Reforming Nebraska’s Tangible Personal Property Tax
Nebraska’s tangible personal property tax (TPP) needs to be reformed. Nebraska ranks 45th in the nation for overall property tax competitiveness, and TPP is one of the culprits for Nebraska’s uncompetitive property tax system.
Tangible personal property (TPP) includes the machinery, equipment, fixtures, and supplies that businesses use to conduct business. Unlike real property, which includes land and its improvements and structures, TPP includes equipment that can ostensibly be moved between locations. TPP taxation is complicated and taxpayer-active, meaning that it requires significant compliance work from taxpayers just to calculate and pay that tax.
Nebraska should start reforming the TPP tax by creating a de minimus exemption to its TPP base in order to eliminate the compliance cost for small businesses at a low cost in foregone revenue. TPP taxation accounts for $250 million in statewide property taxes. Over time, Nebraska should phase out this tax altogether.
Multi-state overview
State policy on tangible personal property taxation falls into three categories. Fourteen states exempt TPP from taxation. Another 26 states, including Nebraska, fully tax TPP. Finally, another 10 states tax TPP but provide a de minimus exemption, which means that they don’t tax lower values of TPP (for example, they exempt the first $25,000 of TPP value from taxation).
Nebraska is one of the 26 states that fully taxes TPP. Notably, Nebraska is the only state to previously provide a de minimus exemption only to later repeal the exemption. Nebraska’s goal should be to move from a state that taxes all of TPP, to one that provides a generous de minimus exemption to TPP, to one that doesn’t tax TPP at all.
TPP is an economically harmful tax
TPP is a tax from a bygone era that states need to get around to eliminating. It no longer belongs in a modernized tax code and furthermore excessively penalizes production industries like agriculture, mining, and manufacturing. According to Tax Foundation:
Unlike real property taxes, TPP taxes are taxpayer active, meaning that the taxpayer bears the responsibility of determining (subject to audit) their tax liability, rather than receiving a tax bill from the government. Each business must itemize all personal property, with acquisition price and date, and depreciate it according to the appropriate schedule, to determine their taxable base…
For small businesses, this can be a lot of work—often wildly disproportionate to the amount actually owed. Meanwhile, the vast majority of TPP tax collections come from a small number of businesses. In an ideal world, they would not pay TPP taxes either, but imposing significant compliance costs on businesses with negligible exposure to the tax is particularly hard to justify.
The TPP tax is thus comparable to a capital stock tax, which in Nebraska is known as the Corporation Occupation Tax. Both taxes are from a bygone era that predates more modern forms of business taxation, and they no longer make sense under Nebraska’s current economic makeup and tax structure.
Options for Reform
Nebraska’s first step for TPP reform should be to restore the $10,000 de minimus exemption that was repealed by in LB 1107 in 2020. The fiscal cost of restoring the exemption is roughly $16 million in fiscal year 2025-26, according to the fiscal note from LB 1107.
Thus, restoring the exemption would mean a $16 million reduction in property taxes in a state where the total property tax burden is roughly $5 billion, which amounts to a mere 0.32% reduction in property taxes statewide. Local governments can manage this miniscule reduction.
On the other hand, the tax relief will be significant for small businesses, many of whom will leave the tax rolls altogether. Any business with less than $10,000 of TPP will no longer carry a tax liability. The TPP tax is “taxpayer active,” which means that simply calculating tax liability and complying with payment is burdensome for the taxpayer. By comparison, the traditional real property tax on land and structures is calculated by local tax assessors and presented to the taxpayer.
Therefore, restoring the de minimus exemption will restore critical tax relief for small businesses.
Going forward, Nebraska should continue to chip away at the TPP burden through a combination of strategies. First, the de minimus exemption should be continually raised to account for inflation and ideally should be raised more quickly than inflation. In fact, most states that have an exemption provide more generous relief up to $50,000 of untaxed TPP. This largely wipes out the tax burden for small businesses.
Another strategy Nebraska can use is to gradually lower the tax rates while concurrently expanding the de minimus exemption. This approach would parallel Nebraska’s income tax reforms which lowered tax rates while expanding the standard deduction.
Another strategy Nebraska can use is to eliminate the TPP tax on new purchases so that the tax gradually phases out over time as businesses acquire new machinery and equipment.
Regardless of the strategic approach, the intermediate and end goals should be the same. First, lawmakers should remove large swaths of small businesses from the tax rolls altogether by restoring and raising the de minimus exemption. Then, lawmakers should eliminate Nebraska’s industry-punishing TPP tax altogether.