REPRINT OF THIS MATERIAL BY PERMISSION ONLY. Only 29 Legislative Days Remain As Late Nights Are Scheduled

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1 REPRINT OF THIS MATERIAL BY PERMISSION ONLY April 7, 2017 (Fourteenth Week) Only 29 Legislative Days Remain As Late Nights Are Scheduled The 2017 session is slipping away from Nebraska lawmakers, who adjourned yesterday (April 6) for a three-day weekend. When senators return to the State Capitol on Monday, April 10, they will begin the 62 nd legislative day of the 90-day session. Speaker Jim Scheer has released a schedule of late night sessions, in which floor activity is expected to run until around 9 p.m. or later to help ensure adequate time for lawmakers to address the state s biennial budget and priority bills. Late night sessions have been scheduled for the following dates: Wednesday, April 19; Wednesday, April 26; Tuesday, May 2; Wednesday, May 3; Thursday, May 4; Monday, May 8; Tuesday, May 9; Wednesday, May 10; Monday, May 15; Tuesday, May 16; Wednesday, May 17; Tuesday, May 23; and Wednesday, May 24. Comprehensive Tax Relief Package Advances From Committee This week, the Unicam eral s Revenue Committee voted 6-2 to advance a comprehensive tax relief plan to be debated by the full Legislature. The package, crafted under the leadership of committee chairman and Papillion Senator Jim Smith, combines provisions to provide both corporate and personal income tax relief, as well as a plan to address high local taxes on production ag land. The tax relief package will be amended to LB461, which is a Revenue Committee priority. The Nebraska Chamber supports LB461 as a meaningful step to long-term tax relief.

2 The proposal advanced by the Revenue Committee would: Gradually lower Nebraska s top individual income tax bracket. Similar to Governor Ricketts and Senator Smith s LB337, LB461 would gradually lower Nebraska s top personal income tax rate of 6.84% to 5.99%. Currently, Nebraska s top personal income tax rate is the nation s 15 th highest, impacting individuals earning $29,831 and couples earning $59,661. Under LB461, the rate would start to decline in 2020 until it hit 5.99%, as long as state revenue grows by at least 3.5% annually. The target tax rate could be achieved as early as 2027 if state revenue growth is adequate. This is a key part of the overall tax plan since more than 90% of Nebraska businesses pay income taxes at individual rates. Gradually lower Nebraska s top corporate rate. Beginning in 2019, LB461 would reduce the state s top corporate income tax rate in phases, from 7.81% to 5.99% by 2025 if state revenue growth exceeds 4.0%. Currently, Nebraska s top corporate rate is 16 th highest in the nation and applies to income over $100,000. Phase out the personal exemption credit for higher earners. The personal exemption credit would begin to phase out if adjusted gross income is $300,000 for married couples filing jointly, or $150,000 for all other filers. No credit would be available if AGI reaches $400,000 or $200,000, respectively. Expand earned income tax credits & consolidate the bottom two brackets. LB461 would expand the state s earned income tax credits to 12% of the federal EITC to benefit low-income residents, while combining the lowest two personal income tax brackets at a new rate of 3.25%. A new, non-refundable credit would be created for those who do not reach the top tax bracket. Partially pay for the tax relief by suspending two state programs. The New Markets Job Growth Investment Act and the Nebraska Job Creation and Mainstreet Revitalization Act (known as the Historic Tax Credit) would be suspended, starting July 1, 2017 through December 31, 2022, when the law creating both programs is scheduled to expire. Change how farm and ranch land is valued for property taxes. Similar to Bancroft Senator Lydia Brasch s and Governor Ricketts LB338, the comprehensive plan would change how ag property is valued for tax purposes, placing a 3.5% ceiling on valuation increases per year beginning in A five-member Ag Land Valuation Committee would be created, using an eight-year average of data to determine land values. The committee would be required to ensure that the capitalization rates established result in an aggregate ag land valuation between 55% and 65% of market value. According to the Revenue Department, the changes in LB461 would cost roughly $12 million for the two-year budget period ending June 30, The estimate does not factor potential economic expansion and state revenue growth that could be spurred by the tax relief. Media outlets have reported that when LB461 hits the floor, supporters can expect an almost certain filibuster to try to stop the bill by those opposed to lowering Nebraska s uncompetitive income tax rates. If filibustered, the bill will need support from 33 of 49 senators on each round of debate.

