How does personal property tax affect Red Willow County?
Nebraska’s frustrations with property taxes go back over 150 years, when Nebraska was still only a territory. Throughout the decades, many proposals have been made to reduce the burden of the property tax system, but none have really worked. In 2016, the State of Nebraska collected almost $4 billion in total property tax, or $2,048 per person.
While there is no magic solution for reducing the tax burden and keeping government revenues flowing, there is a proven way to peel back one outdated and unfair layer to Nebraska’s property tax problem. Included in the property tax we pay on our homes and land (real property) is another property tax solely levied on businesses: the personal property tax. This tax is generally levied on machinery and equipment.
In 2016, the personal property tax in Nebraska made up 5.6 percent, or $217.1 million, of all property taxes collected. Statewide data show rural counties pay the most personal property tax per capita at $211.87. In 2016, rural counties and counties containing smaller Nebraska cities paid slightly more in personal property tax combined ($117.5 million) than in the metropolitan counties, which include Omaha and Lincoln ($99.6 million).
In Red Willow County, the personal property tax made up 7.8 percent of the total property tax collected. Agriculture pays 43.6 percent of the tax, and commercial businesses pay 37.7 percent. Public service entities and railroads make up the rest at 13.6 percent and 5.1 percent, respectively. On a per person basis, Red Willow County is ranked 80th for its personal property tax burden out of the state’s 93 counties, amounting to $116.88 per person.
Any solution for Red Willow County must first come from the Nebraska Unicameral, since state law mandates political subdivisions to collect personal property tax. Fortunately, state lawmakers have recently expressed interest in reforming or repealing the tax.
When looking at a regional snapshot, six Midwestern states—Iowa, Illinois, Minnesota, North Dakota, Ohio, and South Dakota—currently exempt all or nearly all personal property from taxation, while others, like Indiana and Michigan, have recently adopted reforms to reduce their personal property tax burdens. Clearly, Nebraska is operating at a competitive disadvantage when businesses can go to other states in the Midwest and avoid this economically detrimental tax.
But reforms will also require local input. While some may want to eliminate the tax in one swift move, that would leave most local governments with a big hole in their revenue, possibly forcing other tax hikes.
A more incremental way would be best. For example, the state could mandate that a certain value of property be exempted, and slowly increase the amount each year until it essentially exempts all of the tax. Another incremental method would be to exempt new property. Over time, the older taxable equipment would be replaced with new, exempt equipment.
Either of these incremental methods allows local governments to avoid steep and sudden reductions in tax revenue. They also benefit economic growth by not penalizing businesses for upgrading or replacing old or inefficient equipment.
State lawmakers could also give political subdivisions the local option to reduce or eliminate personal property tax. Since reliance on the personal property tax differs greatly statewide, some may remove or reform the tax without incident, while others may choose to keep it.
History shows that sweeping promises of property tax reform have rarely worked out for Nebraskans. But other states have proven that something major can be done about personal property taxes.
In the current slowdown in Nebraska’s economic growth, many are taking notice that the personal property tax targets the tools and investments needed for creating better-paying jobs and new services for consumers. Reforming the personal property tax would help Nebraska rebound by giving citizens much needed tax relief and removing barriers to businesses located within the state.
— Sarah Curry is the Policy Director for the Platte Institute. Learn more about personal property tax at PlatteInstitute.org/Personal.