Committee on Revenue

Public Hearing

LB 1063 (1992)


January 31, 1992

Page 20


SENATOR HALL:  Senator Warner is coming up to the microphone.  Is the Governor in the room?  Okay, we're going to allow for him to come, or try to contact him to follow up if he can.  If not, what I'm going to ask is that immediately following Senator Warner's testimony, the on-deck chair is right there.  Although we have a list of folks from...  that are going to speak on behalf of 1063, I am going to ask that it be a kind of a first come first serve basis.  So, I know that there's many people that are listed here, and we've got letters from folks who want to testify on behalf of 1063.  1 would ask that you work your way up to the front, get in line, and we'll take you as you come.  Senator Warner.


SENATOR WARNER:  Chairman Hall, members of the committee, Jerome Warner, 25th Legislative District, W-A-R-N-E-R.  (inaudible) I'd like to start where I started yesterday which is again to remind people that as of January 1, 1992, business equipment, ag equipment, livestock, inventory, are taxed at actual market value as result of Supreme Court decision.  And with that all the ills and adverse economic impact on the state that has been talked about is in place.  It is in place unless there is a constitutional amendment adopted, in my opinion.  Some, perhaps feel that we do not need to.  But it is in place and we are looking at a solution to avoid what would be inevitable if nothing is done.  Again, what is unique again this session is the ills


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that we are looking at today, with possible exception of one, are how you would implement that constitutional amendment assuming the Legislature places it on the ballet one, and number two, that the public will deal with it and support it.  And the issue you have to look at seems to me in all of this whole issue is where is the shift in taxes going to occur, to whom, its justification, and will it be acceptable to majority of Nebraskans.  And finally, what impact on the adoption of the constitutional amendment, obviously at a general or primary election.  The shift we're talking about if we do nothing, we are unable to place a constitutional amendment on or if the voters turn it down, obviously we know where the shift goes then.  And the shift, very dominantly will go toward all of the people who have ownership of the type of personal property that is being discussed.  And that is generally recognized as not a desirable public policy, and so what we're talking about, where is the shift going to go?  There is a variety of proposals before you as to where this shift might end up.  I am convinced that while there are a variety of alternatives which I have heard described today that I may personally subscribe to is the judgment decision on the part of each of us.  But I am convinced that a number of the alternatives that might be personally acceptable or desirable, such as a general increase in sales and income tax, is not a solution that will result in the adoption of a constitutional amendment by the voters in the primary of May this year.  We're in a difficult situation that, because...  there will probably be somewhere at best, 60 days or maybe a few more, from the time that the Legislature has determined what should be done and the voters will be voting on it.  Sixty days to develop an understanding of the issue is short.  Very short.  I took the opportunity to, by accident as a matter of fact, a visit with an individual who is very much involved ...  has in the past been involved with developing information and types of campaigns on constitutional amendments.  And I didn't give it a lot of thought to, to that some receive (inaudible) to, to talk about his experiences in the past and the time frame that you have to have in order to really adequately explain a constitutional amendment and have it likely to be successful.  It becomes very apparent to me that you better have an amendment that a great many people may not like but are willing to accept.  And on that basis, I was willing to be supportive of a recommendations of the 3-R Committee as a cointroducer with Senator Withem, Senator Landis at the request of the Governor.  As you all know, 3-R is a fair...  excuse me, LB 1063 does a couple of things I want to mention.  In it is a provision for what happens if the constitutional amendment


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January 31, 1992

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fails, as well if the constitutional amendment is successful.  Yesterday we had a hearing bringing to our attention the problems that currently exist with the deadlines for reporting property and the resulting confusion that exists across the state.  This bill puts into place a system which will provide some uniformity on how personal property will be handled if the constitutional amendment fails, the changes in numerous dates that we spent a lot of time on yesterday.  And the second thing then it does, it establishes a system for taxation if the constitutional amendment is successful.  The key thing that the bill is implementing as far as the constitutional amendment is the separation of personal and real property from the uniformity clause which was, of course, the key in the, in the constitutional amendment.  Some comment...  and then after that it essentially divides taxed personal property for taxable purposes into two classes, the taxable or...  excuse me, depreciable and nondepreciable personal property.  A relatively simple classification system compared to trying to itemize or about definitions as to who are dealing with inventory, what is or is not inventory, and in my opinion, has a good chance of being approved by a court decision which I'm sure will come inevitable as to whatever is passed at some, at some time.  That depreciable personal property is based upon, as again as you know, on federal depreciation schedules which has, had some objections to because there are certain inequities in the federal depreciation schedule that are...  or least appear to be.  And some of those I know are, are as a result of the depreciation set, the depreciation schedule together with other offsetting provisions on the income tax side of the federal government.  And a result that may compensate one another, and yet, not have a great inequity when they're taken together.  But when you take just one side of the provisions of the federal ...  or the IRS federal income tax you have the potential for inequities.  And in one of the letters that was enacted ...  passed out today is a suggestion, one of the options that might be looked at.  Another one is discussed as an alternative (inaudible) part of the state system as opposed to that federal system to provide some, some equity where, where it is not otherwise at.  Chairman, I have it as section by section description which (Exhibit D) I don't think I'll take the time to go through.  Most of us are, are familiar with it.  I do have to turn in an updated graph of the bill incorporate some of the adjustments that were noted to make some technical changes, not particularly subsidy changes, from what was introduced.  But again, I will not go through that at this time either.  Finally, I do want to say just one other thing.  The key right now is stability.


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Yesterday, we heard the Governor describe and others describe the lack of stability of a tax system in Nebraska and the resulting economic impact that's having, adverse economic impact I suspect we're going to be in a state of instability for at least the next two years regardless of what we act, because no matter what is done, I assume, will riot be final until such time as the Supreme Court has acted upon it.  But we need to move as rapidly as possible toward that.  For those reasons I, I am willing to support and willing to work for a constitutional amendment and implementation that maybe isn't the most ideal that I might like.  But one which I think has greater probability of acceptance to a greater number of people.  And sure result in avoiding the, the calamity, the adverse effects of doing nothing, which I think is a very real one.  With that, Mr. Chairman, I'd be glad to respond to questions.


SENATOR HALL:  Questions for Senator Warner?  Senator Haberman.


SENATOR HABERMAN:  Senator Warner, I would probably say it's probably Section 16 you say, amend Section 77-1236 to give specific authority to county assessors to inspect anything filed with the IRS, and worksheets, papers, and other items not found with the IRS.




SENATOR HABERMAN:  Does that mean that the county assessor can go to my accountant and see all the worksheets on my income tax?


SENATOR WARNER:  It's, it's, that would deal with, with the sheets (inaudible) the depreciation schedule.


SENATOR HABERMAN:  Does that mean he can go and see my file with my accountant?


SENATOR WARNER:  Anything relevant to the depreciation schedule or to...  yes.


SENATOR HABERMAN:  But it doesn't say depreciation schedule.  Is it supposed to?


SENATOR WARNER:  But that's all he has an interest in.




SENATOR WARNER:  That would be all he had an interest in.


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The other limiting factors, Senator, is that, that what we enact in law in Nebraska will not supersede the limitations that the department...  that the IRS has.  So, whatever...  there are limitations, as you well are, I'm sure, aware, as to what access that someone who has not been approved specifically by IRS to maintain that confidentiality is entitled to, I do not see that as a likelihood for violation.  But, certainly the worksheets which all of us have who, who do depreciation, we...that is what identifies specific equipment's date of purchase, amount, so forth.


SENATOR HABERMAN:  Section 8 says that the insert for provision for taxing livestock at actual value including livestock in the state for only part of the year, what does that mean?


SENATOR WARNER:  Based on a constitutional amendment that was enacted in ...  middle 1950s, I don't recall if it was '55 or rather '56 or '54, but there was a provision adopted then recognizing that, particularly in western Nebraska, perhaps in wheat country where livestock may be brought in for part of the year to graze on fall wheat and be out of the state the balance of the year, cattle moved into a pastures from...  for a variety of reasons including the grass pastures.  But because of the, of the requirement of the Constitution the property only in a state on January 1, at some time some of that livestock would not have been in January 1, it permitted a prorating of the value of the tax value in relation to the number of months the cattle were in the state.  And this is a repetition of that constitutional amendment.  And I honestly can not recall if that had, in itself, been tested in the courts, but it has been in provision in the Constitution since the middle 1950s.


SENATOR HABERMAN:  Thank you, Senator Warner.  That's all, Senator Hall.


SENATOR HALL:  Any other questions?  Senator Hefner.


SENATOR HEFNER:  Senator Warner, how much money would this raise from the centrally assessed property owners?


SENATOR WARNER:  Well, there's, there's a variety of... I started to say a variety of estimates or range is what I probably should, should say.  I think I'd just as soon refer that to the Department of Revenue people, if you don't mind.  I've got numbers here ...  let me comment on that though.  Generally, I'm of the opinion that there is the


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January 31, 1992

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ability to, to acquire revenue in the form of taxation from centrally assessed property through the LB 1063.  1 would not disagree with those who say that the, at least with the 4-R Act would permit if the railroads felt the state was discriminating against them, that, that the railroads couldn't bring suit.  At some level of taxation, it'd perhaps be held by a federal court to be discriminatory.  I also believe that the railroads are also willing to be good citizens and there is a level of taxation that they are not going to object to.


SENATOR HEFNER:  Do you have that in verbal form, or have they told you that, or ...  ?


SENATOR WARNER:  Well, I'm sure there is no citizen alive who speaks for all railroad CEOs, but...  (laughter) That, you know, let me put it this way, Senator Hefner, I had always understood as long as I've been around, or close, or in the neighborhood of state government that centrally assessed property, and even though we have a form, or have had a form there for 125 years, that, that it tends to be a basis of negotiations.  The old days, at least.  I'm quite sure the Board of Equalization met, they had hearings, and you arrived at an amount that was acceptable.  Maybe a little more than they liked, but was...  at least they didn't go to court.  It wasn't till you got to the point where, where the cost was so far in excess of what they felt that was reasonable, in fact, as someone indicated earlier, we would not have seen Congress enacting the provisions of 4-R Act unless in fact there was discriminatory treatment of the railroads.  And as long as they do not feel that discriminatory, I think they're willing to accept some tax.  I mean, that's only reasonable.  Yeah, it's to their benefit that the economic conditions of this state are healthy too.  That generates business for them.


SENATOR HEFNER:  I've talked to a lot of people, and most of the people say we want to pay our fair share of taxes.




SENATOR HEFNER:  But then on the other hand we have all these lawsuits, so, so it looks...


SENATOR WARNER:  Well, fairness is like beauty, it's in they eyes of the beholder.  And it's...




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January 31, 1992

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SENATOR HALL:  Thank you, Senator Hefner.  Senator Peterson has a question.


SENATOR PETERSON:  Senator Warner, in, in this bill there is a lid, right?




SENATOR PETERSON:  Is that just for local?




SENATOR PETERSON:  Why not state?


SENATOR WARNER:  Because is only deals with property taxes.


SENATOR PETERSON:  You're just dealing with property taxes?


SENATOR WARNER:  And the state collects no property taxes.


SENATOR PETERSON:  So you're, you're putting a lid on local governments?


SENATOR WARNER:  Well, the purpose of this lid is because there could be, in some governmental subdivisions, an increase base on which the property taxes is applied.  And the purpose of putting the lid in here is to be assured that that increase base that is available for taxation to local government does not in automatically allow them to apply even the same levy that they had last year, but raise a substantially more money just because the base was broader.  So it does phase out after a period of time, '95'96 if I remember correctly, or '94, 1 believe it's '95-'96, which then, once it has been established, that the potential is much less.  Let me contact...  comment on spending a minute because that, that's not particularly relevant to, to this, but not irrelevant either.  You can measure growth and spending a lot of ways.  It's a simple fact, by the way though, if you look at the last 20 years that the amount of public spending, state and local government, as a percent of personal income which is one of the measurements used for comparing with other states.  It's one of the most frequently used.  We are in fact spending a lower percentage today than we were ten, 20 years ago for, as a percent of personal income for both state and local government collectively.  Runs around 10 percent, now it's a little under ten.  It was a little over ten 20 years ago.  But the thing that is unique when we talk about property tax, it wasn't until two years ago in which the growth in...  or the


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January 31, 1992

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percent in property tax, going back for property tax, reliance, rather, on property tax was less and in fact is today less than the reliance on sales and income tax.  So the shift that a lot of people talk about has in fact occurred.  Now, having said that, to say that there is not always a need for greater efficiency in government to look for fraud and abuse and those things, obviously that, that is true.  But I can, I can flatly tell you, and it is, I'm sure as you know, had we not expanded the aid programs that we have expanded in the last 20 years, 25 years, some of which I've introduced, some of which I've supported.  Had we not done that, the state budget certainly would not have grown at the percent that it did.  Had we not taken over the cost of Medicaid with the counties, had we not expanded state aid to schools, had we not taken over the court, and this court cost for the municipals, county courts, and I can go on down the list.  Had we not done that, state budget would have been significantly lower.  And of course, property taxes would have been significantly higher.




SENATOR HALL:  Other questions?  If not, Senator Warner, thank you very much for your introduction.  Can I see a show of hands for those who intend to testify today in some capacity or another?  Okay.  We're going to begin with the proponents and we'll ...  it's right now, it's ten to three.  We'll go with proponents for an hour and then we'll move to opponents.  Somebody's got to start off.  Is the Governor here?  Is he here.









KIM ROBAK:  He's right outside the door.


SENATOR HALL:  Could you get him, Kim, and there he is.  We'll let the Governor lead off.  While the Governor is signing in, again, there's an on-deck chair up here behind, off to his, his right shoulder.  Please come forward and jump in there and let's move along in an orderly fashion.  Governor, welcome to the Revenue Committee.


GOVERNOR BEN NELSON:  Well, thank you very much, Senator Hall, and members of the Revenue Committee.  (Exhibit E, read testimony) My name is Ben Nelson, and as governor of the State of Nebraska I'm here today to speak in favor of LB 1063, introduced on my behalf by Senators Warner, Landis, and Withem.  The Legislature must have the tools to draft tax policy for the State of Nebraska.  Unfortunately, the Supreme Court has crafted the current tax policy for the State of Nebraska.  That policy is:  in 1992 inventories,


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seed, feed, grain, livestock, and farm machinery and equipment are back on the tax rolls at actual value.  I strongly disagree with the Supreme Court plan and I urge the enactment of LB 1063 to prevent these items of personal property from being taxed at full value.  I believe that LB 1063 is the best proposal for the State of Nebraska that's been offered to date.  While it may be the most politically expedient, I firmly maintain that it is not in the best interest of all Nebraskans to raise the general sales and income tax of all Nebraskans.  I contend that it is wiser to broaden the property tax base.  Broadening the base gives us the chance to lower property tax levies, which are too high.  I support LB 1063 as recommended by the 3-R Committee for the following reasons:  First, LB 1063 keeps the tax collected and distributed at the the local level.  And I repeat, at the local level.  By keeping the tax local, the annual debate about distribution and redistribution is eliminated; the arguments about whether revenue should be sent to or from rural or urban areas will not occupy each legislative session.  Instead, the property tax base will be locally collected and locally controlled.  Second, LB 1063 does not shift a business tax to individuals.  The personal property tax is currently paid by businesses.  If the property tax base is eliminated, that tax will be shifted from the business community to individuals and homeowners.  If we eliminate the personal property tax base, we will have given up the opportunity to tax a base of $7.5 billion.  The remaining burden will be shifted to real estate alone.  Third, LB 1063 eliminates the liars tax problem.  As I said yesterday, I'm never sure why it's called the liars tax because only the honest people pay it.  The net book depreciation tax is an objective measure of valuing property.  No longer will the assessor guess at the value of a piece of tangible property The value is simply the cost minus the accumulated depreciation.  Fourth, under LB 1063, inventory is not taxed.  It is imperative to the economic well-being of the state that inventory not be taxed under the present constitutional scheme.  Because inventory is not depreciated, it is not taxed.  In fact, once the property is fully depreciated, it is no longer taxed.  Fifth, the tax is easily administered.  The tax uses information already computed for federal income tax purposes.  There is a readily available audit trail to determine whether the tax should have been paid and what amount.  Sixth, the tax gives stability and predictability.  The climate in Nebraska is not now conducive to attracting new business when the tax base changes yearly and when the Supreme Court imposes a tax on inventory and threatens the entire property tax base.  Local governments are also at a loss when their tax base is


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threatened by perpetual lawsuits and refunds.  LB 1063 provides a stable tax base to finance local governmental services and is a predictable tax, which will minimize tax uncertainty for business.  Finally, under LB 1063, the personal property of railroads and other centrally assessed properties will be taxed.  I reiterate, the 3-R legislation is the best plan to date because it reinstates the tax on centrally assessed property, broadens the tax base, and maintains local control.  As you know all too well, the Legislature must determine a tax policy this session.  If agreement can not be reached, the tax policy of the Supreme Court will remain in effect:  inventory, livestock, farm machinery and equipment will be taxed and taxed at value.  The Supreme Court's tax is not the best policy for the State of Nebraska.  We have a great many things to accomplish this legislative session and in the future.  Solving the personal property tax crisis first, with the plan before you, will stabilize our revenue system and allow state government to focus on the educational, environmental, and economic development issues that will affect our future.  We can not afford not to act in this session.  Please examine LB 1063 with an open mind.  And I urge your passage of this bill to the floor.  Thank you.


SENATOR HALL:  Thank you, Governor Nelson.  Senator Haberman has a question.


SENATOR HABERMAN:  Governor Nelson, the 3-R Committee traveled throughout the State of Nebraska and had public forums, asked the public what did they feel, or how did they think we should do about the taxes.  And if I'm not wrong, I think the majority of the people who appeared at those public forums said, raise the sales and the income tax.  Well now, I work for those folks, and you work for those folks, and the State of Nebraska belongs to those folks that came to those meetings.  So if they want to solve this problem by increasing the sales tax and income tax, why don't you and I support this?


