Gov. Dave Heineman and two senators gave specifics Friday on how the state can eliminate income and corporate income taxes.
The plan is to cut $2.4 billion of the $5 billion in current sales tax exemptions. The governor, along with state senators Beau McCoy of Omaha and Brad Ashford of Omaha offered two bills as a starting point.
Gov. Heineman said it's a way to frame the discussion and get advice and input from taxpayers. "Let's rely on the wisdom and experience of Nebraskans."
The first bill eliminates approximately $2.4 billion in sales tax exemptions and the result is the total elimination of both the individual income tax and the corporate income tax. The move would also eliminates taxation of Social Security income and military retirement income.
Click below to read more about the 84 sales tax exemptions in Nebraska:
A second bill will eliminate approximately $395 million in sales tax exemptions. This bill would eliminate the corporate income tax and exempt the first $12,000 of retirement income for married couples and $6,000 for single individuals. Both bills exempt food from taxation.
"Think of this as bookends," said Sen. Ashford, who explained this is one way to get Nebraskans to look at the fine print and decide which exemptions should stay and which should go when it comes to tax reform. Gov. Heineman was confident that if the bill gets through the Legislature where income taxes can be eliminated, Nebraska will be in the top 10 of rankings when it comes to business climate of a state.
Currently, 23 states exempt a portion of or all retired military pay, but Nebraska does not. Forty-three states exempt a portion of or all Social Security income, but Nebraska does not. Nebraska’s top personal income tax rate is 35th of 50 states and is higher than all neighboring states.
Nebraska’s Tax Foundation Business Tax Climate ranking is 31st out of the 50 states, a respected index that businesses rely on when choosing where to locate a business.
So what type of sales tax exemptions are listed to eliminate to reach the $2.4 billion savings?
Here's a sample: energy used in industry ($122 million), dorm and hospital room rentals ($71 million), medical equipment ($125 million), railcar purchase and repair ($20 million), aviation fuel ($9 million), prescription drugs ($88 million), agriculture machinery and chemicals ($154 million), energy used in agriculture ($82 million), animal grooming ($58,000), film rentals ($166,000), seeds for commercial use ($42 million).