News Release: Oct. 1 News Conference Call on Sales Tax Report
Contact: Adam Weinberg
Broadening Tax Base Key to Major Property Tax Reform
OMAHA, NE – Platte Institute Policy Director Sarah Curry and Communications Director Adam Weinberg will host a news conference call on the new Platte Institute report, Nebraska's Sales Tax, on Tuesday, October 1 at 10:30 a.m. Central Time.
To call in, dial (605) 475-4000, Access Code: 106202#. The call may be recorded for broadcast and will include Q&A.
A PDF of the report, a summary, and media resources can be found at this link. The summary is also attached to this release. The report will be available on October 1 at PlatteInstitute.org.
Nebraska's Sales Tax is a guide for policymakers and Nebraskans on the history and economics of Nebraska's sales tax, which was created in the 1960s as a response to a successful constitutional amendment ballot measure that ended the statewide property tax.
The Nebraska Legislature's Revenue Committee has been exploring ways to end sales tax exemptions to reduce Nebraska's high local property taxes, possibly in combination with a reduction in the state sales tax rate.
Sales tax policies differ widely by state. When the sales tax was created in Nebraska, a 2.5% tax was levied on the sale of most goods, but few services. Today, Nebraska's tax is 5.5%, not including local sales taxes.
In addition to staples like groceries and gasoline being exempt from the sales tax, most services remain exempt, despite services now making up most of Nebraska's economy. Even with the numerous exemptions in the current tax base, sales taxes are still levied on purchases including utilities, telephone service, nonprescription drugs and toiletries, prepared foods, and clothing.
The report recommends for the Legislature to eliminate sales tax exemptions on final consumer purchases of goods and services alike and to use the new revenue to reduce Nebraska's property and sales tax rates.
"Sales taxes in Nebraska and most other states are often levied arbitrarily, taxing some goods and services at high rates while leaving many others tax-free," said Platte Institute Communications Director Adam Weinberg, co-author of the report.
"By leaving most of what Nebraskans buy exempt from sales tax, policymakers are forcing heavier reliance on property taxes and income taxes to pay for government, and potentially, the exemptions are contributing to the sales tax itself being higher than it would otherwise have to be," said Weinberg.
Here are other highlights from the report:
- Nebraska has plenty of room for improvement when it comes to broadening its sales tax base. Nebraska collects sales taxes on only 34% of purchases made, while neighboring South Dakota collects sales tax on 62% of purchases.
- Since the creation of the sales tax, Nebraska has followed the national trend toward a service-based economy. Services make up 66% of economic activity in Nebraska, while goods represent 34%.
- State policymakers are increasingly choosing to expand the sales tax base as a means of enacting tax reform that improves the overall tax climate. Iowa, Kentucky, and North Carolina have recently eliminated certain sales tax exemptions to pay for changes to their tax structures, while lawmakers in Utah are debating a plan that would significantly expand the state's sales tax base.
- One area where sales tax exemptions are economically justifiable is on the sale of business inputs, which are still taxed in many states. Taxing inputs results in "tax pyramiding," which causes the final price of a good or service to be increased through layers of taxation. The effect of pyramiding is especially great on products that go through a longer production process. Because the ideal sales tax should apply equally to all goods and services, it should only be levied one time as the final good or service is sold to the consumer.
- Nebraskans consume approximately $77 billion in goods and services annually. A 5.5% sales tax on these purchases would raise a hypothetical $4.2 billion in revenue, which is greater than the amount of real property taxes collected in Nebraska. Though it should be cautioned that this hypothetical figure includes the taxation of business inputs, it demonstrates that Nebraska still has significant untapped revenue potential in its sales tax base.
- The sales tax can be a regressive tax since taxpayers with lower incomes consume a larger percentage of their income. However, policies including the expansion of the sales tax base to include services, and reducing the sales tax rate, represent a progressive change. Higher-income taxpayers consume a greater amount of services that are largely exempt, while lower-income taxpayers consume more goods, which are often taxable.
To schedule an interview on this topic, please contact Adam Weinberg at (402) 452-3737 or at email@example.com.
The Platte Institute advances policies that remove barriers to growth and opportunity in Nebraska. For more media resources, please visit PlatteInstitute.org/Media.