GOVERNOR BEN NELSON:  Well, I said that I'm not sure that we should go to the politically expedient process of passing a sales and income tax that permits the business tax to taxed ...  to be passed directly to individuals when it could stay with businesses.  I'm not sure that there's a full awareness at the present time, although I believe there will be by May, as to what the impact of a sales and income tax would be as a direct tax to individuals.  What it would do to homeowners and what it would do to the agriculture sector needs to be known and spelled out.  I don't think that there


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is a full awareness of that at the present time.


SENATOR HABERMAN:  Well but, Governor, you said, I firmly maintain that it is not the best interest of all Nebraska to raise sales and income tax.


GOVERNOR BEN NELSON:  That's correct.


SENATOR HABERMAN:  But you just told me that maybe they're wrong.


GOVERNOR BEN NELSON:  No, no, I'm saying that, that they're, they're not aware that there's an alternative that will not hit the agricultural sector harder than sales and income taxes.  And that you have the opportunity to keep the railroads, pipelines, telephone companies in as taxpayers.  And that in the process, as well, you keep the tax at the local level.  I don't think all the facts have been fairly presented at the present time.  I think they do need to be presented.  I think it's going to require leadership from this body to explain that it appears, it's like a mirage, it appears that the sales and income taxes are the best way to do this.  But that affects all Nebraskans when, in fact, this is a business tax and it will be shifted through a sales and income tax to individual taxpayers.  That's not fully known today.  When that is known together with the fact that you can, through the broadening of the personal ...  of the tax base by including personal property, keep the tax dollars at home rather than sending them to Lincoln and have to fight to get them back, that too, I think will affect their, their decision.


SENATOR HABERMAN:  Thank you, Governor Nelson.




SENATOR HALL:  Senator Hefner has a question.


SENATOR HEFNER:  Governor Nelson, I appreciate you coming to the Revenue Committee two days in a row.


GOVERNOR BEN NELSON:  Thank you.  Thank you.  I don't plan to be here tomorrow, hope you don't either.




GOVERNOR BEN NELSON:  Okay, alright, (inaudible).


SENATOR HEFNER:  No, I'll be back up in God's country.


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SENATOR HEFNER:  But, I, I feel that 1063 is picking on the ag sector and I want to tell you why.




SENATOR HEFNER:  And then I'd like to have you comment.  I think it's going to be hard on young farmers that are trying to get started in agriculture, and here's why:  First, they have to go out and buy that farm machinery which they pay 5 percent sales tax on.  Then, after they do that, then they have to put it on a depreciation schedule.  And most of them will depreciate this equipment in probably five to seven years.  So then they'd be paying property taxes on it for the next five to seven years.  Would you care to comment on that?


GOVERNOR BEN NELSON:  Sure.  Well, if they're already buying equipment, it certainly doesn't help them to raise their sales tax.


SENATOR HEFNER:  No, that's right.


GOVERNOR BEN NELSON:  And if you, if you increase their income tax, you take the money away from them.  There's some sort of a mirage here that somehow the sales and income tax will not affect people.  It will have an affect.  The key is it will affect-everybody.  As you look at, and will permit, the centrally assessed property taxpayers to be off the books for personal property tax.  So, I think what we have to do is look at how this proposal affects individuals as well as how sales and income tax affects individuals.  And yes, I think it's also important to ask how is affects Nebraska as a whole.  If you're going to have a tax passed, shifted from business to all individuals with a sales and income tax, you're going to have some- people who are paying tax under that system who would not pay tax under LB 1063.  Tell me how their representatives are going to support that sort of a tax plan and how we have any chance even if you believe it is fair and equitable?


SENATOR HEFNER:  Okay, let me take this one step further in regard to a center pivot system.  First you go out and buy that center pivot system, you pay the sales tax.  Then you've got a...  it's going to be depreciated, so you're going to pay personal property tax on it.  It's going to increase the value of that ag land and change that ag land from


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dryland to irrigated land which it's going to go up.  So, in that case they're going to get a triple whammy.


GOVERNOR BEN NELSON:  Well, they will get a, a, a tax then on that personal property that they haven't been paying.  But the Supreme Court said they'll either get that kind of a tax or they'll get another tax because of the ruling of the court.  It's a question of whether, as a state as a whole, we're better off with a sales and income tax that does have a glitch or two along the way for various individuals, or we have a personal property tax that has a glitch for various individuals.  Every time you talk about an individual case you can show that perhaps, although it's not always going to be clear, that you might pay more this way or that way.  But when you look at it as a whole, and agriculture as a sector, the numbers that we've seen that have been made available and discussed with the Legislative Fiscal Office show that, as a whole, the agricultural sector is going to pay at least as much with a sales and income tax approach, shift, as they're going to pay with a personal property tax shift.  The difference is that homeowners will not pay under this personal property tax shift, but they will pay under the sales and income tax shift.  And what I think grates people most is that under the sales and income tax shift, you have, you have the money being collected to Lincoln and sent back and redistributed as well as the railroads, pipelines, and telephone companies are then off the hook for the personal property tax.


SENATOR HEFNER:  But I'm concerned that this system will cause us to lose, or we won't be able to get some of the young men that are interested in agriculture to, to go into agriculture.


GOVERNOR BEN NELSON:  Well, I, I, I worry about that too as a Nebraskan.  I guess the question is, are they going to be less affected, as a group, by a sales tax on their...  an additional sales tax, an increase of sales tax, and an...  and/or an increase of income tax.  In other words, the shift is what's causing the concern much more than the personal property tax approach because the Supreme Court has said there will be a shift to these individuals one way or the other.  It's a question of how it's done.


SENATOR HEFNER:  Okay.  One more question, Mr. Chairman.  Would you be, would you act favorably on a proposal to remove the sales tax from farm equipment?


GOVERNOR BEN NELSON:  Well, Senator, the best way for me to


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answer that is, if you're going to take away some 18 to 19 to 20 million dollars, have you figured out who's going to pay that money back into the till?


SENATOR HEFNER:  I think we can find that.


GOVERNOR BEN NELSON:  I see.  Well, I think it's a matter of economics.  Any kind of a adjustment has to be looked at from the standpoint of economics.  And you're going to have some others who say that that is an unfair set of circumstances to relieve one sector, either business or agribusiness, from paying the sales and income...  the sales tax if you don't excuse the entire base.  It, it's a very difficult question to answer because it sounds like when you say no, you're in favor of it.  That's not true.  It's a question of how do you replace the dollars?


SENATOR HEFNER:  And most of the states surrounding Nebraska does not have sales tax on farm equipment.  So, I think we need to take a careful look at that.  Thank...


GOVERNOR BEN NELSON:  Well, it's certainly an issue that does need some consideration, that there are two, two questions that we'll still have to answer:  One is, is it fair then to business not to include them?  And if you ...  whether you include them or not, if you excuse one party, how you make up the difference?


SENATOR HEFNER:  Maybe we'll have to use some of that sales tax...  or that cigarette tax increase for that.


GOVERNOR BEN NELSON:  Well, I'm glad you're going to vote for that.  Thank you.  (Laughter)


SENATOR HEFNER:  I didn't say I was going to vote for it.


GOVERNOR BEN NELSON:  Oh, I see, oh, okay.


SENATOR HALL:  Okay, I think you preface that with maybe.


GOVERNOR BEN NELSON:  Maybe, oh, I see.


SENATOR HALL:  Senator Peterson has a question and then Senator Haberman.


SENATOR PETERSON:  I don't...  thank you, Governor, I don't have any problem with your cigarette tax so we could ...  well,


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we could go on and on...


GOVERNOR BEN NELSON:  Great, great, if I could always pick up votes like this...




GOVERNOR BEN NELSON:  I'll come here more often.


SENATOR PETERSON:  Okay.  On the line in income tax return it relates to business expense for depreciation, isn't that figure for depreciation one figure that represents both real and personal property depreciation?  And, in that light, how are you going to acquire the work papers of the taxpayer so the Department of Revenue and county assessor know how much depreciation figure is for real and how much for personal?


GOVERNOR BEN NELSON:  Well, I think that the Department of Revenue can talk about the actual procedure.  But the plan is not to have the tax apply to depreciation relating to real estate.  In other words, to take from the schedule that you're talking about, not the bottom line number, but the individual items of personal property so that you could pick and choose.  That which is real estate would be excluded, that which is personal property would be included.  It is my understanding that the Department of Revenue has available to it the federal tax return information that would show them what that schedule shows so that they could go back and audit and make certain that nothing was left out.  But the plan would not be to include depreciated real estate or depreciation as it relates to real estate, only to personal property.


SENATOR PETERSON:  The thing that bothers me about this on the IRS forms and depreciation is, I was always told and, even several years ago from that, that is confidential.  And it looks to me like we're going to slide in which ever way we can find to find those figures on whether I declared my tractor or something, if I'm doing it right.


GOVERNOR BEN NELSON:  Well, you see it work...


SENATOR PETERSON:  And that bothers me.


GOVERNOR BEN NELSON:  The way it works is it's not a matter of whether you declared your tractor because it's a question of whether you take your tractor for depreciation.  You're not required to put any particular part of personal property for depreciation, it's only if you want to get the tax


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effect of that which is in effect the deduction from your tax liability.  So, it behooves you to do it, but it's not a requirement.  What we would have here is just an attempt to go back through and make sure that if you take it on your federal tax that you declare it on your state personal property tax.  There's no requirement that you do it.  So that...  and as to its confidentiality, or the fact that it's not available, apparently there are exceptions that permit the Internal Revenue Service to supply that information to Departments of Revenue because those tapes are available, and they're available for easy audit purposes.  So, perhaps someone from the Department of Revenue who's going to follow me might be able to talk about the particulars.  I don't know exactly how it works.


SENATOR PETERSON:  Just one last question.  How's the county assessors going to administer it, validate it, and then enforce it?


GOVERNOR BEN NELSON:  Well, first of all, it's going to be a lot easier than what they, what they had to do decades ago.


SENATOR PETERSON:  You think so?


GOVERNOR BEN NELSON:  Absolutely, because there they had to go establish value.  Now the value is established:  it's the cost less accumulated depreciation.  It's established through an objective of verifiable system.  So they don't have to worry about how you value Senator Hefner's old tractor out behind the barn, or whether it's, whether it's included.  If it's, if it's depreciation, depreciated on the schedule, it'll be included.  You won't get under-valuation of the same type that existed in the past.  You won't get underreporting because it'll be easy to verify.  So, the schedule will be filled out, submitted to the assessor's office, the material then, as my understanding, would be submitted to the Department of Revenue or available to the Department of Revenue for, for audit purposes.  You don't, not looking at hiring people to go out and check around and see if Senator Hefner, who's a very -honest man, reported it...


SENATOR PETERSON:  You've got to watch him all the time.


GOVERNOR BEN NELSON:  That's true, that's true, but reported the plow that was behind the barn there by the tractor, see.


SENATOR HEFNER:  Governor, I'm not involved in agriculture.  I don't own any land, or I don't farm any land, and...


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SENATOR HEFNER:  ...  I, I just feel...


GOVERNOR BEN NELSON:  Lot me, let me make sure the tax commissioner understands that Do not be checking him out for any kind of agricultural...


SENATOR HEFNER:  Okay.  At this time I just have a lot of farm constituents that I'm concerned about.


GOVERNOR BEN NELSON:  Yes.  Well, they won't be checking on your farm constituents, and your hotline won't be, won't be lighting up quite as much either.




SENATOR HALL:  Senator Haberman had an additional question.




SENATOR HALL:  He shakes his head and says no.  Are there any other questions?  If not, Governor, thank you very much.


GOVERNOR BEN NELSON:  Thank you, Senator Hall.


SENATOR HALL:  Appreciate your testimony as always.




SENATOR HALL:  Others who would testify on the proposal?  We'll start the clock now on the proponent testimony, we'll go an hour.









ROY FREDERICK:  (Exhibit F, reads testimony) Mr. Chairman, and members of the committee, my name is Roy Frederick.  I'm a professor and extension economist in the Department of Agricultural Economics at the University of Nebraska-Lincoln.  My specific assignment is in public policy.  During the past three months, I have conducted approximately 25 educational meetings across Nebraska on the current personal property tax situation.  Attendance has averaged about 50 persons per meeting, with a top attendance of 250.  Many, but not all of those who have attended, have had close ties to agriculture.  My role as an educator is to enhance understanding of the situation we're in and to discuss alternatives for dealing with it.  No straw polls have been taken at these educational-meetings to determine


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preferences of those attending.  However, extensive discussion during these meetings has left me with several impressions.  I must begin be reiterating what you already know:  The property tax is not a popular tax.  The most common criticism is that it's based on...  that it's not based on ability to pay.  Furthermore, those in agriculture and business feel that property taxes discriminate against them because they often must own real estate and personal property to earn a living while most wage and salary earners do not.  Not surprisingly, many of those who have participated in these educational meetings have initially been strongly opposed to any expansion in the property tax base such as that contemplated under LB 1063.  However, during our discussions, I have sensed some softening in positions based on several factors:  1.  Citizens recognize that LB 1063 is infinitely better than the so called "do nothing" alternative that would return all personal property, at its market value, to tax rolls.  I think this is true, not only of agricultural producers and business persons., but the general public as they think about Nebraska's competitive position compared to other states.  2.  While virtually no one in these meetings has called for returning all personal property to the tax rolls, there is tacit recognition that, as an operational principal, broad base tax bases are preferable to narrow tax bases.  LB 1063 has the intent to reverse some of the narrowing in the property tax base that has occurred over the years.  3.  Any expansion in the property tax base would be for the benefit of local units of government.  On the other hand, increased state taxes may or may not replace lost personal property taxes on a dollar for dollar basis.  In other words, some local units of government might still have a revenue shortfall after state taxes, state tax dollars replace local tax dollars.  4.  Nebraskans continue to look favorably on local control of government functions.  Increased state aids replace lost personal property tax revenue could possibly have strings attached to it.  5.  Although some people initially advocate reduced spending to accommodate the $100 million personal property tax shortfall, I sense some reassessment of that when they find out that that $100 million is not lodged in the State Capitol in Lincoln, the most likely would come out of their local school budgets.  There's even less enthusiasm, however, for increasing property taxes on real estate to make up for the shortfall.  Finally, there's recognition that turning to nonproperty revenue sources for $100 million will not be a perfect solution either.  The distribution problem, referred to earlier, may be a concern with any state-based tax.  Moreover, I've pointed out that agriculture will have to pay


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more taxes under virtually any plan presented unless some taxes currently being paid, such as the sales tax on ag machinery and repair parts, is rescinded.  In the meetings I've conducted, we've touched on a variety of nonproperty revenue sources.  Because no straw votes have been taken, I'm not prepared to say that one plan is preferred over another.  Generally speaking, I can say to you that there's still interest in such alternatives as expanding income and sales tax rates, expanding the sales tax base to food, or taxing intangibles.  However, as the impacts of all alternatives are analyzed, I believe LB 1063 is perceived somewhat more favorably and a nonproperty tax alternatives less favorably than may have been the case initially.  As a public policy educator, I have deliberately tried to keep any personal preferences out of both my meetings and my testimony before you today.  This is necessary if I am to be, to be perceived as an objective educator.  However, I would leave you with one thought:  My experience over the past few months lead me to believe that Nebraskans will accept a change in the tax system if it's perceived to be balanced and fair.  Anything less than that will be a very tough sell indeed.  Thank you, Mr. Chairman.


SENATOR HALL:  Thank you, Mr. Frederick.  Senator Hefner has a question.


SENATOR HEFNER:  Doctor Frederick, if we pass LB 1063, won't we make our farmers uncompetitive to the farmers in our neighboring states, like Iowa, where they don't...  ?  Iowa does not have a sales tax on farm machinery.  They do not have a sales tax on farm repair parts.  They do not have a property tax on farm equipment.




SENATOR HEFNER:  How are Nebraska farmers going to compete with the Iowa farmers?


ROY FREDERICK:  First of all, I want to indicate to you that I try to be neutral in my testimony here even though I realize I'm testifying in the slot that's reserved for those that are, that are supposed to be on the, on the affirmative side for 1063.  Your point is very well taken.  Obviously, Senator Hefner, if you have taxation that may be on a statewide basis, 10 or 15 percent of its market value, which I think is about where it would come out, as opposed to its full market value, in a relative sense, that's better.  But I certainly recognize what you're talking about with respect to other states.  I know about border bleeding.  And


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sometimes it's a matter of, of doing the best that you can given the circumstances that you have.




SENATOR HALL:  Senator Peterson.


SENATOR PETERSON:  Roy, how do you assess the farm economy out there today?


ROY FREDERICK:  Well, it is not as good as it was through much of the last half of the 1980s.  It is, perhaps, slightly better on the last day of January than it was on the first day of January, if you want to be very current about it.  Our cattle prices have inched up just a tad bit, and so have our grain prices.  I think the predictions, overall, are that we will probably have slightly lower farm income in 1991, excuse me, 1992 than we had in 1991.  And 1991 was lower than in 1990.  That would...  there's a lot more detail I could go into, but that, that would basically summarize it.


SENATOR PETERSON:  Going on another year, what do you perceive?


ROY FREDERICK:  Oh, it's so very difficult to tell, Senator Peterson.  There are a couple of positive things.  We have very low carryover stocks of our major grains, I'm talking about wheat and corn now.  And if we had any kind of weather problem whatsoever with respect to production in 1992, we could see those grain prices really soar from where they are right now.- We hope that our cattle price situation is going to improve.  We don't think, as you look at it in the long-term' sense, that we have a lot too many cattle on feed or anything like that.  I think, as we, as we look on through, let's say the first half of the decade, that we're going to do pretty well.  But, I have to, at the same time, say to you that the numbers show that 1986 to 1990 might have been the best period we've ever had in Nebraska agriculture, and it's going to be tough to match that.  No question.


