Heineman's tax reform plan has lots of moving parts

2013-02-06T06:05:00Z 2013-02-06T21:27:10Z Heineman's tax reform plan has lots of moving partsBy KEVIN O'HANLON / Lincoln Journal Star JournalStar.com
February 06, 2013 6:05 am  • 

Gov. Dave Heineman's proposal to overhaul Nebraska's tax system has a lot of moving parts. And there will be plenty of people descending on the Capitol this week to throw rocks into the gearbox.

The Legislature's Revenue Committee will discuss Heineman's plans (LB405 and LB406) during public hearings Wednesday and Thursday. And there no doubt will be considerable howling and gnashing of teeth over the bolder of the two measures (LB405) -- which would eliminate individual and corporate income taxes and pay for it by reinstating $2.4 billion in existing sales tax exemptions.

"This is truly the conversation we need to have," Heineman said this week. "It's about our future."

But one need only look to the past to see how divisive such conversations can be.

In 1990 in New Jersey, for example, Jim Florio pushed through a massive $2.8 billion tax increase package to deal with the state's budget deficit. Part of that package included a 7 percent sales tax on heavy trucks and equipment.

It was hoped the truck sales tax would generate $44 million per year, but all it did was send truck buyers to nearby states that exempted those sales from taxation. The tax so enraged and mobilized the trucking industry that the Democrat-controlled legislature repealed the tax four months later.

A similar scenario could unfold in Nebraska if Heineman's plan is adopted; one of the exemptions he wants to jettison is the sales tax exemption for big trucks used by contract carriers such as Crete Carrier Corp. of Lincoln and Werner Enterprises of Omaha.

Without that exemption, Nebraska's 5.5 percent sales tax could add thousands of dollars to the price of a tractor-trailer, which costs more than $100,000.

"That's been one of the things that's important to us -- having that exemption," said Larry Johnson, executive director of the Nebraska Trucking Association. "As much as we love Nebraska ... we could buy those (trucks) elsewhere -- in those states that would give us that benefit."

If Heineman's plan is adopted and those carriers go elsewhere to buy their trucks, Nebraska would be left without that sales tax revenue and also without the corporate income tax now being paid by trucking companies.

And the Revenue Committee will hear from more than just the trucking industry.

Some of the other exemptions that would be eliminated under LB405 include those for:

* "Business inputs" -- such as parts, rolling stock, manufacturing machinery, energy used in industry, water for irrigation and manufacturing and data centers.

* Prescription drugs and medical equipment.

* Seeds for commercial use, agriculture machinery and chemicals and energy.

* College and hospital room rental.

Senators have said discussions on eliminating income taxes and replacing $2.4 billion in revenue by removing sales tax exemptions will be difficult.

"Why are some businesses favored over another?" Heineman asked of the scores of exemptions that have been adopted over the years. "That's the conversation we're going to have. I think it's good for the state.

"Those states that are growing the fastest economically are those states that don't have an income tax system or have a low rate," he said. "That's what this is all about."

Reach Kevin O'Hanlon at 402-473-2682 or kohanlon@journalstar.com.

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