$50 million in Nebraska property tax relief goes unclaimed, total may rise

$50 million in Nebraska property tax relief goes unclaimed, total may rise

In a late 2020 Nebraska Legislature session delayed by the COVID-19 pandemic, senators enacted a new property tax relief program under Legislative Bill 1107. The program created a state income tax credit that went into effect for the 2020 tax year. Nebraska real property owners were able to file in 2021 and receive credit from the state for a portion of the local school district property taxes they paid.

The 2021 tax filing deadline was also extended due to the pandemic, giving taxpayers a longer-than-normal amount of time to receive their credits. But months after the conclusion of tax season, data from the Department of Revenue now show more than $50 million in tax credits from the program went unclaimed.

According to an Omaha World-Herald article, as of mid-October 2021, only $73 million out of the $125 million has been claimed by property owners, leaving around 40% of the total in state coffers.

The tax credit program was created as a compromise after lawmakers were unable to reach an agreement on a more significant tax reform plan. Not wishing to come away empty-handed in the 2020 election year, the tax credit was included as part of a larger package of economic legislation that won support across party lines.

The Platte Institute and the Tax Foundation were critical of the policy behind the LB1107 tax credit. Senior Policy Analyst Katherine Loughead wrote, “Tax credits like the ones approved in LB1107 may help legislators buy some time to work toward a more permanent solution, but they are not, in and of themselves, an effective means of providing lasting relief.

I agree with Katherine. Nebraska needs structural tax reform, not just another relief program that does nothing to prevent local property taxes from rising. People that move to Nebraska are often shocked at the high property tax price tag that comes with home ownership. Unfortunately, the state’s current relief programs not only cost hundreds of millions of dollars, but they don’t truly lower a property owner’s tax bill.

Prior to LB1107, the state created the Property Tax Credit Relief Fund in 2007. While no tax filing is necessary under that program, it is also functionally a tax credit the state applies by picking up a portion of local tax bills, though the credit does not reduce the local tax levy. Platte Institute research has shown this policy, which still operates in addition to LB1107, has not done anything to halt the growth of local property taxes.

A chart displaying the per capita amount of property tax paid and property tax assessment in Nebraska from 1929 to 2017, inflation adjusted based on 2012 dollars. The chart shows that despite major changes to property tax policies and relief programs in Nebraska since 1967, property taxes have never been higher. In 2017, the per capita tax was more than $2,000, and the per capita assessment was nearly $250,000. That compares to an inflation-adjusted $500 and less than $50,000 at the beginning of the dataset in 1929..

Thanks to Nebraska’s strong 2021 revenues, the LB1107 tax credit will be growing substantially, to $548 million next year. It would seem that great of an increase would incentivize more people to take advantage of the program, but some are not optimistic.

According to the Omaha World-Herald article,

“Ryan Burger of Seward, chairman of the Nebraska Society of CPAs, said he is skeptical about the $548 million all getting out to property taxpayers, based on his experience and the amount of credits that have gone unused this year.

  He said the 58% of credits claimed this year exceeded what he expected, based on typical patterns for income tax credits. Even with the larger amount available next year, he predicted the state would fall far short of distributing 100% or even 90% of the money. “It’s an unreachable goal,” he said. “I barely see a path to achieving 70%.”

It is not likely the Legislature would change the way taxpayers would participate in the program for next tax season. This gives Nebraska policymakers another year to try to educate property owners about the credit and see if a larger percentage of the credits are taken. Maybe next year the outcome will be better. But probably the most important lesson leaders can learn from this experience is that if they want Nebraskans to pay less property tax or income tax, they should use a simpler approach and just give them lower property taxes and income taxes.

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