Dispute over taxes raises familiar question for Nebraska lawmakers: Who gets a break?

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LINCOLN, Nebraska — A dispute over taxes is drawing new attention to an old question that Nebraska lawmakers have to answer every year: Who gets a break, and who has to pay?

The issue surfaced last week as lawmakers debated sales tax exemptions for zoos and an $800,000 property tax break for the Woodmen of the World Insurance Society, a prominent insurance firm in downtown Omaha.

Critics say the narrow exemptions deprive state and local governments of revenue and force other Nebraska taxpayers to make up the difference. Sen. Ernie Chambers of Omaha railed against the Woodmen bill and accused lawmakers of "licking the boots of the big shots."

"We've got a tax problem in Nebraska, and some people are jumping ship and getting a lifeboat — and the rest of us are left holding the bill," said Sen. Mike Groene of North Platte.

Supporters of the zoo tax bill said the extra money would help pay for infrastructure improvements to draw even more visitors to Omaha, Lincoln and Scottsbluff. The Woodmen tax bill advanced amid concerns that the group — which employs more than 500 people — has talked about moving to Council Bluffs, Iowa.

The Revenue Committee hears dozens of pitches each session. More than half of the 92 tax bills introduced this year involved some form of tax break, but very few were voted out of committee, said Sen. Mike Gloor, the committee chairman.

"I think the Legislature tries to be discerning, but most of the public doesn't realize how many requests we get," said Gloor, of Grand Island. "We let a few trickle out, but not a lot."

Gloor said some breaks are necessary to keep Nebraska competitive with other states.

He pointed to a sales-tax exemption passed last year on repair parts for farm equipment. Farm implement dealers along the state border were losing jobs because most of Nebraska's neighbors already exempted the products, allowing them to offer cheaper prices.

Senior committee members have grown increasingly skeptical anytime one specific group seeks a tax break, said Sen. Paul Schumacher, of Columbus. Lawmakers have repeatedly rejected efforts to reinstate a sales tax exemption for car washes, which was eliminated during a 2002 budget crisis on the promise that it was temporary.

"Everybody who comes before you asking for a tax break has a terrific argument for it — or at least they think so," Schumacher said. "After you gain a little experience, you realize that almost every one of them is a slippery slope."

Some tax breaks may serve a worthwhile purpose, but those that are already in place need to be scrutinized, said Renee Fry, executive director of the OpenSky Policy Institute, a Nebraska think tank.

Fry said the state is wise to offer sales tax exemptions for business inputs, such as wood and metal used to build chairs, because taxing each component separately increases the end-cost for consumers.

But once enacted, Fry said tax exemptions are harder to track than regular government spending. Expenses included in the state budget are reviewed regularly by lawmakers and the governor and must be defended in public hearings. In an era of term limits, Fry said the tax exemptions are approved and easily forgotten.

"The more we exempt, the more we narrow our tax base," Fry said. "What we don't know is whether what we're exempting provides a good return on the investment."

Past attempts to expand the sales tax base have failed. Former Gov. Dave Heineman ran into heavy opposition in 2013 when he called on lawmakers to eliminate sales tax exemptions to pay for proposed income tax cuts. He ended up scrapping the plan.

Nebraska allows sales tax exemptions on 98 different goods and services, from farm chemicals to airplane fuel to bull semen, according to the Department of Revenue.

Sen. Al Davis of Hyannis said property tax exemptions are partly to blame for funding problems in Nebraska's K-12 schools. Each property tax exemption reduces the revenue that school districts can generate locally, which forces the state to make up the difference with an already stretched K-12 equalization budget.

Davis said state officials have no idea how much property isn't taxed, which makes it harder to pass broad-based tax relief. He introduced a bill this year that would have required counties to compile a list of all tax-exempt property and its value, but the measure stalled in committee.

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