Governor signs 3 Neb. tax cut measures into law

Grant Schulte, Associated Press

LINCOLN, Neb. (AP) -- Nebraska Gov. Dave Heineman signed three tax-cut measures into law on Monday, while members of a new committee met for the first time to begin searching for weaknesses in Nebraska's tax structure.

The Republican governor approved the bills alongside 11 state senators who played a role in passing them. The signing near the end of this year's session came as lawmakers started their work on a statewide tax study authorized last week.

"These important tax bills represent small steps forward regarding tax relief and tax competitiveness, but they are important steps forward," Heineman said during a news conference at the Capitol.

Lawmakers on the 14-member Tax Modernization Committee began talking Monday about how to proceed with a six-month review of Nebraska's tax climate as a means to explore ways to stimulate business and population growth while maintaining essential state services.

The panel will look at what areas of the tax system, if any, have fallen out of sync with Nebraska's economy, said Sen. Galen Hadley, the committee's chairman. The last major tax overhaul took place in the 1960s, and some lawmakers question whether it meets the needs of a state that relies less on manufacturing and more on services.

Hadley noted that Nebraska's economy and tax system have fared better than other states during the recession.

Sen. Beau McCoy of Omaha said lawmakers will need to take a long-term view, because major tax policy changes are rare.

Lawmakers have passed several smaller tax measures this year, including a wind-energy incentive bill that is awaiting Heineman's approval or veto. He has until Tuesday to act on the legislation.

Heineman said Monday that he opposes the sales-tax credit for wind farms, but he supports another provision in the bill that would rescind Omaha's ability to impose a half-cent sales tax increase — effectively guaranteeing that the city's rate rises no higher than its current 1.5 percent. He said he didn't like the bill because it would give a tax break to a Kansas company at a time when lawmakers chose not to enact other major tax cuts.

Nebraska is trailing Iowa, Wyoming and other wind-swept states in wind energy production. The bill in front of Heineman is aimed at a Kansas-based company, TradeWind Energy, that's proposing a wind farm in northeast Nebraska and plans to export that electricity out of state.

The bill was introduced by state Sen. Steve Lathrop of Omaha, a Democratic prospect for governor in the 2014 election.

Heineman praised lawmakers for the smaller tax-cut measures, but took them to task for what he described as a failure to enact larger tax reductions.

"I appreciate it, but we could have done a lot more — a lot more," Heineman said.

Several measures aimed at lowering taxes were considered but not acted on this year, including Heineman's plan to eliminate or reduce Nebraska's income tax, which was scrapped after a barrage of criticism from farm group, manufactures and nonprofits.

One measure Heineman signed will eliminate an alternative minimum tax, and allow businesses to spread financial losses over a 20-year period when filing, instead of the current five.

Supporters have said the legislation could help high-tech startup companies endure the financial losses they often face in their fledgling years.

Nebraska is also one of nine states that still impose an alternative minimum tax, which was created to ensure that residents who use tax shelters pay at least something. The bill's sponsor, Sen. Paul Schumacher, said many of those tax shelters no longer exist, and the law only hurts residents with high medical bills, mortgages and other tax-deductible expenses.

Heineman signed another bill that will allow higher tax deductions for residents who are making contributions to a state-sponsored college savings program. Once in effect, the new law will allow state income tax exemptions of up to $5,000 for a married person filing separately, up from the current $2,500, and $10,000 for a married couple filing jointly, up from $5,000.

A third newly signed law would declare employee stock ownership plans as qualified corporations, allowing individual shareholders to exclude dividends and capital gains from their taxable incomes.