Bill Summary, LB 1063 (1992)
In July 1991, the Nebraska Supreme Court ruled that Nebraska statutes providing exemptions for certain classes of personal property (agricultural equipment, business inventory, farm inventory, livestock, and railroad rolling stock) violated Article VIII, section 1, of the Nebraska Constitution (the “Uniformity Clause”) which provides that “taxes shall be levied by valuation uniformly and proportionately upon all tangible property and franchises ... and the Equal Protection Clause of the United States Constitution.
Since that ruling, efforts to avoid further lawsuits by “fixing” the personal property tax system have dominated the attention of the Legislature. It appeared from the outset that the Legislature would either have to refrain from treating different classes of personal property differently (that is, taxing some classes while exempting others) or to amend Article VIII, section 1, of the Nebraska Constitution to render such differential tax treatment constitutional.
Previous decisions of the Nebraska Supreme Court had brought this problem to the crisis point. In July 1989, the Nebraska Supreme Court ruled that Nebraska could not tax pipeline property differently from railroad property. Railroad personal property had been largely exempted from taxation because it was felt that such taxation would violate the federal 4-R Act.
During a special legislative session in November 1989, LB 7s1 was passed in an attempt to create a special class for railroad personal property. It was hoped that this would allow the Legislature to treat railroad property and pipeline property differently. However, in March 1991, the Nebraska Supreme Court held that this law violated Article III, section 18, of the Nebraska Constitution which prohibits the passage of local or special laws “[g]ranting to any corporation, association, or individual, any special or exclusive privileges, immunity or franchise. . .”.
In its decision, the Nebraska Supreme Court indicated that LB 7s1 also violated the Uniformity Clause and explained that the federal 4-R Act did not prohibit states from taxing railroad property but only prohibited states from taxing railroad property in a discriminatory manner. This series of legislative and court actions set the stage for the 1991 legislative session.
During the 1991 legislative session, LB 829 was passed as a short-term solution to the personal property tax crisis. LB 829 created a one-year moratorium on the collection of personal property taxes and offset the resulting revenue loss to political subdivisions with increased state aid funded by a variety of state taxes and fees. Governor Nelson also established the Revenue, Restructuring, and Revitalization Committee (3-R Committee) which was charged with the responsibility of developing a long-term solution to Nebraska’s personal property tax crisis.
As a result of the 3-R Committee’s deliberations, two measures (LR 219CA and LB 1063) were introduced at the beginning of the 1992 session. LR 219CA presented the voters with a constitutional amendment eliminating the application of the Uniformity Clause to personal property, allowing a net book value approach to assessing personal property, and creating a special class for federally protected property.
It was argued that the adoption of this amendment would render existing personal property tax policies which tax some classes of personal property while exempting others constitutional, thus eliminating the primary legal arguments upon which recent successful personal property tax lawsuits had been based. LR 219CA was adopted by the Legislature and approved by 58 percent of Nebraska voters on May 12, 1992.
Meanwhile, following lengthy debate and the introduction of numerous amendments, LB 1063 had passed with the emergency clause by a vote of 33-15-1 and was approved by the Governor on March 18, 1992. Because the bill was adopted before the voters had approved the constitutional amendment, the bill contained language providing alternative taxation approaches, each of which was contingent on the outcome of the vote on the constitutional amendment.
That portion of LB 1063 which assumed passage of the constitutional amendment outlined revisions in personal property taxation whereby farm machinery and equipment, breeding livestock, and business machinery and equipment were taxed on a net book value basis (cost minus accumulated depreciation). The bill also granted purchasers of farm machinery a 100 percent sales tax refund and imposed a new tax on fertilizers at a rate of $4.00 per ton sold. The fertilizer tax is paid by the purchaser and collected by the retailer.
Additional provisions of LB 1063 included $3.5 million in reductions in state aid to counties and adjustments in the sales tax collection fee rates. The new collection fee rates are 2.5 percent of the first $3,000 sales tax remitted each month and .5 percent on remittances of more than $3,000 per month.