Ag Property Tax Debates in Legislatures

OMAHA (DTN) -- Could this be the year Nebraska farmers finally get some relief on their property taxes?

Nebraska is one of several states where legislatures could be looking at making tax changes in 2024, but farmers in the Cornhusker State have seen this song and dance before.

"If you look at the demographics of the state tax system in Nebraska, you know we've been in the middle of this thing forever," said John Hansen, president of the Nebraska Farmers Union.

Only farmers in California pay more in property taxes than Nebraska producers, according to data from the 2017 Census of Agriculture. On a per-farm basis, Nebraska farmers in the 2017 Ag Census paid an average of $14,817 per farm, while California farmers paid $15,977 per farm. New Ag Census data expected to be released next month will likely show roughly a 20% increase in those property tax costs nationally.

Hansen noted he pays an average of $70 an acre in property taxes on his "home quarter." He knows farmers who are unfortunate enough to have dryland acres near major urban areas, and they can pay $120 an acre. "How do you farm that? It's just nuts. So, we know we have to do something," Hansen said.

NEBRASKA PROPOSAL ON TAXES

This year, Gov. Jim Pillen, a Republican, is proposing Nebraska's unicameral legislature cap spending growth by the state's local governments as one way to reduce property taxes. The flip side of Pillen's plan is raising the state sales tax 2 cents to 7.5 cents on the dollar. The Nebraska Examiner first reported parts of Pillen's plan last week.

In a press conference on Monday, Pillen said he's committed to lowering property taxes 40% statewide. He showed a pie chart highlighting the $5.3 billion paid right now by property tax owners makes up 46% of Nebraska taxes while income taxes make up nearly 32% and sales taxes make up 22%.

"We are committed to getting property taxes to a 40% reduction to $3 billion so that our kids can come home. So that folks that live their whole life here, they don't have to lose their home because of out-of-control property taxes."

That requires putting a hard cap on city and county income growth so cuts to property taxes aren't consumed by higher property valuations, he said.

Pillen didn't specifically declare that the state would raise sales taxes 2 cents on the dollar, but he repeatedly talked about broadening the tax base and looking at taking away certain exemptions on sales taxes.

Another more radical option introduced last year and carried over into the 2024 Nebraska Legislature is the "Eliminate Property, Income and Corporate" taxes, or EPIC tax, backed by Nebraska state Sen. Steve Erdman. That proposal would move Nebraska entirely to a consumption tax, but it doesn't seem to have traction to advance.

Mark McHargue, president of the Nebraska Farm Bureau, said every state senator running for reelection is aware property taxes are a top priority while few people raise complaints about sales taxes. McHargue sits on a committee appointed by Pillen to look at the challenges of rising property valuations across the state.

"People are talking about the governor's plan as being 'EPIC-lite,' and I don't think that's a bad term," McHargue said "We're collectively saying we should actually roll some more taxes to the consumption side of the equation. This actually does that by putting another 2 cents on there."

McHargue said the plan would provide more balance between property, sales and income taxes in the state, though a 7.5% state sales tax would become the highest in the country. That would likely drive consumers of at least some big-ticket items such as automobiles to consider buying out-of-state.

"There'll be some border bleed," McHargue said. "But we really do believe that it will be effective. Any time you have this kind of stuff, there's border bleed, but we've been having that for quite a while on the property tax side."

Nebraska isn't the only state looking at property tax changes, but most proposals so far focus on residential properties that also have seen soaring valuations in recent years.

KANSAS: MORE ABOUT RESIDENTIAL TAXES

In Kansas, Republicans lawmakers said last fall they want a statewide vote that would cap agricultural, residential and commercial property valuation increases to 4% a year, according to an article in the Topeka Capital-Journal. The driver behind that bill is more about residential taxes than agriculture. The Senate passed a bill last session that could still be taken up in the Kansas House. House Democrats, who are in the minority, are proposing a plan to lower residential property taxes and shift $308 million that would increase property taxes for farms and other businesses.

For some of these Kansas changes, lawmakers would have to vote to change the state constitution and then take those changes to voters. Lawmakers can make tweaks to the formulas on assessment rates.

Property taxes will likely take a back seat to Kansas lawmakers pushing again for a flat income tax rate, which passed the Kansas Legislature last before being vetoed by Democratic Gov. Laura Kelley.

"So that will be the big discussion," said John Donley, who lobbies for the Kansas Farm Bureau in Topeka. "Property taxes will definitely be discussed. The biggest challenge in Kansas, No. 1, is constitutional on the property tax side. Everyone always campaigns on, 'I'm going to lower your property taxes.'"

Donley said one of the biggest difficulties at the state level in lowering property taxes in Kansas is litigation over education spending has greatly limited how much the legislature can do. Still, he acknowledged farmers on the Kansas side of the border have a property tax advantage over their Nebraska counterparts.

"As lobbyists for ag interest in Kansas, the hill we die on is protecting these value appraisals," Donley said. "Nebraska doesn't have that, and that's why ag has faced such a burden up there. It's a drastic difference across the border."

States' per-farm property taxes for farmers based on 2017 Ag Census numbers:

-- California, $15,978 average per farm.

-- Nebraska, $14,816 average per farm.

-- South Dakota, $8,719 average per farm.

-- Minnesota, $8,022 average per farm.

-- New York, $7,069 average per farm.

-- Ohio, $7,001 average per farm.

-- Iowa, $6,251 average per farm.

-- Kansas, $5,528 average per farm.

Chris Clayton can be reached at Chris.Clayton@dtn.com

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