan we would now be paying tax on the pivot as well. Arid is in your opinion, would that be the second time that pivot is taxed?
SENATOR WARNER: Senator Moore, the treatment for land tax will be the same as it is now, in fact, the increase in valuation of agricultural land, because of irrigation is because of the well, not because of the pivot. Arid the pivot is to be...
SENATOR MOORE: Well, but...
SENATOR WARNER: ... taxed as personal property. You may recall, back in one of those special sessions we tried to roll that around differently. But the way it is now, and I do have an amendment here to make it crystal clear that a pivot is, when it comes to making val ... comparisons of land sales that...
PRESIDENT MOUL: Time.
SENATOR WARNER: ... a pivot is outside of the ... of the value of the land.
SENATOR MOORE: The exception, if you're in Senator Schmit's district, the well isn't what raises the value, it's the pivot.
PRESIDENT MOUL: Thank you, Senator Moore. Senator Schmit.
SENATOR WARNER: (Inaudible.
PRESIDENT MOUL: Senator Schmit.
SENATOR SCHMIT: Thank you, Madam Chairman. Since Senator Scott Ott Moore brought it tip, I could suggest that I have a number of pivots, and I have a number of wells. And as Senator Moore has pointed out, the wells do not, in any way, effect the ability of that land to be irrigated. You need to have the pivot. And the well without the pivot would only contribute to the downhill trend of water. Arid so I guess my question might be, for Senator Warner or someone else to answer on this ... on their own time, is there going to be a different method of treatment of rolling land, which has a pivot, which is nonirrigable, with only a well than is the land which can be irrigated down the road? Arid that's something else which I think needs to be addressed at a later time. But at the present time my concerns are several. One is this, as I understand it, Senator Warner, as I read your amendment, and correct me if I am wrong, but you have created a completely new and a completely Nebraska depreciation system for taxation of certain personal property. Am I correct when I say that?
SENATOR WARNER: No.
SENATOR SCHMIT: All right, well you correct me then and tell me how I am incorrect or how I misunderstand the depreciation schedule.
SENATOR WARNER: It's used for purposes of not for taxation but for valuation, number one, which makes some difference.
SENATOR SCHMIT: Would you ...
SENATOR WARNER: Arid secondly, the one that is in the law does mirror the 150 percent type of depreciation in agricultural use. It would not ... it is a change, a new system for those that had 200 percent or did straight line, that would be correct.
SENATOR SCHMIT: When you say that I create a different ... you say I'm incorrect when I talk about depreciation system, you say it creates a value system, but the result is to provide a basis for the levying-of taxes, is that not right?
SENATOR WARNER: It's the basis for determining value. Senator, the reason ... I read an Attorney General's Opinion, the other day, and I'm not playing games with you,...
SENATOR SCHMIT: Fine.
SENATOR WARNER: ... where I noticed 25 years ago, on floor debate, I had responded to a question from a senator that that is about it, or that's substantially correct, I believe was the words. The thought occurs to me that when any of us answer questions that we shouldn't perhaps take them, we should be sure that the question that we're ans ... or the question being answered ... asked is appropriate for the question we're answering, so I use a little bit of care, that's why I'm doing what I'm doing.
SENATOR SCHMIT: Well, Senator, you are the only member of this body who can refer to 25 years ago and respond to a question that was asked at that time. I'd use...
SENATOR WARNER: No, I read an Attorney General's Opinion just the other day.
SENATOR SCHMIT: Fine. I guess my question is this, what assurance do we have that the court will find this system of valuation constitutional.?
SENATOR WARNER: You asked the question the other day of me, Senator Schmit, and my answer would be the same. I cannot give you assurance as to what the court will do with absolute statement, as we all know. I am of the opinion that depreciable and nondepreciable basis of classification would meet the court test. Whether or not, only the court can tell us.
SENATOR SCHMIT: Well, Senator Warner, in the business of aviation we refer oftentimes to VFR, which is Visual Flat Rules, IFR, Instrument Flat Rules,
PRESIDENT MOUL: One minute.