SENATOR PETERSON:  You know, I don't know what Senator Hefner and Senator Haberman, you know, out in rural are seeing, but I know the message I'm getting from the banks in Madison County, one big one in Norfolk and two other ones, and from a large CPA in Norfolk, Nebraska, are very discouraged that three out of four farmers are in the red in 1991.  And now you're advocating, or people are advocating


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we're putting more, more on the ...  you know, the governor is here and saying, you know, we got ...  we can't...I don't know how the farmer...  I'm glad I'm not a farmer.  I don't know how you, how they're going to survive.


ROY FREDERICK:  There, there are no doubt....


SENATOR PETERSON:  With the grain prices, and you say, well, wheat has went up, but look at corn.  You know, it keeps...


ROY FREDERICK:  Well, it's...


SENATOR PETERSON:  ....hearing these, and it doesn't materialize.


ROY FREDERICK:  Umhumm, umhumm.


SENATOR PETERSON:  You get $3 corn, and $3.50 corn, and $6-$7 beans, and the farmer maybe be able to come out of that, but it isn't, it isn't happening.


ROY FREDERICK:  Well, again...


SENATOR PETERSON:  Well, the guy that rents my place called me, couple months ago, and he stressed to me that in 1970, 1 believe it was, he finally was able to buy a brand new pickup, $2,800.  And yet, the corn price that day was about the same as it was right across from where I live at Agrex.  That can not continue.


SENATOR HALL:  Other questions?  Doctor, I appreciate all the, effort that you put into the meetings that you held across the state, and I want you to know I concur completely with yoursummation that as long as it's perceived to be balanced and fair that people will support it.  Thank you very much.


ROY FREDERICK:  Thank you.


SENATOR HALL:  Others who would testify in support of the proposals?









BRYCE NEIDIG:  Senator Hall, members of the committee, I have printed copies of my testimony, Senator (Exhibit G).  Senator Hall, and members of the Revenue Committee, my name is Bryce Neidig, spelled N-E-I-D-I-G, President of the Nebraska Farm Bureau Federation.  To say that the present tax dilemma is frustrating is the understatement of the year.  Farm Bureau's long standing belief has been that the


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taxation of personal property is not in agriculture's best interest.  However, we also recognize that from a realistic point of view and in light of decisions rendered by the Nebraska Supreme Court that we no longer have the luxury of being able to do or achieve everything that we would like.  In recognition of the political and judicial reality, our farmer and rancher voting delegates, in December at our convention., adopted a broad based policy which urged the enactment of a tax plan which provided an equitable distribution of the personal property tax burden.  Our policy also states that we would not oppose the consideration of putting farm and business equipment and breeding livestock back on the tax rolls providing that it was the only realistic and possible option to solve the personal property tax problem; places the least amount of tax burden on agriculture; and that the sales tax on farm machinery be repealed.  The question now is whether taxing farm machinery based on depreciable values or the enactment of some other alternative revenue source places the least tax burden on the farmers and ranchers of this state.  In trying to answer this question, we have tried to objectively examine every legislative proposal introduced and dozens of, and that may be an exaggeration, but a number of other that.  which have surface during the past few months.  The focus of our analysis was to determine if a proposal shifted the current tax burden to real property taxpayers, who are already paying a disproportionate share of government and educational costs, and which plans provided an opportunity for future legitimate property tax relief.  We have serious concerns over whether the exemption of all personal property and the narrowing of the tax base is in agriculture's best.  interest because of the resulting tax shifts.  LB 1059 monies would be shifted away from rural Nebraska, tax dollars generated at the local area would not be distributed back to local political subdivisions or school districts on the basis of which collected, state aid payments would not remain constant as history has shown, as well as conditions the state would impose on local districts to receive state aid all point to the potential of real property taxpayers bearing the brunt of the burden or with conditions not acceptable to rural Nebraska.  In view of the overall financial impact on individual agricultural producers and the increasing loss of local control, we have concluded that the 3R concept, as embodied in LB 1063 and LB 1150, is realistic and has the potential of placing the least amount of burden on agriculture for both the short and long term future.  However, we do not support the concept exclusively.  Our support is contingent upon the repeal of the sales tax on farm machinery purchases, further review of the legal


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concerns and questions we have as to whether breeding livestock is a farm product or equipment, and language which states that all personal property is returned to the tax rolls if a constitutional amendment, is defeated by the voters,...  Yesterday, I addressed- the lives, or the.  breeding livestock thing in my testimony on the, on the constitutional amendments, if you recall Senator.  Our research arch shows that there are only eight :states which collect a personal property tax and a sales tax on farm equipment.  However, four of those eight states either tax it at a reduced rate for personal property or sales tax purposes.  Of the four remaining states, three of them do not collect a state income tax.  Accordingly, if the Unicameral does not repeal the sales tax currently paid by the agricultural sector for equipment, Nebraska's tax policy will be comparable only to the State of California.  We urge you not to model California's tax policy, but to repeal the sales tax on new and used farm machinery purchases.  It is politically unlikely that the Legislature or the voters will approve a tax plan which shifts $100 million of tax burden from the business community to individual taxpayers.  Accordingly, any shift which will occur to agricultural producers under the 3R concept can and should be alleviated by the aforementioned repealing the sales tax on farm machinery.  We also continue to be concerned about the possible legal questions and challenges as to how the 3-R concept would tax breeding livestock.  As I stated yesterday, we believe there is a significant legal concern that livestock is a farm product, rather than inventory or equipment.  A condition for our support for the depreciable value concept or any other plan which may ultimately be adopted is that all personal property must be returned to the tax rolls if the voters defeat a constitutional amendment,., We can not and will not support any plan which only returns that property which the court specifically returned to the tax rolls in MAPCO.  With the court's current construction and interpretation of the uniformity clause, any or all personal property tax exemptions are illegal.  And if the uniformity clause isn't amended by the voters, then the Legislature has the responsibility of conforming statutory law with that of the Constitution.  To do otherwise would simply be considered a political facade and in absolute contradiction to those who testified yesterday of the legal necessity of a constitutional amendment.  Finally, I pledge our continuing support to achieve what is in the best interest of all the people of this state.  I am sure that it will be said many times over, but the failure to do nothing unquestionably would be not only harmful, but devastating not only to agriculture, but


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to the entire State of:  Nebraska.  That -concludes my testimony, Senator.


SENATOR:  HALL Questions for Mr. Neidig?  Bryce, have you ever heard of the phrase, "politics" is the art of compromise?"


BRYCE NEIDIG:  Yes, sir.  I think I might even have used that


SENATOR HALL:  Okay.  You didn't use it in this.  (Laughter) Don't you in effect take yourself out of the loop by the, the mandates that you, you place in your testimony with regard to what you will or won't support even though you urge in your last paragraph that failure to do nothing unquestionably would not only be harmful, but devastating, not only to agriculture, but to the entire State of Nebraska?


BRYCE NEIDIG:  You might construe that...I, I don't interpret the testimony or my position of the, of doing that, Senator.  Certainly that is not in the intent.  Very sincerely meant that last paragraph, I'm attempt to work that.  And I well understand the phrase, the politics is the art of compromise.  And, as you might well be aware of, there's been considerable compromise within my organization to reach this point.


SENATOR HALL:  That would have been an interesting meeting to attend.  Okay.  Any other questions of the committee?  If not, Bryce, thank you very much.  Appreciate your testimony.


BRYCE NEIDIG:  Thank you.









JAMES GALLENTINE:  My name is James Gallentine, G-A-L-L-E-N-T-I-N-E, and I'm a owner and operator of a farm equipment dealership.  Mr. Chairman, and members of the Revenue Committee, I appreciate the opportunity and I'll keep it short.  I'm here basically to support Senator Lamb's bill, 1150.  1 feel it addresses some of the things that need to be addressed regarding agriculture as a basic industry of this state.  I would encourage, though, that it might even go further in that it says no tax on farm equipment be it depreciated or not.  Nothing scares the farmer any more than paying tax period.  And if you say, I'm going to tax a new purchase of yours, it definitely reduces his desire to make a new purchase.  I don't think we should pick on the farmers.  They're a basic industry of this state, and I think we should encourage them to produce.


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I think we should, instead of taxing...  I'm against, I guess, taxing inventory, needless to say, that would be a total disaster.  And I'm against taxing personal property.  But rather- than- pick on the farmer, or any segment of this state.  I think- we'd be much better off to try and encourage revenue:  production.  Don't tax the tools that people use to produce revenue.  Don't tax the things they need to make jobs.  I guess I would be much more in favor of taxing the revenue that was finally produced.  If a man has something, okay, he can pay tax on it whether it be a farm or whatever Needless to say, this machinary tax issue regarding sales tax is something that Nebraska needs to address.  The other states around us don't have it.  It does place Nebraska farmers at a disadvantage, it places Nebraska machinery dealers at a disadvantage.  And, so, as such., I would lend my support to 1150, and maybe even expand it.  Thank you.


SENATOR HALL:  Thank you, Mr. Gallentine, appreciate your testimony.  Questions from the committee?  Tell me, what is the feeling out there 'as far as you're concerned, with regard to the passage of a constitutional amendment?  Do you think the public's aware of, you know, what's taking place down here with the work...  ?




SENATOR HALL:  You don't?


JAMES GALLENTINE:  There's a great deal of confusion.  In December, particularly the people that I come in contact with, frankly didn't have much idea what was going on except they were fearful of addition taxes.  They're...


SENATOR HALL:  Do you think that would lead them to tend to support or oppose a constitutional amendment?


JAMES GALLENTINE:  I think if you inform them as to what it was and if it applies fairly in taxation again.  Don't pick on agriculture, don't pick on manufacturing.  They'll support it if they understand it.


SENATOR HALL:  Okay.  Any other questions?  Thank you very...  Senator Warner.


SENATOR WARNER:  Do you have a sense what the ag sector would ...  what increases in taxes they would have with additional sales, income tax?


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JAMES GALLENTINE:  As far as dollar figures, no, sir.  No, I don't have access to that information


SENATOR WARNER:  Actually, it's a leading question, but you know the estimates we have on a statewide basis is that, simple sales, income tax increase to replace the 100 we (inaudible) .:.lost for business equipment is between 8 and 9 million.  It varies, but it's in that vicinity.  By the token the increase agriculture would have as a sector under the depreciable/nondepreciable division of property, you know, is in the range of 9 million if centrally assessed property is taxed.  So it's a wash.


JAMES GALLENTINE:  Yes, sir.  Their figures are probably correct.


SENATOR WARNER:  Yeah, well, they are all estimates, and estimates may or may not be correct, but ...


JAMES GALLENTINE:  Yeah, but I perceive it more as, again, the rural agriculture is what kind of got Nebraska pulled up in the middle eighties.  And from what I see of my people that I deal with, if they make money, they are willing to pay taxes, but they don't like to be taxed ahead of the time of making the money so to speak.


SENATOR WARNER:  Right, well none of us disagree with, with that, that we're all in that position, you know, so...


SENATOR HALL:  Any other questions?  If not, Mr. Gallentine, appreciate your testimony.




SENATOR HALL:  Thank you.  Other proponents of the bills?









JOSEPH SCHMIT:  Senators, and fellow distinguished guests of the committee, my name is Joseph Schmit, I'm a farmer from northeast Nebraska, and I'm here primarily to testify on behalf of bill 1055 and on behalf of young farmers and small businessmen in Nebraska.  And also I'm a member of the...or on the board of the Tri-County Corn Growers Committee in that area.  First of all, we have a lot in common with small business in rural areas with the fact that we have limited revenue.  And farmers because our subsidies and prices have continued to climb, and small businesses for two reasons:  Number one is when our income is down, as farmers, their income is down.  And the second reason being, they can only raise their prices to a certain level, and I'll call that


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level the red zone.  Soon as they enter that level, their customers seem to have a tendency to flee to their local discount store.  And it's tough to compete in that market.  The other thing is that we know what it's like to live with a limited checkbook.  Sometimes I wish state government knew how tot Jive with limited checkbook.  Increased revenue is not the only answer and.  I'm sure that you've heard plenty of that today.  I feel that cutting spending might be a good answer.  We have not had cost-of-living increases, since I can remember...  We have had to become more efficient to survive, and we have done that.  We have done our part -to keep ourselves together in a rural/ag sector through the farm crisis in the past few years.  And know we're looking for our state government to do their part.  You need to become more efficient.  You need to get back to supplying basic needs of the people, not to start each new session with, as Senator Chambers put it, overkill bills.  You don't need to do these bills to impress the people of this state.  Common sense and well run government will do that by itself.  I would say that there are many farmers in the past few years that have made money, particularly the past year and a half.  Most of that was due to increased livestock prices.  On the other hand, I do feel that that's a justified income after the era that they just came through in the mid eighties.  Cutting expenses, I do feel, is the first and basic thing that our government here in the State of Nebraska needs to do.  If, however, we must go after new revenue and more revenue, then I ask you to truly think about where you are going to get that revenue.  A property tax is completely unfair.  A man should be able to have the money before he has to pay it to a government or any other area.  It is not right for me and many like me to have to borrow money to pay a tax on equipment and livestock that may not return me any profit for that year.  I can't go down to the elevator or the livestock auction and say, gosh, I need $3.05 for corn this year, or 68 cents for my hogs because we had a tax increase.  I have to take that out of my family living.  Literally everyone else in the business society can pass any type of increase on to the next person.  In our industry, that is not possible.  And I feel that it is time for state government to respect that difference.  When it is too late, it'll be too late.  I feel that you now know my position, and I'm not just asking for myself and my family, but for all young farmers and farm families who are trying to make it work in rural America.  Your children need us, and we want to be there.  My suggestions to you is to:  1.  Cut spending.  Senator Hall mentioned earlier that there are many places to look to cut spending, and maybe $100 million is not out of line to find in our budget.  on


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the other hand, I've heard a lot of talk about increasing revenue the full 100 million.  What's wrong with cutting a bunch where we can and maybe we won't have to come up with the full.  100 million.  If we do need to go for revenue, I reiterate that it would be good thing to go after revenue there is some.  I don't feel that the farm arm community.  If has a a lot to spare right now.  And I'm also saddened by those who Want to go along with the:  governor's proposal merely because they're afraid that we can't do something better.  To say that to be in favor of that bill because if we don't we're going to let the Supreme Court handle it I think is a cop-out.  We're all in this together and I think if we go into it with a positive attitude that we can find a better solution.  Then why do we have to go backwards and saying we have to do something because we might not make it the full way?  And I guess with that, Senators, that concludes my testimony.


SENATOR HALL:  Thank you, Mr. Schmit.  Questions from the committee?  Senator Hefner.  (Applause)


SENATOR HALL:  Thank you very much, I appreciate that, it's just that since I didn't get it I'm a little jealous.  (Laughter) And while we would like to have do it, if you could hold that down, we could move along a little faster.  But I understand that.  Senator Hefner.


SENATOR HABERMAN:  Don't feel too bad, Tim, governor didn't get it either.  (Laughter)


SENATOR HALL:  That's why I didn't, that's...  (Laughter) You can say that, Rex, I can't. 


SENATOR HEFNER:  Joe, I appreciate you driving down today and giving us testimony from the grassroots.  The question I have, are there a lot of young people starting farming in your area?


JOSEPH SCHMIT:  Yes, there are, Senator.  Our area is fortunate that we have a lot of young farmers starting out.  And it makes it a very competitive area not only in the quest for more land and more opportunity, but it makes a good community.  And I would like to see those young farmers have an opportunity to get out of the problems that we've faced and our fathers have faced in the past ten years


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particularly and have a fair shot at going ahead.  And that's why I feel that even though it narrows the tax base to go into strictly income and sales tax, it does provide the fact that if a man hadto pay that, he pretty much will have it before he has to do so.  And again, as many of the people have testified.  I don't feel that the :American farmer or Nebraska farmer, like I anybody else, would mind paying tax if they 'had the money to pay it with.  But, I just don't feel that our.  ...  the way that it's coming- around now, is going to be fair and equitable for them given where we have to go to get our limited revenue.


SENATOR HEFNER:  Okay, thank you.  And this $100 million that we're talking about raising goes back to local government, so do you serve on any local government boards like school boards...  ?


JOSEPH SCHMIT:  No, I do not at this time, Senator.


SENATOR HEFNER:  Okay.  I think we need to tell some of the local board members that they need to try to hold the line or even reduce their budget as well as state government.  And I know once in a while down here, we get criticized for trying to hold the line, but I, I think we all need to work together and do that.  Thank you.


SENATOR HALL:  Senator Peterson.


SENATOR PETERSON:  Just want to say thank you best testimony we've had all day.


JOSEPH SCHMIT:  Thank you, Senator.


SENATOR HALL:  Senator Haberman.


SENATOR HABERMAN:  If it becomes absolutely necessary to generate the $100 million, what would your reaction be, or your feeling towards an increase in the income tax and sales tax?


JOSEPH SCHMIT:  Well, it's like any other tax, no one wants to pay it.  However, I do feel that a sales tax and income tax would be more feasible from the standpoint that we would have the money there.  Or presumably, we made the money during the course of the year to be able to pay the tax.  And the problem I foresee with the tax on inventory, and depreciation schedules, and the like, basically the fact that I feel a lot of that equipment has been taxed several times already not only in sales tax, but in other taxes.


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SENATOR HABERMAN:  What do you feel the people that you drink coffee with, and go out on Saturday night with, that you mix wit go to church with, et cetera would they have the same feeling about the sales and income tax?


JOSEPH SCHMIT:  Well, I feel that a lot of, them would basically because they don't like paying ahead like what these taxes are or on a set value.  And our income is very erratic from year to year, and I think that's the main reason for not wanting to pay a tax-that we may not be able to afford.  I also feel that there are a lot of places, as Senator Hall had mentioned earlier, where we can get additional revenue with not, in different areas that haven't been taxed before, say in sales tax area, so that maybe our sales tax rate doesn't have to increase by the numbers that some have proposed.  But maybe we can find revenue in areas of new industry or industry that hasn't been taxed before, and especially in fast growing industries that do not take an awful lot of personal property or overhead to get the company off its feet and income producing.


SENATOR HABERMAN:  I think Senator Hall was referring to broadening the sales tax base and putting more people underneath the sales tax, and I would concur with that also.  Thank you, your testimony was very good.


