Nebraska tax revenues continued flowing in at a higher-than-expected pace during the first quarter of the fiscal year.
The Nebraska Department of Revenue released a report Friday showing that the state netted $155.9 million more than predicted for July through September. The state netted $100.8 million more than predicted for September alone.
Gov. Pete Ricketts said the report supports efforts to add to the tax reductions passed in the last few years.
“Nebraska’s tax receipts continue to grow beyond our expectations as a result of our state’s booming economy,” he said. “Strong receipts are setting us up to deliver even more tax relief for the hardworking people of Nebraska.”
The unexpected revenue is enough to wipe out a projected $101 million shortfall — and then some — for the two-year budget period that started July 1. The shortfall appeared after the amount needed for Nebraska's newest property tax relief program was factored into the state's financial status.
Record tax revenues for the fiscal year just ended required the state to transfer $548 million a year into the program, under which property owners get income tax credits to offset a portion of their property taxes paid to schools. State law determines the amount of the credits based on the growth of tax revenue.
The $548 million transfer meant that property owners would get credits equal to about a quarter of their school property taxes when they file their 2021 income taxes. But it also reduced the amount of tax revenue available for the state budget.
The monthly report of tax receipts showed that net revenues exceeded expectations in each month of the current fiscal year, with actual net revenues topping expectations by 19.2% in September.
Lydia Brasch, a Revenue Department spokeswoman, credited the state’s strong economy for the tax revenue growth.
“The state was resilient throughout the pandemic,” she said.
Other state officials have attributed at least half of the growth to federal pandemic relief programs, which helped individuals and businesses weather the economic chaos created by the coronavirus.
The new report compared actual tax collections with revenue projections issued by the Nebraska Economic Forecasting Advisory Board in April.
The board is slated to meet later this month to update its projections, a key step in the state’s budgeting process. Both Ricketts and the Legislature’s Appropriations Committee use the board’s projections in crafting their budget proposals.
The strength of tax revenues so far this year means the board is likely to boost its projections as well, increasing pressure for more tax cuts.
Sarah Curry, policy director for the Platte Institute, pointed to the new report as an argument for reducing the state’s top corporate income tax rate. The report showed sales, personal income and corporate income taxes all topping expectations.
“As these revenue numbers continue to be positive, it’s clear a faster implementation of the rate reduction is affordable for the state budget,” she said.
Lawmakers passed a law this year cutting the top corporate income tax rate to 7.25%, down from 7.81%, over two years. The first step takes effect in January.
Business groups have been pushing to bring the top rate down to 6.84%, the same as the top personal income tax rate.
Along with cutting the corporate tax rate, lawmakers also approved a phase-out of taxes on Social Security income and full tax exemption for military retirement benefits. Both take effect in January.
Sales tax exemptions for residential drinking water and additional agricultural machinery went into effect Oct. 1.