3 Incentives For Bioscience Startups Sent To Final Reading On April 3, the Legislature voted 25-7 to give second-round approval to LB641, legislation that would establish a matching grant program to attract more early-stage bioscience startups to Nebraska. The bill would allocate an estimated $2 million a year to support businesses in fields such as biofuels, biotechnology, medicine, health and pharmaceuticals. Introduced and prioritized by Lincoln Senator Adam Morfeld, LB641 would create the Bioscience Innovation Program under the Business Innovation Act, which is administered by the Department of Economic Development. LB641 was crafted in response to recommendations made in a 2010 Battelle report and a 2016 study by SRI International. The Nebraska Chamber supports LB641 as another way to grow Nebraska s bioscience sector, an important strategic cluster with high-potential, high-return opportunities. Last year s SRI International report found that Nebraska s bioscience jobs, on average, pay more than 50% of the statewide average wage, or about $68,000 annually. However, the industry currently represents only about 2% of the state s employment. As amended, the bill would have no fiscal impact to the state since it would reallocate federal funds made available by the expiration of a small business federal loan program. Qualifying bioscience businesses would be required to provide a 100% match. During second-round debate, lawmakers amended LB641 with three key provisions: It was clarified that the bioscience program s funding would be limited to the federal dollars from the expiring loan program; It was also clarified that the program would terminate upon the exhaustion of the federal funds from the loan program; and LB641 now contains provisions from LB230, a bill by Syracuse Senator Dan Watermeier to establish a Nebraska Economic Development Task Force. The task force comprised of nine state lawmakers would gather input on issues pertaining to economic development, while monitoring policy development and discussing long-range strategic plans to improve economic development statewide. The State Chamber has a neutral position on LB230. LB641 now awaits action on Final Reading, the last round of debate by the full Legislature. Senators Advance Rural Workforce Housing Bill On April 3, the Legislature voted to give second-round approval to LB518, which would establish a workforce housing grant program for rural communities. The Nebraska Chamber supports LB518 as a way to help communities address housing shortages. Introduced by Gothenburg Senator Matt Williams and prioritized by the Business and Labor Committee, the amended bill would utilize $7.3 million from the Affordable Housing Trust Fund to

4 establish a dollar-for-dollar grant program. The grants would be available to communities in counties of fewer than 100,000 people. Non-profit development organizations could apply for grants, which would be awarded by the DED director on a competitive basis until funds were no longer available. The grants would apply to the construction of single family homes and rental housing, as well as housing rehabilitation. Grants could not exceed $1 million to any single non-profit development organization over a two-year period, and would require a one-to-one matching fund. Before receiving a grant under LB518, applicants would need to: Demonstrate an ongoing housing need; Be a community or region with low unemployment that is having difficulty attracting workers; Be a community or region that exhibits commitment to housing growth; Develop housing projects that can reasonably be ready for occupancy within two years; and Demonstrate the ability to grow and manage a workforce housing investment fund. LB518 now awaits action on Final Reading, the last round of consideration by the full Legislature. Carryover Extension For Nebraska Advantage Sent To Final Reading On April 3, the Legislature voted 37-2 to give second-round approval to legislation to enhance Nebraska s primary business incentives program for companies making large investments. Introduced by Henderson Senator Curt Friesen and prioritized by Papillion Senator Jim Smith, LB161 would allow businesses making large capital investments under the Nebraska Advantage Act to carry over unused tax credits for a longer period. As amended, the bill would enhance the income tax credit carryover period under the Nebraska Advantage Act s Tier 6, extending it from one year to 16 years after the end of the entitlement period. The Nebraska Advantage Act, which provides incentives for businesses to relocate or expand in Nebraska, allows companies to carry over unused credits for a limited number of years depending on which of the law s six tiers the project falls under. Tier 6 is the highest tier, aimed at rewarding significant capital investments and the creation of several high-paying jobs. The State Chamber supports LB161 as another way to attract large-scale investments and job creation, while making Nebraska more competitive.

