Stunning last-minute defeat for Pillen tax shift bill likely ensures special session

Editor’s note: This story has been updated to include comments from Gov. Pillen during his session-ending speech.

LINCOLN — Gov. Jim Pillen’s much-amended plan to raise sales taxes to decrease local property taxes went down in flames Thursday, the final day of the 2024 state legislative session.

It was a stunning defeat for the idea of raising some taxes to reduce others, and it almost assuredly guarantees that state lawmakers will be back this summer in a special session on taxes.

After all, Pillen has said that he will keep senators in session until Christmas, if need be, to reach his goal of reducing local property taxes by 40%.

Comment later during speech

During the governor’s annual session-ending speech, Pillen called the session a failure because it didn’t result in one cent in extra property tax relief.

“That’s unacceptable from where I sit,” Pillen said. “I will call as many special sessions as it takes” to achieve property tax relief.

“Enjoy halftime. We’ll see you again here soon,” he said.

The governor added that he “would not hesitate” to call special sessions on other issues, including returning Nebraska to a “winner-take-all” system of awarding its Electoral College votes for president. Previously, Pillen has said he would do that if there were 33 votes to make than change, adding that he lacks those votes now.

State Sen. Julie Slama of Dunbar led a final-round filibuster of the governor’s plan, Legislative Bill 388, saying it was a tax increase that Nebraskans overwhelmingly opposed and contained a likely unconstitutional clause to tax digital ads.

Only one other state, Maryland, has attempted to tax advertising placed on social media giants like Facebook and Google, and that state is fighting multiple lawsuits and being forced to pay back what it’s collected in taxes plus interest.

Slama argued that the only Nebraskans who would see a tax reduction under LB 388 were those who aren’t already taking a tax credit on their property taxes available on their state income tax filing.

‘Doesn’t mean squat’

She and other senators said more “thoughtful” discussion is needed on a bill that was the subject of several last-minute amendments last week, including the removal of Pillen’s proposed 1-cent hike in state sales taxes.

“I would much rather handle this particular issue — the state tax code — in a special session,” Slama said.

Bayard Sen. Steve Erdman was more blunt, saying LB 388 would provide only a 2% cut in his property tax bill, which would be eaten up by larger increases in the valuation of his house.

“This bill doesn’t mean squat for anybody — bring on a special session,” he said.

After the 1-cent sales tax hike and some other new taxes were amended out of LB 388 last week, it was estimated that it would provide a 22% decrease in local property taxes, far short of the 40% goal set by the governor.

Lincoln Sen. Danielle Conrad said that the bill was put together hurriedly, without time for senators to weigh its impact, and that there were “smarter” ways to reduce property taxes.

“We shouldn’t rush forward and jump off the cliff together…. We should hit ‘pause’ today,” Conrad said.

Not a ‘perfect solution’

But supporters of the bill said it addressed the No. 1 demand they hear from constituents: to reduce local property taxes.

“Is it a perfect solution? Probably not,” said Omaha Sen. Brad von Gillern. “But it was the best I saw this year.”

Property taxes, in total, have risen 53% over the past decade, according to Sen. Mike Jacobson of North Platte, and have shifted away from sales and income taxes and onto property.

“My constituents are tired of being patient,” he said. “They want action.”

The chief sponsor of LB 388, Elkhorn Sen. Lou Ann Linehan, said that taxing soda pop and candy was a fair trade “so grandma doesn’t have to move out of her house” due to high property taxes.

But later, Linehan, facing growing opposition during floor debate, asked that the measure be pulled from the agenda. The Speaker of the Legislature, Sen. John Arch, confirmed that the bill wouldn’t be debated later Thursday, the last day of the 2024 session, and thus the measure was dead.

Last-minute ad blitz

LB 388 had been the subject of a last-minute TV and newspaper ad blitz by Nebraska broadcasters and a coalition led by the state’s grocery association to defeat the bill because it raised taxes on several products, such as cigarettes and vaping products, and imposed new sales taxes on other items, such as pop and candy, pet services by veterinarians, digital ads and dry cleaning.

In defeat, Linehan said that broadening the sales tax base, as LB 388 would do, has been a long-running recommendation of several organizations, including the state chamber, Platte Institute and OpenSky Policy Institute, and it was frustrating that they were opposing the bill.

“It’s easy to say no, no, no,” the senator said, adding that opponents of LB 388 need to be ready to offer alternative paths to lower property taxes prior to the special session.

Already, some senators were discussing other ideas for reducing property taxes, such as legalizing marijuana and online gaming, and taxing them to replace property tax revenue.