Scramble begins to preserve sales tax exemptions

Let the games begin!

The contest has begun to see which lobbying groups and "special interests" are strong enough to preserve their sales tax exemptions in Nebraska against Gov. Dave Heineman's proposal that some or all exemptions be eliminated as part of a major restructuring of the state's tax system with an eye toward improving Nebraska's business climate -- ranked 31st by the Tax Foundation.

Heineman is suggesting eliminating most sales tax exemptions, with the exception of food, to make up for ending or lowering individual and corporate income taxes.

In his State of the State address -- delivered again by Lt. Gov. Rick Sheehy at McCook's Ben Nelson Regional Airport -- the governor noted that Nebraska exempts more sales from taxation than it takes in in general fund revenues.

Fiscal 2014-15 general fund revenues are expected to include $2.095 billion in individual and $270 million in corporate income taxes, $1.55 billion in sales and use taxes and $165 million in miscellaneous taxes and fees, for total general fund revenues of $4.080 billion.

At the same time, Nebraska exempts $5 billion in potential sales tax revenues.

By eliminating $2.365 billion in sales tax exemptions, Heineman says, Nebraska could eliminate individual and corporate income taxes, as well as ending state taxes on Social Security, military and any other retirement income.

The governor and other supporters of his plan have their work cut out for them.

Check out the list of sales tax exemptions, and you'll see that many fall into the category of "general" rather than "special" interests, and are likely to remain exempt.

The most obvious is food, but others with widespread support include exemptions on the sale of agricultural chemicals, machinery and fuel, animal life, animal feed, commercial seed, water for irrigation or manufacturing, railroad rolling stock, admission to nonprofit sporting and school events, entry fees for youth sports events, laundromats, medicine and medical equipment, repair labor, film rental, sales for resale, dorm rental, public records, purchases by churches and nonprofit college and medical facilities, garage sales, sales by religious organizations and many others. Yes, even newspapers.

Should food sales tax exemptions be eliminated, taxes would be collected on church meals, concessions, food for elderly, handicapped and SSI recipients, political fundraisers and SNAP (food stamps).

Still, the governor is to be commended for proposing bold action to both improve Nebraska's business climate and fairness in its tax system, especially in light of coming expenses associated with expansion of Medicaid under Obamacare changes.

Let's hope the Legislature takes the proposal seriously -- and the ideas spread to Washington as well.

Read about Nebraska's sales tax exemptions here and about Gov. Heineman's proposal here.