Nebraska governor seeks shift to sales taxes to ease high property taxes. Not everyone is on board

LINCOLN, Neb. — Nebraska Gov. Jim Pillen has announced a broad tax plan for an upcoming special legislative session that would cut property taxes on average in half — including for his own home and family farm in eastern Nebraska valued at more than $6 million.

Pillen announced the plan Thursday with the backing of several fellow Republicans in the officially nonpartisan Nebraska Legislature. But not all Republicans are on board, and it remains to be seen if he can get the 33 votes needed to break a filibuster to get it passed.

The proposal, which could be debated after the special session begins July 25, would vastly expand the number of goods and services subject to the state’s 5.5% sales tax to items such as candy, soda and CBD products, and to services like pet grooming, veterinary care and auto repairs. Most groceries and medicine would remain exempt.

Another portion of the plan would see the state foot the estimated $2.6 billion cost of operating K-12 public schools, which are now largely funded through local property taxes. It would also cap the growth of property tax revenue.

Opponents say the plan would shift the tax burden from wealthy home and landowners to low-income residents who can least afford to pay more for the goods and services they need. Pillen countered that “they have choices on what they buy and how much they’ll pay for that.”

OpenSky Policy Institute, a Nebraska tax spending watchdog group, said it’s still trying to gather details but worried the proposal will amount to a disproportionate tax shift to the working class.

“The plan proposes a significant re-invention of the way we fund public schools, and we believe that should merit the time, deliberation and collaboration necessary to get it right,” said Dr. Rebecca Firestone, executive director of OpenSky. “We don’t believe that a special session is the appropriate vehicle for initiating such a fundamental change.”

But Pillen reiterated Thursday that annual revenue from property taxes has risen dramatically in the last 20 years — from about $2 billion in 2003 to more than $5 billion last year. The last five years alone saw a $1 billion jump in property tax revenue. For comparison, revenue collected last year from individual and corporate income taxes was $3.6 billion and from sales tax was $2.3 billion. Pillen said his shift to sales taxes would “better balance Nebraska’s three-legged tax stool.”

If not addressed soon, Pillen said the rapidly increasing property taxes could force elderly people who’ve already paid off their mortgage out of their homes.

“It’s running ranchers off the ranch and running people out of their homes,” he said.

The governor has been crisscrossing the state holding townhalls to try to bolster support. On Thursday, he announced an online dashboard that allows residents to type in their address and receive an estimate of how much their property tax bill would decrease under his plan.

The dashboard showed Pillen’s home and farm in Columbus is valued at about $6.2 million and that his taxes on the property would drop from about $113,400 logged last year to $59,580.

Real estate taxes have skyrocketed across the country as U.S. home prices have jumped more than 50% in the past five years, leading a bevy of states to pass or propose measures to reign in property taxes.

Nebraska has one of the highest average property tax rates in the nation at 1.46% — tied with New York and behind Connecticut, Illinois and New Jersey, according to Bankrate.

A person’s property tax can vary greatly, even within the same county, based on local school and government subdivision tax levies. But in 2023, the average annual tax bill on a Nebraska home worth about $420,000 was more than $6,100.

All state lawmakers and most residents agree the state’s property taxes are too high, said state Sen. Ray Aguilar of Grand Island. Aguilar is a Republican who usually supports Pillen’s agenda, but not in this case.

“The governor is telling me he has the votes for this, but I don’t think so,” Aguilar said Thursday. “The people I’ve been talking to don’t think so, either.”

Aguilar’s main criticism is that the plan represents little more than a tax shift and doesn’t do enough to cut taxes.

“It’s a problem for working people and for manufacturers. I just don’t think this is the solution,” he said.