Personal property taxes in Nebraska have garnered increased attention in recent weeks due to a paper released by the Platte Institute. The paper examines the features of personal property taxes and discusses different means of reducing or eliminating the tax. Taxes levied on personal property in Nebraska amounted to $217 million in 2016, or 5.6 percent of total property taxes levied that year. Of the total, $56 million in taxes were levied on agricultural machinery and equipment, 26 percent of the total. Personal property taxes amounted to 4.1 percent of total real and personal property taxes levied on agriculture. Owners of commercial property paid the most personal property taxes in 2016, $114.6 million, equaling 53 percent of the total personal property taxes levied.
The graph below tracks personal property taxes levied since 2006 by sector: agriculture; commercial; railroad; and public service companies. Taxes on agricultural machinery hit a peak in 2014, totaling $64.5 million. Since then, they have fallen 13 percent, no doubt due to reduced machinery purchases by producers. Total personal property taxes levied grew over the period and peaked in 2015 at almost $221 million, before falling 1.7 percent in 2016.
Source: NE Dept. of Revenue Property Assessment Division, History of Valuation & Taxes Levied by Property Sector, 2006-2016, 12/21/16
Personal property taxes are assessed on a property’s net book value minus a depreciation factor, which is set in state law. The depreciation factor increases as the property ages, and the taxes levied eventually phase out. The first $10,000 of value for a property is exempt from taxation. General fund and special levies (i.e. bond levies) apply to personal as well as real property.
If personal property taxes were reduced or eliminated, the spending decisions made by local governments would be key in determining the amount of tax reductions which might result. Local governments could decide to reduce spending by the amount of taxes lost, and overall taxes collected would decrease. Local governments could also decide to maintain spending levels and raise the levy rate to offset the loss in taxes. Under this scenario, overall taxes would not decrease as taxes levied on real property owners would increase. And to complicate matters further, state aid to schools would change also affecting the taxes levied. Thus, while repealing taxes on personal property would eliminated a tax, it might not result in a reduction in taxes.
Jay Rempe is the senior economist for Nebraska Farm Bureau. Rempe’s background in agricultural economics, years of experience in advocating at the state capitol, and firm grasp of issues allow him to quantify the fiscal impact of a regulatory proposal, and provide in-depth examination of key issues affecting Nebraska’s farmers and ranchers.