JOSEPH SCHMIT:  Thank you.


SENATOR HALL:  Any other questions?  Thank you very much, Mr. Schmit, appreciate it.  We're still on proponent testimony for another 15 minutes, then we'll move to opposition.









DWAYNE RICHARD:  (Exhibit H, reads testimony) Mr. Chairman, members of-the Revenue Committee my name is Dwayne Richard, and I am appearing today as a registered lobbyist for the Nebraska Retail Federation, the Nebraska Retail Grocers Association, and the Cornhusker Food Retailers Association.  Our organizations represent over 1,550 retail businesses across the State of Nebraska, and all of those members are very interested in the ultimate solution to our property tax problem.  First of all, we would like to go on record as opposing the placing of all personal property back on the tax rolls.  our members' make a living off of those inventories, and we don't feel that's a fair method of taxation.  To that end, we are opposed to the provision in the 3-R Committee's proposal that would place all personal property tax back on the tax rolls in the event that the


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constitutional amendment fails.  While many might feel that this represents a hammer on the business community to insure their active support of the amendment, instead, it could also act as a carrot to those who would like to see the amendment fail so that they could expand the tax base thus providing additional revenues on the local level.  We feel that a better approach would be to eliminate all personal property tax in the event that the amendment fails.  Second, our organizations would like to go on record as being in support of the remaining concepts found in the.  3-R Committee's recommendations.  Third, the retail community is adamantly opposed' to LB 1161 and the provisions found in LB 1120 and LB 1150 that would make permanent the temporary reductions of the sales tax collection allowance passed in LB 829.  The Nebraska Retail Federation was on record last year as being supportive of the temporary reduction, but made it clear that we could not support this as part of a long term solution.  I'll skip that next paragraph.  Our organizations realize that there will be many changes before something is ultimately passed into law.  Therefore, we would like to let the committee know our thoughts on the other taxes that have been suggested.  We would be opposed to an increase in the sales tax rate, and we would also be opposed to shifting the tax to the, to real estate.  Our industry is real property tax intensive, and because of our locations and the fact that most of our equipment is considered fixtures and therefore taxed as real property.  All we ask as an industry is that no matter which plan you choose to sent forward, that you insure, to the best of your ability, that those who are currently paying taxes continue to fund the solution at the same level.  Our final point is no matter what is done, we are totally opposed to placing any additional burden on the homeowners of the State of Nebraska.  If the committee has any questions, I would be more than happy to try and answer them for you at this time.


SENATOR HALL:  Questions for Mr. Richard.  Senator Warner.


SENATOR WARNER:  How do you believe that LB 1063 puts personal property tax back on the rolls?


DWAYNE RICHARD:  If I'm not mistaken, Senator, the fallback position in the amendments to 1063 would be that if the constitutional amendment fails, that all property would go back on the tax rolls.


SENATOR WARNER:  But see, that is the case right now.


DWAYNE RICHARD:  Correct.  I understand that, sir.


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SENATOR WARNER:  Do you understand that?


DWAYNE RICHARD:  Yes, sir.  I understand that.


SENATOR WARNER:  Do you understand the reasons sons in the bill?  The reasons in the bill is so that all those dates can be rolled back.  If we don't change the law you have to have every bit of property that was covered by the Supreme Court decision, inventory, business and farm equipment, and livestock reported by March 1, at full market value, from which the tax will be calculated.  These provisions are in the bill in part to roll those dates back so we have an opportunity for the citizens to vote for a constitutional amendment which will permit the Legislature to take those items off the tax rolls which are now on.




SENATOR WARNER:  So it's an error for you to portray 1063 as putting the things on the tax roll.  They are on, in there primarily to move those dates because otherwise, you're going to have everybody, without that, you have everybody with personal property filing those statements by March 1 by current law.


DWAYNE RICHARD:  I understand ...  we understand that, Senator.  I think the point that, the point we were trying to make with that is, if the, if the way 1063 is currently drafted is passed into law, and if the constitutional amendment should fail, everything will go back on the books which is the way the law currently is.


SENATOR WARNER:  That's right.  It is that way.


DWAYNE RICHARD:  We would prefer that the fallback mechanism be, take everything off of the books if the constitutional amendment fails...


SENATOR WARNER:  But that too takes a constitutional amendment.


DWAYNE RICHARD:  ...  and then go back to the drawing board, Senator, yes.  It does not solve the problems, but if the constitutional amendment fails...




DWAYNE RICHARD:  ...  then all of our property becomes taxable


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SENATOR WARNER:  Well, I, I don't want to take time away from people who want to testify., but if you follow Out the scenario that you're doing, as I hear you at least, you know, that's the kind of thing that's going to lead to the confusion, if we're not going to get a constitutional amendment adopted, the-last thing you want, which is to stay where we are, is what we're going to have.  I, you want to be, I hope you would be as accurate as possible as you visit with your members so we don't get this confusion any worse than it is.


DWAYNE RICHARD:  Well, Senator, we would be one of the organizations that'd be strongest in support of any constitutional amendment that would keep inventory off the, off the tax rolls.  Our concern is those people that would not be in support of that type of an amendment and what makes it easier for them to put it back on.


SENATOR WARNER:  You're not keeping it off, you're taking it off...


DWAYNE RICHARD:  Taking it off.


SENATOR WARNER:  ...  because it's not on.




SENATOR WARNER:  If you're ...  how you say it.


SENATOR HALL:  Any other questions?  If not, Mr. Richard, thank you very much.  Appreciate your testimony.


DWAYNE RICHARD:  Thank you, Senator.


SENATOR HALL:  Other proponents of the proposals?  We've got ten more minutes for the proponents then we're switching to opponents.









RONALD SEDLACEK:  Mr. Chairman, and members of the Revenue Committee, for the record, my name is Ron Sedlacek, and I am here today appearing for you as the registered lobbyist for the Nebraska Chamber of Commerce and Industry.  I'm here today in support of LB 1063 and concept.  Yesterday, and I'm going to modify my remarks since proponent testimony time is growing short, yesterday, the chairman of our taxation council did testify during the constitutional amendment hearing and did deliver testimony, written testimony to the


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committee, and hopefully you have retained the testimony.  What is in there, literally, is our position.  And that is that at a very, very minimum, we support exempting inventories from the personal property tax.  Secondly, if a majority of the Legislature chooses the 3-R Committee recommendation, that is LB 1063, we can support the major principles of that approach.  We could support, also removing all personal property from the tax rolls.  And possibly, and certainly we could support taking the sales tax off of farm machinery and equipment.  However, we would reserve the opportunity to look at particular ways in which this removal from the tax base might be funded.  Certainly, there are areas of tax policy that our membership has taken positions on and can not support, but we're willing to work with the Legislature in that regard.  Those are our positions in regard to the constitutional amendment for clarification purposes only.  We certainly do support a constitutional amendment that would separate real from personal property and retain the uniformity on real property.  Again, in.  the testimony that was submitted to you, and I have additional copies for the committee if you so desire, the first page is the page of state Chamber policy.  The rest of the testimony dealt with a number of individual opinions in regard to the fashioning or technical concepts of that approach.  Any questions, I'd be happy to answer them.


SENATOR HALL:  Thank you, Mr. Sedlacek.  Questions from the committee?  There are none, Ron, thank you very much.  Appreciate your testimony.


VARD JOHNSON:  Senator Hall, members of the Revenue Committee, I'm Vard Johnson, I'm here today on behalf of the Greater Omaha Chamber of Commerce.  Greater Omaha Chamber of Commerce covers Pottawattamie County, Iowa, Sarpy County, Nebraska, Washington County, Nebraska, Douglas County, Nebraska; and it's a wonderful organization.  It brought, it brought four witnesses down today to testify, but we are very, keeping the time schedule very carefully, and so after with a flurry of activity, the Chamber said I should come forward.  The four witnesses were William Henry from First National Bank of Omaha; Larry Haman, a CPA who's been here on a number of occasions; Roy Smith, whom you all know; and Robert Bell from the Chamber of Commerce, himself.  They're not going to testify because of the time involved.  I will take a couple of minutes.


SENATOR HALL:  Senator Johnson, they can sign in and we'll put them on the record as being here and present.


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VARD JOHNSON:  Right, they have signed in.  They ...  we did get that done.  The, the Chamber of Commerce's position is in I support of LB 1063.  Its position is very simple.  Its position was very well articulated by the Governor and by Senator Warner and the position is this:  what's at stake is a personal property tax base of $100 million which heretofore has been a business tax.  The Chamber of Commerce believes that the State of Nebraska is better off if that business tax is continued to be paid by -the business community and not paid by the individual community through an increase in income tax, through an increase in sales tax, or through any other type of taxation which affects the individual community.  The Chamber's position is, it's a business tax, it should continue to borne by business.  LB 1063 is the best measure that the Chamber has found as designed to make certain that this tax continues to be borne by a business community.  Again, as Senator Warner has pointed out, of all the taxes that can be done, it is the least costly to the agricultural community.  It is the least costly to the agricultural community.  And Bryce Neidig pointed the same thing out.  It is a balanced approach it is a fair approach.  And yes, there is a place in our repertory of taxes for our personal property tax just as there's a place for real property tax.  And it's a tax that needs to be maintained.  The Chamber basically supports 1063.  This morning, when I picked up my Omaha World Herald, which I brought with me, I noted that St.  Joseph Hospital, in Omaha, will no longer provide health care services to the indigent.  That's a hundred year institution.  They will not provide health care services to the indigent unless it's an emergency case.  It said it had to change its policy because of so many uninsured and so many poor people.  Now, if, the indigent in Omaha will get service, the only place they'll be able to get...  that the physicians in hospitals will be able to draw upon to compensate doctors and hospitals for the services will be Douglas County because Douglas County funds the medically indigent program.  And Douglas County relies on a property tax base to do that.  The truth of the matter is if our state makes the choice of eliminating $100 million in personal property tax base, it continues to undercut the state's ability to take care of the indigent, to take care of people in rural Nebraska who need nursing homes, to take care of people in rural Nebraska who need transportation, to provide those kinds of beneficial services that farmers rely upon, that business rely upon, that individuals rely upon.  It's a tax base that this state can ill afford to throw away.  In the 'early 1980s, the Congress of the United States of America made a collective


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decision with President Ronald Reagan that is incredibly costly to this country, and that was the deregulation of the savings and loan industry.  And the ultimate price tag is $500 billion lion in pick-up cost.  And the Congressional Budget .Office, the other day, said that that price tag will have a 25 year depressant effect on the economy.  Now, it is very clear to me.  that when Congress made the decision to .deregulate in the early 1980s, it could not totally foresee all.  of the ramifications and possibilities.  And yet., they have occurred.  In many respects, we are at a similar point, and-that is if we-decline to stay the course and to stay in the course has been essentially been historic until last year, the preservation as best as possible of a personal property tax base.  We can not tell what the ultimate ramifications will be.  It will not be a $500 billion cost because we're not that kind of a state.  But the ultimate domino effect over time, the ultimate fallout over time can be a loss of a quality of life which this state has enjoyed and which its citizenry deserves.  Now, the Chamber of Commerce will help the Governor, and the Legislature, and the populace become informed on the constitutional amendments, CA219.  It will help with 1063.  It supports the measure.  And it really does encourage this 'committee's advancing that measure as well as the constitutional amendment to the floor.


SENATOR HALL:  Thank you, Senator Johnson.  Questions from the committee?  Vard, would you agree that the $100 million in personal property tax base represents roughly 3.1, roughly, 3.1 percent of the overall tax base in the state?


VARD JOHNSON:  It represents a modest amount of the overall tax base of the state.


SENATOR HALL:  Thank you.  Any other questions?  There are none.  thank you very much.


VARD JOHNSON:  Thank you.


SENATOR HALL:  Appreciate your testimony as always.  We're now going to move to opponent testimony.  And could I see a show of hands of those who would like to testify in an opposition ...  ?  Okay.  I would like to say, while this gentleman's signing in, that we are on NETV, and I do appreciate the fact that they are covering this hearing, and that it's going out to a number of people across the state who aren't able to come to Lincoln today.  With that, we'll move to opposition.  Please begin.









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CLARK NICHOLS:  My name is Clark Nichols, N-I-C-H-0-L-S.  To answer the inevitable question, I'm not related to Bill Nichol, although I am from Scottsbluff.  I'm a lawyer from Scottsbluff.  I'm a member of the Board of Directors of the Center for Rural Affairs.  And I'm the Chairman of the Center's Rural Economic Opportunity Program.  As a part of that program, we commissioned a taskforce to study the State of Nebraska's tax system and to try to.  come up with some recommendations as to how to achieve a, a-fair and balanced tax system in Nebraska.  I thank you for the opportunity to present -our views.  I want to emphasize that we regard the tax crisis as an opportunity to achieve a fair and balanced tax system.  We have some broad goals, we think that the share of state and local revenue ought to be reduced down to one third rather than the 46 percent that it now bears on the total revenue and state and local government.  We think the sales tax should be broadened and the sales tax rates should be lowered.  And we think the overall system should be made less regressive.  We support the frame...we oppose LB 1063 for reasons that I'll explain.  We support the framework of LB 1120 instead.  We think the personal property tax should be eliminated for reasons that have been outlined here by a variety of other people:  it's unreliable, it has administrative problems, it's regressive, and if we're going to reduce the reliance on property tax, we ought to get rid of the worse part of it.  LB 1120, as contrasted with LB 1063, addresses the broader issues of, of the, broadening the sales tax base to include services that we don't now tax.  We now tax services that everybody pays like diaper tax, and Cable TV rentals, the electric utilities, and so on, but we don't tax the things that the higher income people pay like attorney's fees, and accounting fees, and brokerage fees, and that sort of thing.  We do think, however, that LB 1120 doesn't go far enough.  It doesn't, it doesn't add enough income tax brackets, it doesn't change the corporate income tax, it doesn't include enough services, it doesn't give a credit on sales tax to make that sales tax less regressive, and it doesn't tax intangibles.  We do, however, like the depreciation add back feature of LB 1120 as contrasted to 1063 because 1120 eliminates the personal property tax, eliminates all those problems, and substitutes the depreciation add back.  And it has some real advantages over the net book value method that's used in 1063.  It's a better alternative because, unlike 1063, the 3-R plan, or the surcharge, it's not subject to.  challenge as an unconstitutional statewide property tax.  It's, it's income tax.  It's a change in the way we calculate taxable income.  It merely says, in essence, that you can't deduct depreciation on your income


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tax in Nebraska.  And so, we're insulated from the changes in federal income tax system.  President Bush, the other night in his State of the Union message said that he was going to add some depreciation, fast write-offs, or something, I don't know what the details are, but that would affect for the 3-R plan, the amount of money that the state would get because write it off faster, aster, :the value goes down don't collect as much tax.  With the depreciation add back, you add it all back, so we wouldn't be subject to that kind of variation.  In addition as a matter of principle, you don't pay tax under that depreciation add back unless you've got income producing property because you don't depreciate property, which isn't income producing property.  The, and lastly, it's a progressive tax because you add back that depreciation at the marginal rate of the taxpayer's income tax.  So he pays it on the graduated progressive rate.  Eighty percent of the families in Nebraska are in the two lowest income tax brackets.  And the add back would, on personal property, would mean that most farmers and small business people would pay a tax lower than the 2 percent surcharge that's presently in place.  We don't support the large exemptions in 1120.  We really can't tell who would end up paying the tax there, but it would obviously be a few large businesses, and we don't think that the tax system should be used to get at somebody like that.  That's not what we're trying to do.  We're trying to have a fair and balanced system.


SENATOR HALL:  Mr. Nichols, what, in your opinion, would be a fair level for that exemption?


CLARK NICHOLS:  Well, there's really already an exemption in place, and this is a part of the federal tax system.  if you, if you buy any section 1-79 property, you've already exempted up to $10,000 of property.  So, we don't, we don't think that any exemption is necessary, that there-should be one because, because that's already in place.


SENATOR HALL:  So, there would be in effect the $10,000 threshold?


CLARK NICHOLS:  Right.  If you, if you bought property and wanted to use that.  LB 1063 we feel discriminates against farmers because of its dependence on the federal income tax because farmers can only depreciate at 150 percent of the declining balance while other people can depreciate at 200.  If I, if I own a computer in my law office, I can depreciate it faster than, than my brother on his farm.  And it's exactly the same kind of equipment, no reason why it


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shouldn't be treated the same.  We think that's a constitutional problem as well as, as a fairness problem.  It isn't going to be easy to administer, we're going to have to have a depreciation schedule for the state.  And we probably would under our, our plan also because if you look at form 4562 for or this year breaks it down for property purchased in 1991.  For property purchased before that, there's one line which is all depreciation.  So you're going to have to go back and get that guy's 4562s for all the years back It, it's not going to be something that can be picked up off the tapes.  Valuing personal property on the book value, depreciated value, reinforces the taxpayers incentive to depreciate.  The more he depreciates, the lower his property tax is going to be in Nebraska.  The depreciation add back doesn't, doesn't do that.  it's neutral, you just don't pay, you just don't get to deduct the depreciation.  We believe the tax on services ought to be expanded.  As I said, Nebraska taxes the services that the lowest income people use, and we think the intangibles are a source of tax revenue that's, that's been ignored and largely escapes tax.  Our proposal is to put a surcharge on the income from intangibles with a $10,000 exclusion which would eliminate most senior citizens, it would eliminate the farmer who wants to invest his deficiency payments.  to put them in next year's crop because it's a percentage of income.  I have a written statement (Exhibit I), and a copy of our full proposal which I'll give to the committee.  We appreciate the opportunity to be here.  Be glad to answer any questions if there are any.


SENATOR HALL:  Thank you, Mr. Nichols.  Appreciate your testimony very much.  Any questions from the committee?  There are none.  Thank you very much.


CLARK NICHOLS:  Thank you.









