■ Year’s first quarter sales tax tops $116,000. PAGE 2.
LB 96, passed this spring, goes into effect Oct. 1
By Jan Schultz
The Imperial Republican
It caught many city officials by surprise.
The 40-0-9 passage of LB 96 in the Nebraska Legislature this spring will be felt by the 208 municipalities which have a local sales tax.
Imperial is among those 208 communities that will be seeing less sales tax revenue from LB 96.
The bill will exempt repair or replacement parts used for commercial ag machinery and equipment from the sales and use tax.
That includes both state and local sales tax. The law goes into effect Oct. 1.
Introduced by Fullerton Sen. Annette Dubas, Imperial’s Sen. Mark Christensen was one of the bill’s 13 co-sponsors.
He said one of the major problems in the past has been “border bleed.” Nebraska’s bordering states including Kansas, Colorado and South Dakota already exempt ag repair parts from sales tax, he noted.
He asked, if the miles are similar and the ag producer can save up to 7.5 percent in sales tax (6.5 percent in Imperial), what would keep them from going out-of-state for the purchase?
He said there was much more evidence presented this year during hearings on LB 96 that convinced him it would help increase state revenues due to more trade and the resulting income taxes.
He said the legislation has come up nearly every year he’s been in the legislature.
“It finally got the momentum this year to pass,” he said.
But, most municipalities and those dealing with local sales tax and its budgeting were caught a bit off-guard.
Among them was Jason Tuller, Imperial’s economic development director, who oversees the budgeting of Imperial’s municipal sales tax dollars.
He’s visited with the city council and Chamber of Commerce about LB 96.
“Everyone missed this,” Tuller said. “As far as I know, I was the first one to ask about it,” he said.
Tuller said when he first read through a list of legislation passed in the 2014 Unicameral, he noticed LB 96 and started making some calls.
“No one had heard about it,” he said.
While figures were out about its effect statewide ($7 million less revenue anticipated during 2014-15 fiscal year), not much was reported on its effect in local communities. In 2015-16, the state expects a loss of $9.656 million.
In Imperial, Tuller estimates it will mean about $80,000 less per year in city sales tax revenues, or about 20 percent.
“That’s still just a guess,” Tuller said.
That’s because there are still a lot of questions within the Department of Revenue, which is charged with implementing the new law.
One immediate effect it has had just recently in Imperial was a halt to the East 3rd St. paving in the city’s Cornerstone property.
Cornerstone, where 10 rental homes and four spec homes are under construction, is also being considered for five additional rental homes along East 3rd St. There is other interest from potential businesses looking to locate there, Tuller said.
However, members of the Citizens Advisory Committee, which recommends use of the city sales tax for economic development (LB840 funds), voted last week to stop the street project they had approved several months ago, and which had received the council’s blessing.
Since bond payments for the $1.03 million East 3rd project were to come out of anticipated LB 840 funds, that’s not possible now, Tuller said, with the expected loss in revenues.
He said they may be able to proceed doing the street “piecemeal,” or may just gravel the street instead.
“I’m just glad this didn’t happen next year after East 3rd was built,” he said.
He said other recent municipal sales tax-funded projects, including last year’s East 2nd St. paving, purchase of the Cornerstone ground and the swimming pool, all whose bond payments are being paid with sales tax dollars, can still be covered.
Tuller met with a Nebraska Dept. of Revenue official last month to try to determine what kind of losses could be expected in Imperial based on general ag business collections here. He said the official indicated they don’t even know yet how all of the law will be implemented.
There are unknowns right now, such as whether purchase of a new tire or certain auto repairs constitute a “repair or replacement part” when purchased by a farmer or rancher.
As an example, Tuller learned that the same bolt could be taxed in one instance, if it’s used in a farmer’s home, but not when it’s used in repairing a piece of ag machinery.
Are the business owners going to have to ask each buyer what the part is being used for, Tuller wonders.
Bottom line, Tuller said Imperial projects using city sales tax dollars will likely have to be curtailed.
City sales tax from the community development fund recently provided new soccer goals, new playground equipment in the parks, parking improvements at the Manor and help with the new bathroom construction in Campbell Park.
Tuller said they will have to be a lot more careful in how they budget for projects now.
“This is a law with a lot of unintended consequences,” Tuller concluded.
The city’s one percent sales tax is added to the state’s 5.5 percent tax on qualified purchases in the city limits for a total of a 6.5 percent sales tax here.
Imperial voters approved the city sales tax in the November 2006 election. It went into effect the following April.
Imperial’s one percent local sales tax currently brings in an average of $34,000 a month based on figures from 2013.