SENATOR SCHMIT: ... and blind flying, which is proceeding forward without knowing where you're at, or where you're going, or what's ahead of you. I suggest that there is a way we could operate with VFR rules on this floor, in relation to taxes. There's a way we can operate with IFR rules and use the instruments to know where we are going. But blind flying ought to be out. And a blind flying system for determining the method of valuation, upon which we are going to base an entirely new property tax system, is not a good way to go. And I would have to continue to oppose the bill. I hope I have a
chance to speak again.
PRESIDENT MOUL: Thank you, Senator Schmit. Senator Morrissey.
SENATOR MORRISSEY: Thank you, Madam Speaker and members. Oppose LB 1063. And again I'm going to talk some realities, some facts. The fact is rural Nebraska is struggling to get by. We want our kids to be able to stay down there and live there. We don't want them to have to move to Lincoln and Omaha and the golden triangle to live. We want them to have the option to live in Tecumseh, or move as they so choose. For us to survive we are dependent upon the farmers, the small farmers. For the small farmers to survive in their business of low, low profit, I don't think we can let them take any more hits. That's why I oppose not only 1063, but the philosophy behind 1063 that we have to make the people, that have benefitted in the past from these exemptions, pay. Now, I'm not going to argue that these exemptions can't stand up to the uniformity clause, because they can I t. But I feel that is the only thing the Supreme Court is saying. Unless the Supreme Court is, indeed, ruling the Constitution unconstitutional. And I don't think they're doing that. I don't. think they're doing that. They allow for exemptions, specific exemptions in many other areas. Livestock may be taxed separately and distinctly, may provide for different methods for autos and trucks, that's in the Constitution. They're not going to declare the Constitution unconstitutional. The problem we had was solely within business equipment, a tractor is a tractor is a tractor. A John Deere tractor on the farm can't not be taxed while a John Deere tractor in a lumberyard can be taxed. That is the only problem, the only problem with that system. So, for us to come out and take the dramatic step of repealing the uniformity clause and try and cobble tip some sort of tax system that will hit the farmers is something I don't think I can accept. I am dead serious when I say that farmers have a very slim profit margin. And I'm dead serious when I say that I want the small towns in my district to survive, and even possibly, dare I say it, thrive. And I'm dead serious when I say I don't want to live in Lincoln and Omaha, and I don't want that to be the only choice my children have. And the uniformity clause is there for one reason, and that's to protect the little guy. And that might be the last thing that little person, excuse me, the little person has, the small operator, whatever they may be. So, for me to repeal it is a big step. And I don't know that I can do that anymore. The other...I've been telling my constituents I think,
I guess, as a last resort I'd have to do that. But the long-term future of my district is mixed in this discussion. The long-term ability of the small farmers to help support the small businesses in that district is vital to this discussion. The question of small farming operations....
SPEAKER BAACK PRESIDING
SPEAKER BAACK: One minute.
SENATOR MORRISSEY: ... in the future of this state, is very much being debated here today or not. Will anyone be able to farm in the future, and if not ... or will the small operations survive? If not, who will farm? And the fewer people get control of the most important product in the world, what will happen to the price of that very important product? And this is very long-term, down the road, very long-term look you have to take. But for me to repeal the uniformity clause and stand up here and say that's the only way we can solve this problem, I can't buy it anymore, I just cannot buy it. I'd urge opposition of anything that repeals the uniformity clause and says to be constitutional you have to. repeal that fairness and uniformity clause to work.
SPEAKER BAACK: Thank you, Senator Morrissey. Senator Coordsen, you're next.
SENATOR COORDSEN: Thank you, Mr. Speaker. Members of the body, I think we're poised on the verge of advancing a really great bill. Mercy, I'm so excited. Contains lots of good things. Picked out a ... picked out a rural county. Currently the owners of agriculture property paying 82 percent of the nonmunicipal property tax in the county. According to the average of the Department of Revenue, or the legislative fiscal office, they're going to see a net increase in what they pay of 5 percent, bringing them tip to about 86 percent, that's roughly 4 percent in pure values. If they don't buy anything we're going to impact them with a I and 1/4 percent sales tax on their fuel. If they have a bad year, can't buy anything, don't buy anything, don't make any money, we're going to get them a little more again. Then we're going to, quite probably, reduce the state income tax revenues by whatever amount it is that we increase the property. ..local property tax on those people. Bear in mind, these are going to be deductible expenses. Great bill. Thank you.