ROSALEE ROBERTS:  Gentlemen, my name is Rosalee Roberts, and I'm a vice president and director of public relations for Bozell in Omaha, Nebraska.  My home address is 4515 Eastridge Drive also in Omaha.  I'm here today to speak in opposition of LB 1120 that would place a tax on professional services.  I'm a native Nebraskan and I've been very proud to spend most of my professional career right here in this wonderful state.  But I am here today as the president of the National Public Relations Society of America, the world's leading professional organization for public relations practitioners.  The Society's 15,486 members represent not only counseling firms, but also government, associations, hospitals, schools, and nonprofit


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organizations.  It's largely because of Nebraska's pro-business stance and because of its strong work ethic that I've been able to have such a successful career in public relations in Nebraska, and also to rise from a local chapter of PRSA to its national presidency.  As the volunteer CEO of PRSA, I would like to read you the Society's public policy which was established in-December of 1990.  The Public Relations Society of America opposes the imposition of taxes on public and related communications services..  Such taxes will cause an immediate and dramatic increase in the cost of public relations services, generating lower sales, creating a loss of jobs, producing an unfavorable business climate, slowing economic expansion, and establishing an unlevel playing field on which small firms will not be able to compete." Now, I know that you have some very difficult economic decisions to make for this state, but I would like to remind you about a few things that have to do with public relations.  First of all, such a tax on services could be very detrimental to independent consultants and very small public relations firms.  Secondly, the revenue that would be generated will be far below the expectations of which we're originally thinking of because there are very few large public relations associations or -companies in Nebraska.  The Nebraska chapter of the Public Relations Society of America, the local chapter, has 150 members.  However, out of that 150, there are only ten or so who are from independent counseling firms and probably another 20 or so who are people who operate in a one or two person firm, or they operate on a freelance basis.  The average counselor probably bills less than $75,000 a year.  So, if you multiply that by the ten people that I just spoke of, we're talking about revenue as low as $750,000.  And those revenues could probably be swallowed up by any kind of administrative costs that you would have to add, administrative time, et cetera I and that would just add an additional economic burden on this state.  Public relation services are also very mobile, and they can be delivered from anywhere to anywhere.  A tax on public relations services could cause some counseling firms to relocate, or at the very least, take that business to another state, outside Nebraska, thus creating the loss of other taxes that these firms are already paying.  And worse yet, we could be talking about people who could become unemployed.  Businesses that are currently using public relation services and outside consultants might decide to pull those inside, once again, causing the loss of taxes that thriving independent counselors are currently paying.  And while the larger firms might have the abilities to take their


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businesses out of state, smaller ones can't.  Most of the smaller ones operate on a 2 to 4 percent profit margin.  And so whether you add a proposed tax on top of that, public relations no longer becomes a competitive service.  Many organizations and companies who now use public relation services or require them, will lose much of their business because their proposed public relations budget will have to include a tax on services.  Businesses all around have the right to have their-services be known, and have a right to have people become aware of them.  This kind of activity would be:  severely hampered by a greatly reduced public relations budget.  And finally, I would like to say that targeting public relations as one of the few services that might be taxed, is extremely discriminatory.  And I have written statement for all of you that I will leave here (Exhibit J), and I would be glad to answer any questions.


SENATOR HALL:  Thank you, Ms.  Roberts.  Questions from the committee?  Senator Hefner.


SENATOR HEFNER:  Do any of the other states that surround Nebraska tax these services?


ROSALEE ROBERTS:  Senator, I don't believe they do.  As a matter of fact, there are some states that have attempted it, and recently the Public Relations Society was very successful in defeating a tax in New York.  And basically, what happened in New York was the counselors got together and they said, okay, taxes in New York, we'll do our business from Connecticut, or New Jersey, or where ever I live.  Currently, I don't believe there is one.  I believe Kansas was looking at one.  There are several -states that have had them or have tried to have them.  Florida had one, it was repealed.  They're talking about bringing it back again.  But, nothing surrounding us, no.


SENATOR HEFNER:  Okay, thank you.




SENATOR HALL:  Ms.  Roberts, isn't it true that both the examples you've given, Florida and New York, were much broader than the proposal that's in 1120 that you oppose?  That they had taxed, they would have taxed public relations or advertising services that were generated from outside the state, but placed within the state?


ROSALEE ROBERTS:  That is not necessarily so, sir.  The public relation services that are being talked about in any


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of the cases where the Public Relations Society of America is in opposition have to do with the tax, one, what the gentleman before me called an intangible.  Primarily counselors do not have a product, often, do not have a product.  Much of my work is in counseling people and so I am charging a rate of time..  I do not have a finished shed brochure, I do not have a finished add something, like that.  And that is primarily what most of those states are trying to.  do because all of us are already paying sales tax if we have a brochure that we complete or if we .do, you know, something like that.


SENATOR HALL:  But, I, if I'm not mistaken, and I would stand corrected if I would...  if I am, I believe that both those examples that you gave, especially the Florida one, dealt with a much broader approach than the one in 1120.


ROSALEE ROBERTS:  That could, that could be possible, but I still believe that this is highly discriminatory because you have left out a number of other kinds of services that operate on the same kind of hourly rate or a flat fee rate that a public relations service, or public relations counselor would operate on.


SENATOR HALL:  For example, tailors.




SENATOR HALL:  We already tax alteration services in this state.  Thank you very much for your testimony.  Appreciate it.









GEORGE FEREBEE:  Afternoon, senators, my name is George Ferebee, FE-R-E-B-E-E, and I was here last year, and I was here two years ago to testify, and I'll try to take a little as possible of your time and oppose 1063 in regards to depreciation and that.  I think you ought to throw all the personal property tax off because it isn't based on a person's ability to pay.  And a good example of it, I've got some farm ground down this in my area that didn't even raise enough to pay the expense this year, dryland, out alone any taxes.  And that's bad enough.  And then you're wanting to put it on machinery as well.  And you talk to a lot of people in town, and I got in discussion with one of them who was going on, well, we get such a tax break because we can depreciate this machinery.  But if we pay 5 percent sales tax on it, and we can only depreciate a part of it in any one given year, and the maximum income tax rate for the state is 6.93, 1 believe, where is our big tax break?  I


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don't see it.  Furthermore, I think, in regards to the 1059, it is, the equalization clause, it isn't fair in regards.  And I think if you want to make it fair for everybody, if you look at where the property tax goes, in my district...  Wellf the Omaha World Herald had a...the January 8 issue of how the property tax was now, and 30 percent.  :was agriculture, 37 percent:  is residential 19.8 percent is business, and 8.8 is motor vehicles, and 4.4 is public services, And the Bureau of.  Economic Statistics for the years of '86 to '90 come up with that the farmers are only 8.5 percent of the income in the state, yet, we're paying 30 percent of the real estate taxes.  And if you go back and look where the majority of real estate taxes are going, it's going to the schools cause 84 percent in the school district that I'm in, farmers are paying to support the school.  And of that, it looks like to me, if you want to do it fair, is to make teachers state employees, as Senator Schmit...  and pay it with sales and income tax and make it ...  because it is the education that seems to be overburdened by real estate, and if you're going to dump personal property tax on top of it already, I'm not concerned about...  I think we can keep the county, operation of the county, the NRDs, the fire districts and that, we can handle that.  But it's the school that's getting out of hand, and a good example of it is that the Governor wanted to take $8 million of your state aid to schools and give it to teacher salaries.  Well, if you guys, as a senators, and the Governor want to deal and get involved in what we're going to give our teachers, then why don't you fund all of it, and then we know who to blame.  I mean, you can go to the school board, and you say, why don't you cut some of the spending?  And they'll say, well, we can't.  The state says we've got to do this.  And you come up here for the Legislature and you say the school board says, you're making them do it.  And they'll, well, go back to the school board.  And we get the run around.  And if you would pay teachers with state funds, we'd know who to blame for what the expenditures is going to.  It's ...  and another thing regards to the teachers, if you take in consideration, if you're constantly wanting to raise their salaries, and if that actually does help education, well then there's a clear indication they weren't doing their job.  It...  and does anybody know, on this committee, the lids that have been put on, do they affect teacher salaries?  Can, can anybody...  Senator Hall, do you know on, say on your bill, does it affect teacher salaries, or is it just a ...?


SENATOR HALL:  I've got great timing, don't I?  I knew that I was going to (inaudible) ...  ?


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SENATOR HABERMAN:  You're the chairman.


SENATOR HALL:  The lids that are in place would affect the overall budget the answer to your question, would be yes.


GEORGE FEREBEE:  It would affect teacher salaries?


SENATOR HALL:  It would affect teacher salaries.


GEORGE FEREBEE:  Because if it doesn't, in my school example district, 75 to 80 percent of that budget is employee salaries.  And if it doesn't affect it, what good is the lid?


SENATOR HALL:  That's, and that would be similar in my school district, and I'm in the largest one in the state.  So, that's my point for the lid.


GEORGE FEREBEE:  But, the thing of it is, I don't like the 1059 the way they, they deal it out in equalization.  if you're going to give us property tax, give all of us property tax whether it be residential, or whether it be rural.  And I think by paying teacher salaries, you would have a direct ...  we know where it's going.  And not this shuffle and of how you're going to give state aid to schools and all that.  And perhaps another thing to do would be to tie it to the sales and income tax and make a certain percentage for sales, and a certain percentage for income tax..  and that stays there.  And then if the economy turns around, they could get a substantial increase, which is fine.  But if it goes to a recession, as they like to call it, then they could get a salary cut just like everybody else out in the private sector.  "And any other ...  do you have any questions, I'll try to...  the young man that was here first, in regards to farming, that I agree with him 100 percent.


SENATOR HALL:  Okay.  Senator Hefner has a question.


SENATOR HEFNER:  I, I just want a, want you to note one thing on teachers salaries under the lid.  If the teachers and the school board reach an impasse, and it's taken to the CIR, the CIR does not have to consider the ability to pay or the lids.  And I do have a bill up to correct that.


GEORGE FEREBEE:  Well, there's a good example of it though,


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if you increase the teachers salaries, and you put a lid on the board, where are they going to cut it?  Are they going to cut books and whatever that really effects education?


SENATOR HEFNER:  They'll have to cut it some other place besides teacher salaries.


GEORGE FEREBEE:  And, and if you want to improve education, is that truly going to help?


SENATOR HEFNER:  Well, this, this will please the teachers' union, but it won't help education.




SENATOR HALL:  Any other questions?  If not, Mr. Ferebee, appreciate your testimony again.  Thank you very much.




SENATOR HALL:  While this gentleman's coming forward, for the record again, there are a number of folks who have submitted written testimony either on a proponent basis or opponent basis, all that will be entered into the record.  And if there's anyone who does not testify would like to submit written testimony, we will accept that and keep the record open for that purpose.  Go ahead.









PAUL GRABOUSKI:  Okay, I'm Paul Grabouski, and that Grabouski is GR-A-B-0-U-S-K-I.  I'm a long time dairyman in Beatrice, Gage County.  And Gage County is in the, one of the largest dairy counties in the State of Nebraska in production and number of cows.  And I'm on, here on behalf of the Nebraska Dairymen to speak a little bit against the LB 1063.  Tax and depreciation hurts the dairy industry disproportionately.  A substantial share of the dairy herds in the state are purchased cows which are on a depreciated schedules.  This tax will hit while dairy producers are facing tough times, in fact, dairy farmers all across Nebraska have already been forced out of the business, and there hasn't been any action on a national level to improve the economic situation.  We don't have the income to pay additional taxes.  If more of us are forced out of the business, it will hurt not only farmers, but dairy processors.  Mid-America Dairyman now has excess dairy plant processing capabilities.  Putting more dairy farmers out of business means putting more Mid-Am employees out of business, or other dairymen that are in the dairy processing.  Also, I'd like to say that the 1063 impacts the


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taxpayers unevenly.  The.  agriculture, agriculture, dairy farmers are among those most adversely effected.  We are also one of the hardest hit sectors in agriculture by general economic conditions.  We count on it for LB 1059 in its form today, we need something better, or grounded.  on ability to pay.  And the question has came up as we talked about it today pertaining to breeding livestock, and there doesn't Seem to be any real true opinion as to what it is depreciated or what it isn't depreciated.  And so we certainly would urge you people to look at that closely whether they are actually deductible or depreciated, how they're figured, because that has a great factor on it.  We have dairymen in our county that purchase all of their breeding livestock, so that would really severely hurt those, and we have then others.  And actually, when it comes to the product producing the milk, the milk is worth the same from that dairyman as it is from the other dairyman as far as their income.  Any other questions, I'd be glad to answer them.


SENATOR HALL:  Thank you, Mr. Grabouski.  Senator Hefner has a question.


SENATOR HEFNER:  Do you have a dairy.


PAUL GRABOUSKI:  Yes I do.  I have a dairy with two sons, have been dairying all my life.


SENATOR HEFNER:  Okay.  Do you depreciate your herd?


PAUL GRABOUSKI:  We depreciate our purchased animals.


SENATOR HEFNER:  Purchased animals.




SENATOR HEFNER:  Okay.  What percent are purchased and what percent are home grown?


PAUL GRABOUSKI:  I would guess, at the present time we have increased our herd a little bit, so I would guess at about 12-15 percent have been purchased.  But normally we try to reproduce our own, but a lot of other dairymen do not do that way.


SENATOR HEFNER:  If 1063 goes through, will you still keep depreciating...  ?




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SENATOR HEFNER:  ...  part of your herd?


PAUL GRABOUSKI:  Yes, if we purchase...  if we continue to purchase, yes.  That only pertains to- purchased animals when it comes on federal schedule.


SENATOR HEFNER:  Okay.  And the reason you depreciate them so that you can take that depreciation off as an expense?


PAUL GRABOUSKI:  That's right.


SENATOR HEFNER:  Okay.  How much has the price of milk decreased in the last year?  The wholesale price of milk.


PAUL GRABOUSKI:  Well, what...  the price that we farmers get has decreased about $7, but it has came back several.  It's expected, we're expecting it to go back down again.


SENATOR HEFNER:  Okay.  What percentage is that?


PAUL GRABOUSKI:  Around 30, at least 33 percent, or something like that, in that neighborhood, 30.


SENATOR HEFNER:  So you're not going to have a very good year this year?




SENATOR HEFNER:  Okay.  Thank you.




SENATOR HALL:  Any other questions?  Thank you, Mr. Grabouski, appreciate your testimony and your patience.  I know you were here all day yesterday as well, for the hearings.









LOREN FAIRBANKS:  Mr. Chairman, senators, my name is Loren Fairbanks, I live in Lexington.  I'm in the farm machinery retailing and leasing business with my wife, Vicki, and my brothers, Jim and Dave, and their wives.  We operate five farm equipment retail businesses in Lexington, Kearney, Shelton, Hastings, and Holdrege.  And we've been in the business, as a family business, for about 35 years.  I believe that assessment of property tax on tangible personal property is an anachronism.  It's essentially an unfair tax in 1992 because there are so many forms of intangible personal property.  If you follow the recommendations of the


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3-R Committee, you're imposing a tax on those who are investing in operating businesses in Nebraska and providing employment in Nebraska while exempting those Nebraska residents who choose to invest their money in intangible property which in many cases causes economic growth and creates  employment outside the State of Nebraska.  For that reason I'm opposed to LB 1063.  In my business, as a Nebraska based farm equipment dealer, we're at a severe disadvantage, and I've heard many references today about the border bleeding problem, particularly with regard to Kansas, and we're about 50 miles away from Kansas.  We see cases of border bleeding, that is our customers driving to Kansas to buy equipment, on a weekly basis.  In fact, we have salesmen working in our territories for Kansas farm equipment dealers.  And when those Kansas farm equipment dealers deliver that equipment to Nebraska, now and then they have to have their truck repaired in my shop so I get a chance to talk with the driver.  Through the border bleeding, you are losing sales tax, and you are also losing the income tax that would result from the profits made.  The imposition of property tax on our inventories, should that happen, and I understand, Senator Warner, that that's the case today.  We are going to report all of our personal property in 30 days.  Should that come to pass, will result in a dramatic change in the way we have to do business.  We will have to cut our inventories substantially and that will inevitably lead to additional border bleeding as farmers look for those less frequently sold pieces of equipment.  They're going to have to head south of the border where the dealers can afford to take the chance on stocking that piece of equipment.  I'm in support of the framework of Senator Hall's bill.  I believe it's a sound approach except for one measure which I heard referred to by a previous, through a previous testimony.  On page 85, subparagraph 8, you've got the provision relating to increasing the Nebraska tax liability as a result of depreciation taken on the federal return.  Certain types of businesses are inherently high depreciation deduction businesses.  In particular, we're operating a farm equipment leasing business as a separate and independent subsidiary business.  As I understand the governmentally approved accounting practices, if we want to recover or decrease our income from these machines, we must depreciate them as they're put into a rental or leasing use in order to offset rental income.  If the proposed change in subparagraph 8 is made, it will, in my opinion, have the effect of forcing equipment leasing businesses to locate in some other state and would unfairly burden leasing businesses in general.  In addition, it seems to me that there are a number of other classes of services which could be included as taxable


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services in paragraph (d).  And so as not to raise the ire of my other friends, business friends in Kearney, I won't mention them, but I feel, at least, legal and financial services could be included.


SENATOR HALL:  I'm sure you'll leave that to me to do.


LOREN FAIRBANKS:  Yeah, I'll leave that to you to do.  With that, I conclude my testimony.  Thank you.


SENATOR HALL:  Mr. Fairbanks, thank you very much.  Appreciate your testimony.  Any questions from the committee?  If not, I'll take a look at that leasing provision that you talked about.  I'd like to talk to you if I could...




SENATOR HALL:  ...about that, possibly.  'Thank you very much.











ERV EISENMENGER:  Mr. Chairman, committee, my name is Erv Eisenmenger, I too am in the farm equipment business...


SENATOR HALL:  Erv, can I ask you to spell that name?


ERV EISENMENGER:  First is E-R-V, last name is E-I-S-E-N-M-E-N-G-E-R.


SENATOR HALL:  Thank you.