5 To qualify for Tier 6, companies must invest $10 million and create 75 new jobs, or invest $109 million and create 50 new jobs. Wage thresholds for each new position must be 200% of the county average wage or 150% of the statewide average wage, whichever is greater. Supporters say LB161 would attract a wider range of businesses, helping Nebraska to diversify its economy. Senator Friesen has noted that considering the higher investment and job-creation standards applied to Tier 6 projects, a longer carryover period should be granted. In comparison, Tier 1 and Tier 3 projects may carry forward credits up to nine years after application, and Tier 2 and Tier 4 projects may carry forward credits up to 14 years after application. LB161 awaits action on Final Reading, the third of three rounds of debate in the Legislature. Internet Sales Tax Collection Bill Scheduled For Debate This Tuesday, April 11, the Legislature is expected to consider legislation that would address the collection of Nebraska s state and local sales taxes by out-of-state online retailers. Introduced and prioritized by Syracuse Senator Dan Watermeier, LB44 contains the following key provisions: Require online retailers without a physical presence in Nebraska to collect and remit sales tax revenue if their gross revenue from state sales exceeded $100,000 or they made 200 or more separate sales transactions in Nebraska. If the remote seller refused to collect Nebraska sales tax, such a seller would be required to notify Nebraska purchasers that the sales or use tax is due and that the State of Nebraska requires the purchaser to file a sales or use tax return. The remote seller would be subject to a $5 penalty for each failure to notify. The remote seller would need to send notifications annually to Nebraska purchasers by January 31, reflecting the total amount of purchases made in the previous year. Failure to send this notification would subject the remote seller to a $10 penalty. Finally, the remote seller would be required to file an annual statement for each purchaser by March 1 with the Department of Revenue showing the total amount paid in the previous year. Failure to file this annual statement would subject the remote seller to a penalty of $10 for each purchaser that should have been included on the statement. Nebraskans who make online purchases are already required by state law to pay sales tax when the tax is not collected at the time of the transaction, but few residents are doing so. If enacted, the bill would bring the state government an additional $30 million to $40 million in sales tax revenue, according to estimates. The State Chamber supports LB44, which promotes an appropriate regulatory structure to help ensure taxpayer compliance. Supporters of LB44 say the legislation would ensure a level playing field within the retail industry by ending the government-imposed advantage that online retailers currently hold over local brickand-mortar stores. Supporters also note that LB44 does not impose a new tax, but instead formalizes the collection of taxes that are already owed.

6 At A Glance: Noteworthy Workforce & Housing Related Legislation The State Chamber is monitoring hundreds of bills introduced in the Legislature this year, including bills related to Nebraska s workforce and workforce housing. Below are summaries of selected proposals pending in the 2017 legislative session. Bill Summary Status LB174 Apprentice Training: Would provide for a non-refundable income tax credit to an employer for wages paid to apprentices as part of a qualified apprenticeship training program. The credit would be equal to $1 for each hour worked by an apprentice, and would be capped at the lesser of $2,000 or 50% of the wages paid to the apprentice. The program would be capped at $2.5 million a year. The State Chamber supports the concept of LB174. In Revenue Committee LB248 Future Workforce Development Grants: Would adopt the Youth Opportunities in Learning and Occupations Act to increase workplace skills particularly soft skills and training for in-demand occupations among young Nebraskans ages As amended, $2.5 million in matching funds would be provided to employers and non-profit corporations to fulfill LB248 s objectives. The State Chamber supports LB248. General File (Sen. Harr priority bill) LB496 TIF for Workforce Housing: Would help address Nebraska s housing shortage by allowing workforce housing projects to be eligible for tax increment financing (TIF) a method of financing public costs associated with private development projects. Municipalities would be required to, among other things, conduct a housing study; adopt an incentive plan for housing construction; and hold a public hearing to receive public comments on the incentive plan (separate from the public hearing on the TIF redevelopment plan). The State Chamber supports LB496. General File (Sen. Williams priority bill) LB518 Rural Workforce Housing: As amended, would utilize $7.3 million from the Affordable Housing Trust Fund to establish a dollar-for-dollar matching grant program to encourage workforce housing development in rural Nebraska. The grants would be available to communities in counties of fewer than 100,000 people. Non-profit development organizations could apply for grants, which would apply to construction of single family homes and rental housing, as well as housing rehabilitation. The State Chamber supports LB518. Final Reading (Business & Labor Committee Priority Bill) LB599 New Construction As Business Inventory: Under LB599, new, unoccupied housing or commercial real estate would be considered business inventory, which is exempt from taxation under Nebraska s Constitution. This would help encourage construction of workforce housing in communities faced with housing shortages. The State Chamber supports LB599. In Revenue Committee