SPEAKER BAACK: Thank you, Senator Coordsen. Senator Robak, you're next. Senator Withem, you're next.
SENATOR WITHEM: Yes, Mr. Speaker, members of the body. I was not going to address the advancement of the bill, would not have turned on my light had it not been for the discussion regarding the 1059 impacts that I believe Senator Hefner and Senator Haberman raised. And a comment a little bit about that issue. I think in ... well, Senator Haberman, in his inimitable style, indicated that the 3-R Committee had this information, and none of us have it. Right on both counts. The assumption then is there's something devious going on there, and I think, you know, there are a number of members on the 3-R Committee. It was pointed out that only three members of the 3-R Committee ultimately voted for the 3-R plan. So those other members, obviously, didn't see anything very sinister in that information. I war. sorting through my book here, trying to find the various printouts, the way they impact 1059. But the general impression, I think, most members of the 3-R Committee was that the 1059 impacts caused by net book value were there, but they were of minimal consequence. It did not, as the discussion went- on it did not become a major part of the discussion. Does it have in impact? Well, certainly it does, certainly it does, it's supposed to. flow was 1059 supposed to operate? LB 1059 has three ... formula has three very eleme ... three factors to it. Number one, what are the needs of a school; number two., what are its resources to meet those needs, and then we at the state send out the difference. I f you have more resources at the local level, you get less in aid. if you add valuation to your district, you get more ... less aid. if you lose valuation, you got more aid. The point, I think, that I made in the 3-R process, that seemed to make some sense to people, was that 1059 is supposed to be responsive to valuation changes. And it has been. I would remind people that just a couple of years ago we approved the constitutional amendment to the Constitution to allow ag land valuation, ag property, real property to be treated lower. When those numbers find their way through the formula, which will probably be just about the same time that. . no, no, everything will be two years in arrear, but about those time those numbers worked their way through the formula, there will be a lot of areas that have predominantly agriculture real property that are going to get more state aid. There are people that are going to be paying lower property taxes, but because the schools have less property tax money to
collect, less valuation, their state. aid is going to go up. That's the way it's supposed to happen. Some of you that hear nasty things about 1059 back in their districts, like the Speaker, I know, he's heard from former principal of mine, when I was teaching, who's the superintendent out there, that they lost state aid this year, they lost state aid because the one or two year bump, when we had ag land values up closer to market value was funneled into that particular year, and so they're getting less state aid. That's the way the program is supposed to work. All in all its impact is not that great. All in all, as I remember, the money doesn't flow to any particular category of schools. The argument Senator Haberman was using, I think he was confusing it with some of the things he had heard from constituents who were consolidated districts that don't like 1059 in a general sense. If you have valuation added, in a comparative sense, more so than other districts, you won't get as much. if you have Valuation not as much added, you'll get more, but that's the way 1059 is supposed to flow, that's what it's supposed to do, and the impact is negligible, i.e., like Senator Haberman who visited with Mr. Kemper indicating that there's some questions have come tip, and I've asked him to not only send over Senator Haberman the printout we had last summer, because that was based on a proposal that the 3-R Committee was looking at, 1063 has since been introduced and it's in different forms, and I've asked him to update that information. That will be available to anybody that has an interest, but I think you'll find that there is no real smoking gun contained within it.
SPEAKER BAACK: Thank you, Senator Withem. Senator Conway. .Senator Schmit.