ERV EISENMENGER:  Okay.  I guess, you know, I've been listening to testimony most of the afternoon like yourselves.  Thank God there's people like yourselves that sit in these chambers everyday, I couldn't do it.


SENATOR HALL:  Yea, I've been questioning whether or not I should continue, but...  (Laughter)


SENATOR HEFNER:  And I'm going to retire.  (Laughter)


ERV EISENMENGER:  When you, when you got to...


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SENATOR HALL:  But Senator Warner will be here forever, so I don't have to worry about it.  (Laughter) So your comments aren't falling on deaf ears.


ERV EISENMENGER:  When you have to listen to the lady in public-relations after she's jumped six people.




ERV EISENMENGER:  ...  in line, tell about how much sales tax she pays at her brochure's, we have trouble.  If I can, :I would just like to follow the real world, you know, the world that we operate in every day, the thing that generates revenue, the thing that bring taxes to, to the central offices in Lincoln.  Our humble dealership sent $218,617 in sales tax revenues to, to Lincoln this past year.  And I do want to make no misunderstanding, that's not West Point Implement, or our dealership that sent that, that's our customers that sent that money down here.  We simply were the collecting agent.  I think let's follow a typical example of what's going on in today's, in not only in agriculture, agriculture's part of it, but what happens in the business cycle in the State of Nebraska.  I've got a advertisement that I was flying back from San Antonio last week, it's concerning the governor of South Dakota, says the first four things you needed...  first of all they define profit as an advantageous return on business investment.  it says, see South Dakota.  No corporate income tax, no personal income tax, no personal property tax, and no business inventory tax.  You've got that situation to the north, our neighbors to the north, our neighbors to the east, along with owning West Point Implement, a couple of years ago, I could see the declining numbers in the agricultural economy, in the agricultural business, and to survive in my own profession, we saw the need to buy an additional dealership in Missouri Valley, Iowa.  Talk about border bleeding, we are right in the middle of it, we face it every day.  Farmers constantly coming in hey, can you help me, can we buy that tractor over in Iowa and bring it over here.  And I've got a little lecture that I give them.


SENATOR HALL:  Something about use tax that...


ERV EISENMENGER:  Something about, you know, if we all push the cart that's pushable, if there's a few pushing and the rest of us riding, you know, it get's too heavy.


SENATOR HALL:  I appreciate that.  I do, I'm serious, that's not a wise crack.  I really...


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 ERV EISENMENGER:  I think, Mr. Fairbanks alluded to it, it had been alluded to several times this afternoon, the border bleeding problem is a big source of revenue if they want to go after it.  I talked to the Governor last month concerning this.  There's less than five revenue agents in this state even concerned about it.  It's happening every day.  When we go-out and quote a payloader for example in our area, 65 to 85,000 dollar payloader, we're at a 4 to 5,000 dollar Advantage before we even leave our -dealership.  They're coming in from South Dakota, they're coming in from Iowa, people are buying them, they're not being, not paying any revenue on them.  The dealership there, or the firms there are saying that this...  they're quoting the.  things that they don't have to pay sales tax.  The law is word ...  possession, of course, I'm sure you all know that possession is what determines the person that's liable.  If we deliver it from Missouri Valley dealership into Nebraska, we as a delivering agent, we're the person that brought it across the border, we are responsible for collecting the tax.  And through the reciprocal agreement with the State of Iowa, it's up to our dealership in Iowa to send that revenue to Nebraska.  if it's the farmer that goes over there and buys that piece of equipment and brings it across the state, we make him sign a piece of paper saying that he, that we have told him that he's responsible for the tax and it's his responsibility to send that revenue into the state.  Very few of them send the revenue in.  If you want to do an audit on our dealership in Missouri Valley, you're welcome to it at any time.  You know, we are very up-forward with that.  I personally think that if we all push the cart it's pushable.  Let's get down to a concrete example.  Our average combine today, and this is a mere, this is a strip-down combine sells for $100,000.  And Mr. Fairbanks, and there's been a couple other implement dealers up here today, will verify that.  Our average tractor that we sell in our area is a $65,000 item.  Let's ...  the focus on the combine.  You know the last time we had good combine sales was 1979.  Somebody said that the business has been good the last three years, you know, I think they've forgotten about 1981 through 1985.  1984 and 5 we lost 26 percent of the implement dealers in the State of Nebraska in an 18 month period.  We are on the brink, we are on the edge of that happening again.  I just came back from a corporate meeting of our own in-house franchise, and they told us that 50 percent of us at the meeting would not be there for the year 2000.  1 personally think that's an underestimation.  I think you can look at the major corporations of America and you can see what's happening.  General Motors, when General Electric loses $14 billion,


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General Motors is talking about laying off 75,000 employees, you can get a little bit of the flavor of what's going on.  In Nebraska, that combine that that farmer's buying is $100,000.  The last one he bought, a typical example is, Mr. Hall, you're a wheat farmer in western Nebraska, or you're a cattle farmer in eastern Nebraska, you typically would have bought that in 1979 for $30,000.  You come into our dealership, you want to trade in that combine.  You.  said, Erv, what'll it cost you, you need to buy a new axial-flow, combine.  I tell you, with all the nice programs we've got, and the depressed economy and all that, we can offer you a new combine for $100,000.  After you, you know, we get you a glass of water, and we get you squared around, we say, but, Tim, it's your lucky day.  We'll give you that $30,000 that you paid for that combine in 1979; the cash difference is $70,000.  Now, that's all you have to pay.  Well now, do you want to finance or do you want to pay cash?  We get a lot of people saying I want to finance today.


SENATOR HALL:  I want to finance.


ERV EISENMENGER:  Okay.  (Laughter) When you want to finance, Mr. Hall, there's just one other thing that I want to tell you that there's a $3,500 sales tax liability on that thing so it's not 70,000, it's 73,500.  And then besides that...


SENATOR HALL:  I, I still want to finance.  (Laughter)


ERV EISENMENGER:  Besides that we got this little thing called property tax, you know.  And being it's $100,000 machine, and, you know, where they're talking about a 2 percent deal, you're probably going to be expected to pay another $2,000' this year, and maybe about 1,800 next year, and 1,600 the following year, and 1,400 the next year, 1,200 the next year, and then the last year you only have to pay 1,000.  Okay.  You say, Erv, what's my option?  I says, you can, you know, there are a few people, it's rare, but there's a few people that would fix their old combine, you know the 1979 unit, for $5,000, $6,000, will fix that machine.  And for another $250 beyond that we'll give you a service policy that that machine will run for 1,000 hours.  Okay.  Do we have the picture?




ERV EISENMENGER:  That new, used, what are you going to do?


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Okay.  And everybody knows about how lucrative agriculture is.  When that farmer comes in, into our dealership, or into any dealership, or any business, and any business that is driven with property tax, you know, that has a big property tax liability.  Agriculture is highly, highly capital intensive, as you all know.  This is just one example.  It's very common for an average farm today to have a $300,000 investment in farm machinery.  Okay.  We are going to, you know, by proposing property tax, or letting property tax, not proposing it, it's here, as Senator Warner said.  It's, we don't have any choice in that.  We're going to shut down the economy in this state faster than any other legal means I would know how to do it.  Okay.  We've got the guy, he's going to, you're going to fix the combine now, Senator Hall, instead of buying the new one.  We might get a little sales tax off of you on some parts, that kind of thing.  The revenue that you would have normally got through the normal course of events, you would have got $3,500 for the sales tax.  By trying to go and push this cart with fewer pushers, less than 16 percent of the state would be involved in property tax, as we load up that cart, with fewer people pushing the cart gets heavier, we're going to force internally, by what we do, people not to renew usable, expendable assets:  combines, tractors, feed wagons, manure spreaders, skid loaders, whatever.  We're going to ...  we put a negative incentive in there.  Any farmer in his right mind, any business in his right mind, and I say farmer, but the farmer is just part of this.  Anybody in business that is capital intensive, you are putting a built-in block in the renewal process that is unbelievable.  Anybody that has any business acumen at all would not come to that kind of a conclusion.  Any time you don't have turns, whether it be in a Dairy Queen, whether it be in an implement dealership, whether it be in a, you know , grocery store, or a church collection, it doesn't make a whole lot of difference.  When the thing stops turning, business stops.  Every turn you pick up revenue.' Every turn you pick up sales tax.  When you have something that is so negative to the business climate, I guarantee you, you're going to have a lot less revenue in five years than you have now.  If you think you've got revenue problems now, you're going to make the six o'clock national news in five years as the biggest mistake that ever happened.  They don't say that as a threat, I say I'm sure that there are more intelligent people in the chambers of this Legislature than this.  I think we have simply, we've got all caught up in this, in this gobbly gook about sales tax - no sales tax, property tax - no property tax that we haven't, we haven't sat back, we haven't stood on the mountain and say hey, where are we


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going?  What's it all about, Alfy (phonetic)?  You know, there's no way, there's no way that this is going to be revenue productive to this state.  And I'm no doctor, you know, I'm not with the.  University of Nebraska.  I heard the man that did the 25 meetings, and all that kind of stuff.  You've got some bread and butter people, you've down to the earth people that, testified today.  They told you, they're willing to pay sales tax, they told you they're willing to give income tax for God's sakes, take the money.  You know, you can't keep loading that those folks can't push that cart.  You're trying to get too few people push too big of a cart.  It won't happen.  They are ready pushing the cart from the $30,000 combine to the $100,000 combine, and that's not my doing, you know.  I'm part of that but I'm not proud of it.  We're doing it with corn that is in many respects cheaper than it was 30 years ago.  And I don't think the economy of it makes know, that's not the argument here.  Whether agriculture is depressed or whether it's lucrative is not the argument.  The argument is in business:  how do you get revenue off of business?  You get revenue by turns in business.  Business, the profit that they have in South Dakota, the definition that they use in South Dakota for profit is an advantageous return on business investment.  When money is generated, when turns are created.  At the Dairy Queen, or at the, you know, the national level, when things are- turned, revenue can be generated, taxes can be issued.  You're going to have this to the point where revenue can't be generated.  In agriculture and in other business, capital intensive businesses, the lawyer, the doctor, the accountant, what the heck do they pay in personal property tax?  Why would a farmer that needs $300,000 of equipment to run his operation, why should he be charged so heavily?  That's an unfair advantage on a very small percentage of the population.  Please, please, think this one through before we just...I realize it's a very, very sophisticated problem.  It's a problem taking the tax base from a local base to a local control and bring it into the state and then funneling that money back out.  I don't see a better solution than that.  The farmers will pay another half a percent sales tax, but let's all pay together.  Let's all belly up to that bar including the implement dealer.  You know, I think this, this Congress, and this Senate chamber is aware that you can't have it on business inventories, you know.  I've already got the dealership in Iowa (inaudible), you'll force me out of this state.  I love this state.  I'm here because, you know, I love it.  Don't make me go to Iowa.  We have a place at Wayne, it's not very far from South Dakota.  You know, we can move that to South Dakota.  We can go to Iowa.


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I would like West Point, Nebraska.  I like Lincoln, Nebraska.  I like Omaha, Nebraska.  When the chamber of commerce-man sits here and said what he did today, it just scares me that we have people in those kind of positions in this state that know no more about business than that.






ERV EISENMENGER:  People, I've taken enough of your time, there's more testimony.  Thank you for your time.  I appreciate very much the 3-R Committee going around the state.  I appreciate very much you sitting here and taking this day after day.


SENATOR HALL:  Mr. Eisenmenger, thank you very much.


ERV EISENMENGER:  Thank you.  (Applause)


SENATOR HALL:  Next opponent.









ANTHONY MESSINEO, JR.:  Senators, my name is Tony Messineo, that's M-E-S-S-I-N-E-0, and I hate to follow that gentleman, that was phenomenally articulate.  Gentlemen, I'm the current President of the Nebraska Restaurant Association.  We represent over 600 restaurants throughout the state.  I'd rather be known as a down-toearth pizza maker, we're the owners of Valentino's.  I was going to come in my red and white uniform today instead of this suit.  Gentlemen, our membership is primarily made up of the 600 members, over 600 members, primarily small businesses owned and operated by individual proprietors.  And I'm here to tell you gentlemen that we have great" concern for the restaurant business in our state, and therefore, I'm here to oppose 1161.  Profit margins, gentlemen, have been squeezed dramatically over the last two or three years.  And it isn't some of our variables.  Candidly, it's some governmental taxes have posed a lot of restraints on us.  And right now, in this economy, the prices are more elastic than they have ever been in their lives, and quite candidly, if you want to remain in business today, in the restaurant business in this state, you simply can not pass those prices on.  We're seeing a number of fine dine restaurants, whether they're owned by corporations or individual entrepreneurs, going out of business and it tells you only one thing:  no matter how good that food is, if the prices are perceived, even though


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the relative value might be there, if the price is perceived too expensive, people simply don't go to those restaurants.  Gentlemen, the business environment is serious enough in this state-without burdening small businesses in this state -with yet another expense.  A year ago, candidly, we supported, I believe it was 829.  But one of our, in fact, I think.  Mr. Rasmussen is going to testify a little later, Dean and his staff put together some statistics.  And the cost of collecting the state sales tax, as opposed to the revenues, or the setoff we got for collecting it, which used to be at 3 percent, I believe up to 5,000 and 1 percent up above that, was almost a push.  Expenses versus the revenue taken in for administrating it.  No windfall.  With the 75 percent reduction in that collection fee to us, even though you only knocked the rates down half, by changing the ceilings the effective rate was around 75 percent.  Gentlemen, the restaurant businesses in this state simply can not afford it at this juncture.  We can't pass it on right now, margins are squeezed.  So, I ask you to please reconsider the passing of 1161.  Again, it's no windfall to the restaurant business.  Quite candidly, at the old rates of 3 percent and 1 percent, it's, candidly, just a push.  And I want to thank you for hearing us.  And, if there's any questions, I'll attempt to answer them.


SENATOR HALL:  Thank you, Mr. Messineo.


ANTHONY MESSINEO, JR.:  Messineo, correct, Senator.  Thank you.


SENATOR HALL:  Thank you.  Senator Warner has a question.


SENATOR WARNER:  Did I understand correctly that you do not object to the reduction that occurred in 829 if that continues?


ANTHONY MESSINEO, JR.:  No, Senator.  We, we did object to it.  But, as I understand it it was just for one year.




ANTHONY MESSINEO, JR.:  And candidly, we want to go right back to the status quo that is was before.


SENATOR WARNER:  Because some of these proposals besides 1161 continues the...


SENATOR HALL:  Yeah, my bill, 1120, contains the same provision.


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ANTHONY MESSINEO, JR.:  Yes, Senator, I'm, I'm not sure which bill ...  to make it then clear again, Senator, we want to go back to again, as I under stood it was just to be for one year.


SENATOR WARNER:  that's fine, thank you


ANTHONY MESSINEO, JR.:  Okay, I'm sorry...


SENATOR HALL:  Any other questions?  Is...I would just have one.  Do you have figures, or maybe Dean does, that show how much sales tax is collected by the Restaurant Association?


ANTHONY MESSINEO, JR.:  Senator, I don't.  Maybe Dean would.  I know in our, in our case, just with Valentino's corporate, not our franchises, I ...  the current rate is what, 4 percent?


SENATOR HALL:  State rate is five.


ANTHONY MESSINEO, JR.:  Five?  It would be, oh, three quarters of a million dollars.




ANTHONY MESSINEO, JR.:  Okay, thank you very much.


SENATOR HALL:  Okay.  Thank you very much.  Appreciate your testimony.









DEAN RASMUSSEN:  Mr. Chairman, members of the committee, my name is Dean Rasmussen, R-A-S-M-U-S-S-E-N.  I'm here to speak on behalf of my restaurants, Grandmothers restaurants, in opposition to LB 1161.  I'll begin by saying that you have the unenviable job of determining a fair and equitable tax policy for Nebraska.  As you analyze the variety of proposals being discussed.  I respectfully ask that you consider the impact reducing the sales tax collection fee will have on the largest retail employer in the State of Nebraska:  the food service industry.  The temporary solution to Nebraska's property tax dilemma, LB 829, struck the restaurant industry particularly hard.  Earlier on, when Senator Moore was introducing the bill, he, I think inadvertently, referred to the collection fee via LB 1161 as being cut in half.  This assumed 50 percent reduction in the sales tax collection fee was closer to an effective rate of 75 percent to many retailers, and in fact was clearly an additional tax as we do incur significant cost to collect the taxes for the State of Nebraska.  As the owner of


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several restaurants in Omaha and Lincoln, and an employer of over 1,000 Nebraskans, I hope you understand my concern about what we thought was going to be a new but temporary tax and is, now being proposed as a.  new, permanent tax.  The proposed reduction of the sales tax collection fee clearly creates an unfair burden that threatens the survival of many food service operations in the State of Nebraska.  It is important to recognize that the sales tax collection fee is there for a good reason, that being, it costs to collect the sales tax.  First of all, there are labor costs:  There are costs of waitery ringing up a sales tax; cashier time for counting out change necessitated by odd penny pricing; management time spent each shift completing sales reports; office personnel time for reconciling sales and special handling of tax exempt items; bookkeeping review; and store work and preparation of daily sales journals entries; monthly sales data summaries; the actual preparation of sales tax form 109, form 10; treasury review of supporting schedules, forms, and calculations; and treasurer review of Department of Revenue literature to maintain knowledge base adequate to insure compliance with all sales tax laws.  There are also equipment costs:  costs of sales tax computing capacity in pricing of cash registers; cost of maintenance agreements related to software programs for cash registers as well as computers; and the monthly cost to reprogram cash registers for changes in state or local sales tax rates.  The bottom line for us, in our restaurants, is a monthly cost of approximately $300 per restaurant.  Based on our monthly sales, and a 6.5 percent combined state and city sales tax, the collection fee we received under the original formula was about $200, or $100 less than what we calculated as being our actual cost.  And with the LB 829 schedule, and the one proposed in this bill, the sales tax collection has been reduced to approximately $60 per month, or $240 per month, per restaurant less than cost involved in collecting sales tax for the State of Nebraska.  I'm sure that you all appreciate that there are costs involved in the collection of sales tax as the state does retain a 3 percent fee on sales tax collection for municipalities to offset costs for doing so.  There are a tremendous amount of sales dollars raised by our industry for the State of Nebraska.  Our industry, as Tony indicated earlier, operates in a very, very small margin of profit.  Nationally, it's approximately 3 to 4 percent.  A new tax as this can have a devastating impact on our business and on the employment of thousands of Nebraskans.  In closing, I would like to say that your efforts to resolve this tax situation are greatly appreciated.  But I ask again that you very carefully consider the impact that this new tax will have on all


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restaurants in the State of Nebraska.  -Be glad to answer any questions that you may have with regards to my testimony.


