Taxpayers disputing levies for LB701

People grumbling about paying taxes is par for the course this time of year, with the second half of property taxes due before Sept. 1.

But the grumbling has taken a new twist, as almost daily at the Red Willow County Treasurer's office, taxpayers have been requesting a refund of taxes collected by LB701.

A thick, blue binder at the Red Willow County Treasurer's office is being used to keep track of the 95 written requests -- so far -- for tax refunds, requests that must be filed within 30 days of paying property taxes.

The reason for the recent flurry of tax refunds? District Court Judge Paul D. Merritt Jr. in Lancaster County in Lincoln, ruled in May that the property tax permitted in LB701 was unconstitutional. The ruling came in a lawsuit brought by nine property owners that contended the tax was illegal.

Despite the ruling, the LB701 taxes can still be collected as the Nebraska Attorney General, representing the state, NRDs and counties named in the lawsuit, has filed an appeal with the Nebraska Supreme Court. Taxes collected by LB701 are being held in escrow by the three NRDs, according to Traci Wittuhn, coordinator of the Republican River Basin Coalition, a joint entity formed by the NRDs

The property taxes people are asking to be reimbursed for were authorized by LB701, passed by the Nebraska Legislature in 2007. It allowed the three natural resources districts in the Republican River Basin -- the Upper, Middle and Lower -- to levy a new property tax up to 10 cents per $100 valuation and an occupational tax on irrigated acres, as a way to fund programs to help the state comply with an interstate water compact. Under the law, the additional property tax and occupation tax were authorized, along with state funding, regulations and vegetative management.

For taxpayers in the Middle Republican Natural Resources District -- those in Red Willow, Frontier, Hitchcock and Hayes Counties and a third of Lincoln County -- the new tax is 4.7 cents per $100 valuation, in addition to the regular 6.1 cents paid to MRNRD.

Even if the Nebraska Supreme Court agrees the taxes are unconstitutional, there is no mechanism in LB701 to refund those taxes.

Sen. Mark Christensen of Imperial, who introduced the original LB701 that was re-written by the Legislature's Natural Resources Committee, said his office is working on legislation for next year that will allow the taxes to be refunded if the need arises.

Christensen said he's also working on a bill to open up LB701 to include any natural resources district in the state with a river designated as fully or over-appropriated.

This would eliminate the "closed class" that Judge Merritt said existed when he ruled the LB701 property tax unconstitutional.

Taxpayers who want a refund of their LB701 taxes will have to come up with a form on their own, as there is none established by state law.

Instead, Red Willow County Treasurer officials will hand out a copy of a state statute that deals with how and when property taxes can be refunded.

People so far have been using a form circulated online or writing their own.

According to statute 77-1735, within 30 days of paying property taxes, a person may file a written request for a refund. This request is presented to the county commissioners at their next meeting.

If after 90 days their money is not refunded, the person can sue the county for the amount claimed. A trial then determines if the tax is illegal.

So does this mean a lot of trials at the county's -- and taxpayers' -- expense?

Are the tax refund requests basically useless?

Maybe, maybe not, said Claude Cappel, one of the nine property owners in the Republican River Basin who filed a lawsuit against LB701.

Although he's not sure if or when property taxes will be refunded, he maintains that the money was obtained unlawfully in the first place.

"I don't think it's right for the state to pass things that are unconstitutional," he said. Still, a ruling from the Nebraska Supreme Court may not be the final say on LB701. Cappel said that a lawsuit challenging the occupation tax is likely to end up in court in the near future.