Legislative Testimony for LB422: Change the sales tax rate and impose sales tax on additional services

Good morning, Chairwoman Linehan and members of the Revenue Committee. I’m Sarah Curry, Policy Director at the Platte Institute and I am testifying in support of LB422.

The Platte Institute supports an expansion of the sales tax base to purchases which are not business inputs to avoid tax pyramiding. We also believe any base broadening expansion should be tied to corresponding tax reductions.

It is our view that expansion of the sales tax base has much greater potential for raising significant revenue without the harmful economic or revenue stability effects of simply raising tax rates. In today’s society, taxpayers tend to spend a greater share of their income on services, which are largely exempt from sales tax.

Nebraska has an increasingly service-based economy as compared to the goods-based economy of fifty years ago. The sales tax base needs to be updated to account for this change. This principle of including services in the sales tax base is agreed to across the philosophical spectrum among tax policy experts. Where the disagreement begins is when deciding what to do with the new revenues.

While some may want to spend the increased tax revenue from this proposal, we strongly support the revenue triggers included in LB422. This is a policy the Platte Institute supports and has advocated for in the past.

Revenue triggers, a relatively modern innovation in the tax policy world, have been used in 12 states and the District of Columbia’s tax legislation over the last decade. The use of well-constructed triggers has enhanced states’ stability and allowed them to implement tax policy changes in a fiscally responsible manner. In fact, two of our neighboring states, Iowa and Missouri, have successfully used triggers to phase in a number of their tax reforms.

Another benefit of an expansion of the sales tax base is that this would allow local municipalities to collect more sales tax, which should offset or allow for property tax reductions.

Nebraska needs to modernize its tax code while also reducing overall rates. LB422 does both of those things and we encourage the committee to advance this bill for General File debate.