SENATOR HALL:  Thank you; Mr. Rasmussen.  Questions from the committee?  Dean, I would, the only one I would have is, and I'm sure you probably don't have the information but if you could get it I'd really appreciate...  on..  the amount of sales tax that the industry does collect for the state.  That would be very much appreciated.


DEAN RASMUSSEN:  I think that we can come...


SENATOR HALL:  If you can generate it.


DEAN RASMUSSEN:  ...  fairly close.


SENATOR HALL:  I mean, yeah.


DEAN RASMUSSEN:  I think we can come fairly close to that figure.


SENATOR HALL:  And I...don't go to a lot of trouble to get it, I'm just...  I, it would be good to know that.


DEAN RASMUSSEN:  I would assume that it's, it's part of the sales tax collection manual that the state actually puts together and distributes, so I probably could go to that manual ...


SENATOR HALL:  Sometimes it's easier to get, get it from you guys than it is from the department, but...  (Laughter)


DEAN RASMUSSEN:  I'll be glad to supply it for you to the best of my ability.


SENATOR HALL:  If, if you can, we'd really appreciate that.


DEAN RASMUSSEN:  I'd be glad to.


SENATOR HALL:  Thank you very much for your testimony.











NORMA HALL:  I'm Norma Hall, and the last name is spelled H-A-L-L.  (Exhibit K, reads testimony) Senator Hall, and members of the Revenue Committee, I am Norma Hall from Elmwood, Nebraska.  I serve as the tax chairman for Women


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Involved in Farm Economics, and I appear today in opposition of 1063.  The members -support an increase in sales and income tax to make up the loss of tax revenue.  At this point, well see for that formula in Senator Moore's bill, LB 1160, and Senator Hall's bill in 1120.  In the past and ag inventory were on the personal property tax rolls, the farm real estate tax.  was as high a that time, there was no not as it is today.  In sales tax on machinery or repairs.  The business of agriculture can not continue to pay the high bill of real estate tax and add the additional tax on personal property tax to the total tax bill, and still have a viable system out in the country.  We believe Nebraska needs a fair and equitable long range tax plan that has less reliance on real estate, and.  a tax plan not just to solve the immediate problems of this state, but one that.  addresses the future collection of taxes.  We also believe there is a need to control spending.  If services and programs are to continue at present levels, the citizens of this state must realize that those costs will come from increased taxes, urban and nonurban.  In closing, WIFE supports the use of sales and income tax increases with a formula that supports funding for political subdivisions.  Thank you.  May we cooperate and explore to formulate the best tax plan for all Nebraskans.  Thank you.


SENATOR HALL:  Mrs.  Hall, thank you very much for your testimony.  Questions from the committee?  There are none, thank you very much.


NORMA HALL:  Thank you.


SENATOR HALL:  Can I see a show of hands of those who would still like to testify as opponents to the measures?  Those that...  okay, we got three.  Any more supporters of the proposals who would follow that, we'll switch back after those three.  Is there anyone else left out there that would like to speak in support?  Okay, then we're going to go ahead with the proponent testimony and then we'll shift back...excuse me, opponent testimony.  Come on, John.  I'm sorry.  Get my o's and my p's mixed up.


JOHN HANSEN:  I'm willing to do whatever it takes to get up here.  (Laughter)


SENATOR HALL:  Just get in the chair.









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JOHN HANSEN:  My name is John Hansen, I'm the President of the Nebraska Farmers Union, and I represent Nebraska Farmers Union as their president and as their paid lobbyist.  Also today, I have been asked to.- represent the views of some of the additional farm organizations that we work with in the property tax coalitions of which we are a member:  the American Agriculture .Movement the American Corn Growers the Nebraska Dry Bean Growers the Nebraska League of Rural Voters the Nebraska Sugar Growers;.  and the National Farmers Organization.  And there's also many of the, the other organizations that have testified today that are part of our property tax coalition that have already come forward.  What we want to-say up front, and by the way, Hansen is spelled, H-A-N-S-E-N, as in Norwegian.  I'm not bragging, I'm going after the sympathy vote.  Want to say that up front, as we look at where we're at, and we believe that there was in fact, before the MAPCO decision, a property tax crisis in the State of Nebraska that already existed.  Most of the rural senators who sit here know what I'm talking about.  There has been a continuing scream, and a continuing squeal out in the country for some considerable period of time.  And* the reason that that squeal and that scream and that squeak has been growing louder and louder is because the, perhaps what was once, relationship between the ability to pay taxes and the fact that you own property was no longer a clear cut relationship.  The fact that you own property today, in agriculture in the State of Nebraska, by no means indicates that you are either profitable or able to pay taxes.  So as this property tax situation is continued, continued to grow and continued to worsen, we're now at the opportunity with MAPCO where the court has stepped in and said, look, you guys are going to have to do something.  You're going to have to assess the situation.  And what the Governor said with the 3-R Committee is look, we're going to assess where we're at, we're going to assess our options, and then we're going to talk about where we ought to go in our state tax system.  And what all the folks in this ag coalition of which we're a part, and I think the bulk of the ag folks that I work with, and I do property tax meetings about four times a week out in God's country all over rural Nebraska, is that 3-R, as a starting place, is not acceptable.  Rural Nebraska does not want to go back to the point where we're putting more personal property back on the tax rolls in a depreciated form or in any other form.  What happens when you do that is that we increase the amount of property based tax load for which we are liable.  Agriculture owns about a third of all the real property in the state, and we own about half of all the personal property.  So when you put any personal property back in


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the, on the tax rolls, ag, because we have a very high percentage, we.  pick up a very high percentage of the total extra load.  What we want to do is say that we need to look at those kinds of tax systems that- more accurately reflect ability to pay.  So, as we look at that, we.  look at our state tax system the 3-R :looked at it we're low in individual income we're low in corporate income, we're re not too far..  from the middle in-sales tax, and we're high in property.  So when we.  fashion a solution to the state tax crisis that in ...  puts agriculture in a position where we're paying more property -based tax load- than we started out with, that's one of the ways we can tell it ain't fixed if you go to the doctor feeling bad, and you go home feeling worse, you can tell that you aren't fixed yet.  So when I look at ag's share of the tax load, I know that we're not going the direction we want to go.  When, when we look at the options that are out there, we think that Senator Hall's bill, 1120, is a good starting place for an alternative approach.  And that approach says that we're going to take personal property, remaining personal property off the tax rolls, and we're going to look at replacement income.  We look at that and we know full well the problems of how you.  raise that money, and we also realize that there are problems in distribution, but we're willing to try to work out acceptable solutions to that, to those problems, and we think that Senator Hall's bill, 1120, is a good starting place to do that.  I think that, as you, as you heard today, and I, I think that it's, it's part of, of the management of the state tax policy, but I think it's important to underline those testimonies of those young farmers and those folks that try to sell farm machinery to farmers.  My personal combine is a, I bought in 1973, and I, I know that there isn't any single part in that combine that I can't tell you how to take apart.  I am on a very intimate basis with every single bearing and every single part of what that $37,000 combine, which is well over $100,000 combine today, looks like.  And that's the condition of much of agriculture.  We're hanging on.  During the decade of the eighties we lost over 12 percent of all the farmers in the State of Nebraska.  We look at what's going on in the agricultural economy at the national level, and that's where we spend the bulk of our time, mostly for the same reason that some people rob banks, because that's where the money is.  When you look at national farm policy, we can, in agriculture, continue to 'face a situation where we're looking at a national farm policy that sets the price of what agriculture produces at below our cost of production levels.  And we continue to get in a worse and worse situation.  So the property tax situation is salt in an open


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wound..  If the price of corn were $4 a bushel, and the price of soybeans and-wheat and the other things we produce were at reasonable levels, we wouldn't be here complaining about property taxes.  We might even be again, income tax.  :In the case of the national budget, you look at the headlines in today's paper President Bush is going to take another $2.6 billion :out of the ag budget.  Ag owns .64 percent of the total federal.  The original that came in was 6.4 percent of the budget cut targeted to ag.  We took ten times our per capita share of the budget cuts at the federal level, and know because of the peace dividend, we're supposed to take $2.6 billion more.  So, when you look at the treatment we get at the national level, unfortunately, that creates the economic reality with which we look at the, at the local tax.  I think that as we, as we look at this, I think we have to rig more of our tax load.  And I think that that's what the 3-R field hearings, that's the property tax meetings I go to, you have to rig more of the load to the ability to pay.  How do you do that?  You do it by looking at progressive individual and corporate income tax.  If you make the money, you pay it.  When you look at personal property, it's a penalty for being in business.  You haven't made a dime, you haven't fed your family, you haven't serviced your capital, you haven't serviced your operating liabilities, but you have paid, in the case of personal property when you put it back on the rolls, you have paid the cost of being in business.  I look at, I look at, Senator Hall, your proposal, and there's some things in there that I think that are good things, the depreciation addback is a good start.  I think when you look at the $100 million, and I think it's one of the things to remember as you look at the $100 million that the business community walked away from.  When" we take the rest of personal property 'off the tax rolls I think that we have to craft a package that gets as much of that $100 million back out of those pockets in a fair and equitable fashion that walked away from the tax load.  My concern from agriculture is that I do not believe, as do some farm organizations, that agriculture is a part of what caused the problem.  Those exemptions for agriculture were in place for viable tax and economic.  reasons.  Now, ag, in my opinion, didn't create this problem.  I believe that you have a combination of large business interests who looked at this as an opportunity to snooker the Supreme Court.  And I believe the Supreme Court allowed itself to get snookered by some very, very well paid, and very competent lawyers for some large financial interests.  But should ag step back and say, we should pick up $13 million in additional tax load here?  I don't think so.  We were in trouble before MAPCO.  So, when


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you craft a solution that goes to us for $13 million additional, we figure that's not relief.  I guess that I would say that we're going to continue to be a part of looking for solutions and packages that we think rig more of the tax load in more fair and equitable kinds of ways.  And I guess that we think that property tax is already overburdened as not:  likely to be.  fixed by adding personal property to it.  And I guess my, my personal opinion as far as how to you bring the centrally assessed and those folks to the table, I think the, that the that the and the guidelines that exist-in the case of income and how you can secure and execute income tax laws in this state allow you more flexibility and more opportunity to bring more of those dollars back to the table than does going through the property tax system and the set of rules that govern the procedure by which you bring property tax back to the table.


SENATOR HALL:  Thank you, Mr. Hansen.  Questions from the committee?  Senator Warner.


SENATOR WARNER:  I'm curious, John, and I'm not going to ...  I'm going to use Senator Hall's bill because he's provided some data.  Are you telling me you support the end result of the shift that's in that bill?  Is that what you told the committee?


JOHN HANSEN:  What I said was I supported the concept, and that was a good place to start negotiating.  The problem I have with shifting part of the sales tax load to agriculture, there's this, there's this implied premise here that ag caused this problem, and because of that, ag should go to the well for additional monies.  The problem of 3-R saying that, okay, ag, you're guilty somehow, and that you ought to line up for 12, 15, whatever the additional dollars actually turn out to be, I don't think is reasonable and I would suggest to Senator Hall that the $8 million in insecticide sales tax needs to be fixed.  And we need to look at that.  I don't think ag is guilty.  I don't think, based on their ability to pay, that when you look at the distribution of the tax load and the ability to pay I don't think ag needs to go pick up more money on the table.  So I, I look at that as the starting place.  What I would do in Senator Hall's bill is replace that section, frankly, with a corporate income tax that is more progressive, that has more brackets, and does a better job in going back to the corporate community who walked away from the tax load in the first place.


SENATOR WARNER:  But, they're going to walk away from


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$100 million business tax.


JOHN HANSEN:  Depends on how you look at the depreciation addback and who


SENATOR:  WARNER:  Depending or where you put it


JOHN HANSEN:  And, and depends on.  how you craft the depreciation addback and whether or not you use real and personal, or whether you just use personal.


SENATOR WARNER:  It's, and I don't want to pick on Senator Hall's bill, but you know, when I look at...


SENATOR HALL:  Oh, go ahead, I don't mind.


SENATOR WARNER:  Well, I could have picked any.


SENATOR HALL:  No, I'm serious, I don't mind.


SENATOR WARNER:  Tim, Tim was good enough to give us a really good breakdown.  I've got ...  not as good, but fairly good breakdown of, of 1063.  But (inaudible) I look at Lancaster County that I represent, set a change in property tax, you know, the only category that goes up out of residential, commercial, vehicle, public service, railroad, agriculture.  Everybody else goes down.  We go up.  Now, is that a good deal for me?  No.  Or a good deal for the farmers I represent?  I don't think so.  I look at the total sector of agriculture, it says 13 million, in fact all the plans I've heard today have been in the range of 9 to 13, 12 million, it's all been almost...  for estimates, almost the same, which...  except one, and that's if we do nothing.  Then agriculture really gets robbed.  But every plan I've seen, the net impact statewide for ag is so close in a way of increased taxes that, that it's almost a...the error that would be inherent in an estimate, and that's...  You know, I, I can see what Senator Hall said in his opening testimony, and I was certainly trying to suggest in mine is if we continue to, to, to cause diversion among people trying to get this problem solved, we've got 30 days on the Legislature, and 60 days for the public, there's only one inevitable result and that is everything's going to be on.  And, and I hope people really, you know, nobody is going to like...  I made up my mind I knew I wasn't going to like what came out, and if there wasn't any way to, that I could devise a tax that I would personally like, nor could I assure nor could anyone else that could be passed.  So I hope people, and it's important that all of us advocate the


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things that, particularly organizations, that favor your viewpoint, I'm not critical.  But a point is coming, and it's not very far away.  It's like three weeks at best, and maybe two, that we've got to accept something, or the worse possible conclusion we can have is the one we're stuck with.


JOHN HANSEN:  There's, there's no question,.  Senator, that, that ..doing nothing is, is got to be at least a jab in the eye with a sharp stick.  And we look at 3-R as:  slightly better than a jab in the eye with a sharp stick.  I'm not sure where the jab would be, but probably not the eye.  But does it, does it take and transform our state tax system in a direction that we need to go?  In the case of crisis there is opportunity.  And this problem has been out there, and it has been growing, and it has been growing, and it has been on addressed for some considerable period of time, and now that we have the opportunity in this crisis mode to be able to look at our state tax system and figure out where it is that we need to go in order to develop a state tax system that more fairly takes and funds the political subdivisions in our levels of government based on ability to pay.  And in a fair and equitable way that is generally accepted by the people.  And I, in my view, when you look at...  I work with the, with the folks out in the country all the time, and I think that one of the things that you look at when you ask the average taxpayer, do you think the corporate Nebraska is a good citizen and is paying his fair share of the tax load?  And they'll tell you no.  When you ask them whether or not you think rich Nebraskans are paying their fair share of their individual income tax, they're going to tell you no.  And if you ask them whether or not they're willing to accept a slightly higher income tax load, if it's done progressively so that the folks that are really economically advantaged are paying, on a percentage basis, a higher, a higher part of the tax, and progressivity is the key to acceptability, absolutely the cornerstone of acceptability, that they would be willing to pay slightly higher income taxes if they thought they got a little property tax relief in exchange, or at least didn't get a bigger tax bill, I think that that's acceptable.  I differentiate between sales and income.  Sales has a lot of the same negative characteristics from our business standpoint as does personal property.  I go out in my operation, lot of years I bring in 200,000, I'd spend 200,000, but I ain't made a dime yet.  But I had to pay the sales tax all the way along the way.  So I think when you talk about a constitutional amendment that goes that way, or you talk about a solution that goes that way, I think that those are some of the ingredients that I think that you need in order to be able


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to take.  that solution out to the country, and I think, to get acceptability.  If you send a solution out there that lets the Omaha Chamber of Commerce be the only supporter of the plan, and I look at the Governer's plan and I look at who comes in and supports it, I know that-plan's in trouble.  I know that it's in trouble perceptionally and in terms of acceptance.  And I long for the day that my good friend Ben Nelson and I can work the side of an issue.  But.  I have :to beg to differ with the Governor on this particular issue that I don't think that when you take 3-R out to the country:,- I don't think it's going to sell.  And I think that we have to also look at, at the corporate income tax.  And I, you know, how do you get that money back out of the corporate community?  I think that I would ask for them what I would ask from us, and that is that, let's do it in as fair and equitable manner as possible, and let's look at a corporate income tax.  And I look at Senator Dierks's corporate income tax bill from last year, and you can scale that down, and you can raise enough money in there and still have this be well below the corporate income tax level of our neighbors.


SENATOR HALL:  Senator Haberman has a question.


SENATOR HABERMAN:  You just made a remark that if you take the 3-R proposition out in the country it isn't going to sell.  That part's gone.  It's been taken out in the country and it didn't sell.  This ...  we're at the end right now, we're going to pick one of these plans and we're going with it.  But I agree with you with this, when, when well, I won't say it.  Thank you, John.  (Laughter)


SENATOR HALL:  Senator Haberman, thank you for that...  lead up.  All right.  Any other questions?


JOHN HANSEN:  Thank you very much for the committee and your time.


SENATOR HALL:  Mr. Hansen, thank you very much.  Other testifiers in opposition?