SENATOR SCHMIT: Mr. President and members, I want to make it clear that as the bill is drafted today any illusion that anyone on this floor or in the State of Nebraska might have that if we advance this bill, pass it into law, and if we follow up with a constitutional amendment, as proposed, that if there is any illusion that there is any opportunity to vote against personal property tax reimposition, that is wrong. One of two things will happen, either we will get the limited, very discretionary, discriminatory reimposition of certain types of personal property taxes upon those who have no one to speak for them, and I include the farmers among that, that group, or else we will get a total reimposition of the tax. Now my friends on the floor here, some of them rural, have said we do not dare vote against the constitutional amendment because that puts it all
back on. Well, ladies and gentlemen, I've never, ever found a taxpayer to be too uninformed. Most of them are way ahead of the Legislature. And I would suggest that by the time we get to voting for a constitutional amendment, if that happens, that the taxpayers of the urban areas will take a look and say, why should we exempt inventories from taxation. We gave them the 775 exemptions, we gave the 773 exemptions to the executives, we gave the 772 exemptions to the corporate sector, maybe it's about time for old iron sides to get his dipper in the bucket a little bit and take home a little bit of a tax relief program for himself or herself. And maybe I'll just let the car dealer and the hardware store person and the rest of them pay a little tax for a change. And when that happens, they may very well vote against the constitutional amendment. Those of us in the rural areas who have been singled out for the discriminatory treatment can go back and do a little calculating, recognizing that if you are in a rural area and we are going to find that the tax is going to be reimposed, it may well be a wash, it may well be a wash just to let it all go back on, and hope for a minor reduction in the real estate taxes. Ladies and gentlemen, nothing is ever final in legislation, as we all well know. And the cruelest hoax of all will be when my good friends, who are in the cattle feeding business, say, well we escaped the axe, the common man is caught, the breeding man is caught, the farmer is caught, but we escaped. And all of a sudden someone challenges, under the equal protection clause, the exemptions for fat cattle, for cattle on feed. Bear in mind I do not want them taxed, I do not want them taxed. But the chances of that tax being reimposed are better, I believe, than 5050. And when that happens who will be able to stand on the floor and say, wait a minute, it's not fair to tax cattle on feed.
SPEAKER BAACK: One minute.
SENATOR SCHMIT: Not going to be very many people around. There won't be enough votes then, ladies and gentlemen. The only way we got the tax off in the first place was by the unholy coalition. As Mr. Herb Schimek said, Loran, you stole that money fair and square; I don't blame you for not wanting to let it go again. I didn't think it was stolen. You know, Herb, you really stole that line from Davey Newell. But the facts are that that is what this process is, it's give and take. We won back in '77, we won in '71, we lost again, today we'll lose again. But eventually those who think they are winners today will be losers, and they will not have anyone to defend
themselves. I still oppose the bill.
SPEAKER BAACK: Thank you, Senator Schmit. Next speaker is Senator Labedz.
SENATOR LABEDZ: Call the question.
SPEAKER BAACK: 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?
SENATOR LABEDZ: Mr. Speaker.
SPEAKER BAACK: Senator Labedz.
SENATOR LABEDZ: I'm sure we're going to need a call of the house on the closing on LB 1063. Call of the house and a roll call vote. Take call-ins, too.
SPEAKER BAACK: We have a request for a 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.
SPEAKER BAACK: The house is under call. And call-in votes have been authorized on the motion to cease debate.
CLERK: Senator Abboud voting yes.
SPEAKER BAACK: Record, Mr. Clerk.
CLERK: 25 ayes, 0 nays to cease debate.
SPEAKER BAACK: Debate has ceased. We will now go to Senator Warner for closing on the advancement of LB 1063. 1 would remind members, before you start, Senator Warner, that we are tinder call. Members, please report to the Chamber and record your presence. The house is tinder call. Senator Warner.
SENATOR WARNER: Mr. President, members of the Legislature, the ... I think the bill has been so adequately discussed. I will just move its advancement so we can move on to the other issues.
SPEAKER BAACK: Senator Landis, would you record your presence,
please. Senator Lamb, would you record your presence, please. This is to record your presence. We are looking for Senator Wesely... oh, Senator Wesely is here. All members are here. All members are now present. We will proceed to vote on the advancement of LB 1063. All those in favor vote aye. Opposed vote no. Have you all voted? We're voting on the advancement of LB 1063. A record vote has been requested. Have you all voted? Record, Mr. Clerk.
CLERK: (Read record vote as found on page 1164 of the Legislative Journal.) 27 ayes, 15 nays, Mr. President, on the advancement of LB 1063.
SPEAKER BAACK: LB 1063 advances. I will raise the call. Items for the record, Mr. Clerk.
CLERK: Mr. President, a unanimous consent request to expedite LB 1063 by Senator Warner.
SPEAKER BAACK: No objection, so ordered.