LARRY SMITH:  I am Larry Smith, S-M-I-T-H.  As you gentlemen, I'm just as tired of being here and ready to go home, but I would like to comment on a couple of things.  Senator Hefner, I am a school board member and have been for twenty-some years and 1059 did us world of good.  I sit on the largest school district in our county, and it has really


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helped us a lot.  I own some land in Senator Warner's school district that if it hadn't been in our family for over 100 years, I wished somebody else owned it, he is a terribly high priced taxing district, needing new facilities which weren't covered in 1059.  But anyway, getting back to the fact of, of 3-R Committee and so forth, I'm a registered lobbyist.  I came up here and registered yesterday to represent about 300 farmers down here in Saunders County and the adjoining counties that belong to the Saunders County Livestock And the Sounders County Pork Producers.  All of them very upset , as I had testified yesterday, about some of these things and, and no one knowing anymore than the rest what's the real answer should be.  I happened to be at a school board meeting one night, so I didn't get to go up and listen to Dr.  Roy Fredericks with his presentation when he came to our county, but yes, if you talk about what's presently on as of January 1 or 3-R, 3-R looks pretty good.  But, you don't hear too many proponents come up here and talk about what's fair or what is affordable to agriculture.  Those of us at our meetings came away saying, we'll pay sales and income tax.  That way we, if, if we have income, we can afford to pay it.  It'd be, otherwise it becomes like real estate taxes, whether you can raise a crop or not, you're stuck with it.  It's, it gets to be a problem for the young people and everything, the gentleman that was here this morning was saying that he lived in an area where there were a lot of young farmers starting.  I don't have any neighbors that have started in the last ten years down in my community.  If they are, they're riding along with their father for a while to, to see what they're wanting to do.  I have two sons, and they're both school teachers.  It may not be the best profession, but it's a good way to start in life.  And, I certainly am not going to try to talk them or convince them into coming back into farming.  There's probably numerous things that we could offer, or condemn, that you're doing here or what has been suggested, but I guess, for the time and everything, I would like to stop at this time.  I would answer any questions.  And I'm glad, Senator Warner, you picked on John instead of me.


SENATOR HALL:  Well, hold on a minute, Mr. Smith, let's give him a chance now.  (Laughter)


LARRY SMITH:  No, I won't say picking on John.  I'm glad you unloaded on him.


SENATOR WARNER:  Well, I wasn't picking on John.


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LARRY SMITH:  No, I, I'm aware of that.


SENATOR WARNER:  But, but, maybe I was...  (laughter), but the point is that, that We, we all talk in-concepts, and then sometime you sit and look at the figures and the numbers, and then that concept maybe isn't appreciably different than the other one.  And then we get down, what, what's feasible to get done, you know, that's everybody's judgment.  But, nothing happens without the majority of people voting yes on a constitutional amendment...


LARRY SMITH:  Well ...


SENATOR WARNER:  ...  and, you know, that's, people can judge what will sell or what is acceptable.  But that's really...


LARRY SMITH:  We, out here...


SENATOR WARNER:  ...  the ultimate issue here in a sense.  As fair as we can be, obviously, but something that the citizens will be willing to amend the Constitution and see happen.


LARRY SMITH:  It's, it's common knowledge with us as farmers that we're in such a minority that Omaha and Lincoln could vote down about anything we want, we would propose, as far as numbers of voting people.  We just, you know, we have to rely upon...


SENATOR WARNER:  Yeah, but, but they were very kind on ag land values.




SENATOR WARNER:  It carried in both areas, I believe.


SENATOR HALL:  That's correct.


LARRY SMITH:  This is, this is true, but when it, when it gets right down to who's pocket it's going to come out of, a lot of people look whether it's going to affect their pocket or what.  And that's, that's a position we're all in.


SENATOR WARNER:  Sure, we all are.


LARRY SMITH:  Thank you, gentlemen.


SENATOR HALL:  Mr. Smith, I don't, I don't have a question,


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I just hope that we can count on you when we're able to craft the constitutional amendment that we can get 40 votes for that we can count on your association to help educate folks to that issue when we get it on the ballet.


LARRY SMITH:  We'll do our best.


SENATOR HALL:  Thank you very much.  Appreciate it.  Others would testify?









NORMAN E. TOOKER:  I'm Norm Tooker, Master of the Nebraska State Grange.  My last name is spelled T-0-0-K-E-R.  I want to-state the position of the Grange organization here in Nebraska.  (Exhibit L, read testimony) It is the position of the Nebraska State Grange that personal property tax should be dropped as a source of revenue in Nebraska.  We feel that it is hard to administer and that there are too many inequities associated with it.  We feel that there should be a constitutional amendment to either drop personal property altogether as a source of revenue, or there should be a separate category created specifying what is real property and what is personal property, and/or perhaps even different categories of personal property that could be taxed differently.  Taxes, of course, on inventory for all businesses, including agriculture, should be dropped or not considered.  The revenue lost from dropping all personal property, in our opinion, could be made up by:  1.  A sales tax on services, and 2.  An increase in income tax for the upper levels of both personal and corporate taxpayers.  I have been told that many, that any proposed income tax increases would not pass.  But, our members, and many other people that I talked to across rural Nebraska, and even in Omaha, always mention that the income tax probably is the most fair tax and that some increase, particularly at the upper income levels, would be more fair than a personal property tax that falls heavily on small business and agriculture.  The 3-R plan, LB 1063, is not the way to go so far as the Grange is concerned.  We feel that LB 1120 most closely resembles our position on our tax structure, on how our tax structure should be changed.  We would, however, want the tax on agricultural chemicals to be reconsidered or deleted.  We feel also that some of the bills that Senator Moore has mentioned, 1160 for example, also have some details that "can be supported.  I realize that you have to take pieces and parts of All of these and try to put together a workable tax system.  We want it to be something that as fair to all, and that, that is our position of the Nebraska State Grange.


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SENATOR HALL:  Thank you, Mr. Tooker.  Questions from the committee?  There are none.  Thank you very much for your testimony.


NORMAN E. TOOKER:  Okay.  Thank you very much.


SENATOR HALL:  This time, that was the last opponent testimony that we had on the record.  Is there anyone else who'd care to testify in any capacity?









HOWARD WILKINSON:  Yes, I'd like to testify in the proponent (inaudible).


SENATOR HALL:  Please.  come forward.  In any capacity, proponent, opponent, neutral, come on up.


HOWARD WILKINSON:  Well, I sat up here yesterday and I left and come back, so, here I am.  Well ...


SENATOR HALL:  And we're, and.  we're still here.


HOWARD WILKINSON:  Yeah, you're still here.  Well, I guess, a lot of testimony I've heard, yesterday, testimony given, I've heard testimony given today, and there's lot of options, this and that, and I don't think there's any one bill that, that has come through here that's going to meet, be able to get through.  Put it that way.


SENATOR HALL:  Could I ask you to state your name for the record, I'm sorry.


HOWARD WILKINSON:  But, I've got kind of an idea about what I think could, how it should work.


SENATOR HALL:  Could I ask you to state your name for the record.  I'm ...  Howard, I'm sorry'.


HOWARD WILKINSON:  Howard Wilkinson, W-I-L-K-I-N-S-0-N.


SENATOR HALL:  Sorry about that.


HOWARD WILKINSON:  In, Senator Moore said that he went over and he said there wasn't a single guy said that they'd put it all on.  I beg to differ with him, but, if he were to remember all of them, that was one of my proposals was to put it all back on.  But, everybody's agreeing on real property, you know.  When it comes around to, to personal property, I'd like to add that I've got 20 years experience in local governments and school boards and county boards.


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And I'm a proponent at protecting that local tax base because when we learn...  lose that personal property, and the people come up with a lot of different ideas, and I've said this several times before, whenever anything comes down there, we've got real estate, and we just kick the hell out of them.  And then when they send another bill down there, we.  Just go right back and do it to:  them again because we have.  got no place else to go.  Absolutely no place.  And whenever we send the money up here., then we have to get as, testified before, we have to come up with a formula on how to send it back, of how to send it back.  And that's controversial, very.  Worse than this, really.  But the proposal that they have of sending the, the depreciation amount, book value, you know, have that turned back in, is a proposal that I think I could support only if, and like in Senator Lamb's, sales tax on machinery, new and used equipment, is repealed.  As they went through before, a $50,000 tractor at $2,500 sales tax, and if you put a 2 percent rate and add a, a five year depreciation on it will just put it, he would pay $2,000 worth of local property tax in area.  And people, as been stated here before, they really, when they, when they come in, they don't mind paying their taxes, really.  In one sense of the word, they don't.  Everybody, it's got to be fair, but, but they know that these services have got to be.  And, and I think that if it is, and it comes back, if the, if they pay it at the courthouse in Tecumseh, Nebraska, from Johnson County.  And if they, it's assessed there, and they pay that tax there, I think they would be much better off than they would be if they, you know, sent it up here and then a formula to send it back.  And an example of that could be in sales tax.  When personal property was first exempted, if some of you can remember back that far, was first...  I know Senator Warner can, when they were first exempted, the money was paid back to the counties and the school districts and so on and so forth according to" the amount of property, personal property you had in that area.  I think that lasted two years.  And I think the Supreme Court, at that time somebody took it up, and they said, no, you can not take money from the general populace and send it back.  And therefore, they come up with a different formula for sending state aid back to counties.  Our state aid in Johnson County, total state aid for Johnson County, is $74,000, that's it.  One you, one other comment while we're on this depreciation, I think there's some people that feel that it was going to be like it is this year, and this year has nothing to do with it.  This year you paid if you had, on the bottom line, that, you had that $50,000 tractor, and you had $10,000 for depreciation, that 2 percent surcharge was


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on that $10,000 depreciation.  But there's something else that happened too this year that I don't think too many people are aware of and that's Section 1-79.  I bought a bull for $2,000, and it's going to cost me 2 percent of the price of that bull.  I bought a sprayer, it's going to cost me 2 more percent for that because on Section 1-79, is what basically it is, the federal government allows you to take small purchases to group those together, or it can be one purchase under $10,000.  And rather than clutter up your, your depreciation schedule and allow the little purchases, you put them under 1-79, and you deduct them.  They're a deductible expense on income tax purposes.  And the way it is today, the way it is today, you pay 2 percent on that money that you had on...if you deducted the full $10,000 on 279, you're going to pay $200 taxes on that money.  Then you're going to pay, if you have $10,000 on your depreciation schedule over here, why, you're going to pay your $200 over there.  And then Senator Hefner referred twice, I happen to be a local government person, and I think he referred a couple of times to local governments should control their spending.  Well, I'd like to challenge Senator Hefner to, percentagewise, to do what Johnson County has done.  Our mill levy has, has been the same for four years, and we've had a $16 million increase in valuation in the county, and the mill levy is the same that it was it's less than a 2 percent increase per year that we've had.  And I would challenge state government to, to do that.  And if it's such a good idea that you limit county governments and local government, why don't we try and limit state government.


SENATOR HEFNER:  I don't have any problem with that.  But Senator Warner said if we limit state government, then we would not be increasing state aid.




HOWARD WILKINSON:  That, that could be worked out.  Any time, any time that you...


SENATOR HABERMAN:  Did you say that your mill levy went up, your valuation went up $16 million?




SENATOR HABERMAN:  And you left the mill levy the same?




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SENATOR HABERMAN:  Did you take in any-more money?


HOWARD WILKINSON:  Sure we did.  That's on five year, that's on a five year period.


SENATOR HABERMAN:  Okay.  That's fine.


HOWARD WILKINSON:  Sure we took in some more money.  But, everybody else has too, and that, and that don't amount to very much money.  At 40 mills, or 40 percent is what it is, you take that, what is that $24,000?  You know, it's a ...  we've kept the budget down.  We're conservative.


SENATOR HEFNER:  Down here we call it tight-wad.  (Laughter)




SENATOR HALL:  Well, we can tell it's after 5:30 on Friday, okay.


HOWARD WILKINSON:  Yeah, you can.  I don't know, I guess I haven't got too much more to say.  Everything's been said, you've heard, you've heard...  I could stand here, you know, I could go on for quite a while, and I think there's some inequities in it...


SENATOR HALL:  But I'm not going to encourage that, Howard, so...  (Laughter)


HOWARD WILKINSON:  I know you're not because you people, you people want to go home.  So, I think I'll just, just wrap 'er up there, and I had my say, and, and I don't envy you people your position.  I want to reemphasize my position that, that I would like to see, I know the opponents are, but, that local tax base, I would certainly hate to see it narrowed.  I would like to see it expanded.  And if you're going to tax this, this young farmer that they're talking about, if you're going to tax this on a depreciated schedule basis, I think it's imperative that you repeal the sales tax on new and used machinery.  That gives him the money to pay it, now he has the money to pay the tax.  It's $17 million for the state is going to have to come up with, I'm sure they can come up with that through some means or another, whatever it happens to be.  And the general populace will be a, receiving it, the general populace will be getting it back


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rather than to try to formulate it out.  That's all I got.  Thank you.


SENATOR HALL:  Thank you, Mr. Wilkinson.  Questions?  Howard, there are none, thank you.  Appreciate your testimony as always..




SENATOR HALL:  Others who would testify?









MARVIN HOCHSTEIN:  My name is Marvin Hochstein, I was here yesterday and testified, would like to just go on the record in support of LB 1159.  And I'm also would support 1160.  I feel that 1159.  If we make some money out there farming, or in any business, we can afford to pay the tax.  Also, 1160, I am probably not as strong about LB 1160, but if I make enough money to purchase the new equipment, I probably could pay the tax on that also.  And if we repaired equipment and so forth rather than replaced it, we're not spending as much money and the taxes are not as great on the repair bill.  So, I think, I think I would go on record as supporting both of them.  And also I would like to state that in the businesses, the business that I own besides farming, one of the, one of the parts of our business is doing income tax.  I personally don't prepare the income tax, there are two people in our office that do, and we find that nobody likes to pay taxes be it federal, state, or otherwise.  But, when they pay taxes, they understand that they've money, and they're paying them after they've made the money rather than ahead as they would on paying on a personal property basis.  So, I guess that's kind of the way I look at it.  And also to just add that when I go to the bank, if I've got to pay my income tax, when I go to the bank and talk to the banker about some money to pay my taxes because I've spent the money already, he says, well, this is much easier to loan you money to pay taxes than to buy a new tractor.  Sometimes I wonder whether that, for myself, but I do have to agree with him that it's, it is better to go to the bank, borrow the money to pay taxes, then, and then I know I've made some money.  And he never complains about that.  His statement is, is my kids need shoes too.  And I'd...


SENATOR HALL:  Our bankers must be related.  (Laughter)


MARVIN HOCHSTEIN:  I'll, I'll end this by saying, when I was a kid growing up in Hartington, Nebraska, or between


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Hartington and Coleridge, we had a gentleman, and Elroy Hefner probably remembers him.  His name was, now let me think, Leon Doughtery (phonetic), and he used to sell cars for Phil Hahn (phonetic)-, and you know on, and I guess I kind of have thought of that many times, you know, we always joke about Leon at happy hour.  We'd come into the, into the local bar and Leon would pull up by the bar and say, you know, when Leon drinks, everybody drinks.  And then he'd get up and he'd leave and he'd say when Leon pays, everybody pays.  Arid I think we could probably use that same philosophy in taxes.  When, when everybody, when Marvin makes money, Marvin pays taxes.  When everybody makes money, everybody pays taxes.  And I guess that's, I kind of think ...  you know, it came to my mind as I was thinking about this with Governor Nelson stating that if we have income tax that's going to hit everybody and I don't know if that's all bad.  So with that, I thank you for your time, and...


SENATOR HALL:  Marv, thanks very much for your testimony.  Appreciate it.  Senator Hefner has a question.


SENATOR HEFNER:  Any thoughts on sales tax on farm machinery?


MARVIN HOCHSTEIN:  Well, Elroy, we in, in our auction business, you know, we pay a lot of ...  you know, this is a little bit of a problem with going across the state line where there's not sales tax on, on farm machinery being, and I'm sure this is not just a problem in our local area.  I think that's on what they refer to as the border bleeding all over.  I find many people will go across the state line to our farm auctions.  And, and I'm sure the same thing holds true with our farm implement dealers.  They'll go across the state line to make the purchase simply because it's cheaper to buy over there without the sales tax.


SENATOR HEFNER:  Do you charge sales tax at your farm auctions?




SENATOR HEFNER:  What's, what's the remarks some of the people from out of state make?




SENATOR HEFNER:  You live pretty close to the South Dakota border and Iowa border.


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MARVIN HOCHSTEIN:  ...they, this is correct, Elroy.  They, you know, I guess that's, it's...they come over there if they can buy a little cheaper and they,- figure the tax on it when they're making the purchase, why, that 's And, and our people go across .  We have more people, I'm certain, that- go across to the other side because it's just an advantage than.


SENATOR HEFNER:  It's a 5 percent advantage right (inaudible).


MARVIN HOCHSTEIN:  Absolutely, I mean, this, this is a, this is an advantage.  But I guess we're, you know, Elroy has told me this before, and I agree with him, you know, we have to pay, you know, there's no free ride.  So, you know, nobody wants to pay any taxes, so, I guess I'm in the position, I'm not totally against the sales tax because we'll pay that when we made an investment.  We have, we've done it because we've made some money.  And, and I'm not, I'm not...  I think the income tax, LB 1160, is a more fairer tax.  But I also believe that 1159, you know, we can't, everybody can't run and pay nothing.  So, I think 1159 has some merit also.






SENATOR HALL:  The Leon factor.  All right.  Thank you very much, Marv, appreciate your testimony very much.  Anyone else who'd care to testify on any of the proposals in a proponent, opponent, neutral capacity?  If not, Senator Warner, would you care to close?









SENATOR WARNER:  I think I'll pass.


SENATOR HALL:  That's ...  kind of you.  I'm going to pass, I'm not going to ask Senator Schmit, Senator Lamb's not here, and Senator Moore is gone.  Anyone from the Governor's office who would care ...  or his representative who would care to testify in closing?  If not, this will close the hearing for the day.  I'd like to thank you all very much for coming and staying with us.  I'd like to thank NETV for covering this.  Have a good weekend.