It’s that time of year — time for submitting bills in the Nebraska Unicameral and one such bill presents huge challenges for the ag industry and has stirred a great controversy across the state.
LB1022, introduced by Sen. Paul Schumacher of District 22, is a taxation and revenue bill designed for adopting an Irrigation Tax Act. It would change the valuation of agricultural land and horticultural land for property tax purposes and divert the revenue to a fund to support school districts across the state.
In a podcast on KRVN radio out of Lexington, Nebraska, Schumacher agreed the current tax situation is unstable in Nebraska. The revenue climate is in turmoil as constituents want real estate taxes cut, sales taxes cut and income taxes cut. He believes there is no wriggle room for tax changes, but it is evident Nebraska residents think it is time for change.
Some of the biggest outcry comes from urban residents whose real estate is taxed at 100 percent of its valuation, while ag real estate is taxed at 75 percent of its valuation.
Schumacher also points out the water belongs to the state and he is not comfortable knowing the state does not charge local government for the gallons of water used for irrigation. He sees that as a funding revenue/bonus for the rural school districts because county officials have different tax rates for irrigated and non-irrigated land and collect these to fund their local services.
"There are 50 ideas out there for tax reform, and I decided to put my idea in the hopper with all the others as we grapple with the tax problem," Schumacher said. "It’s just one of the tools out there."
Schumacher said Nebraska has tapped every tax opportunity available. The sales tax sector, real estate sector and income tax sector are very equally balanced. Together, the three facets of tax revenue share the equity needed to maintain the funds to pay the bills in Nebraska, maintain a cash reserve and treat all constituents fairly.
Former Nebraska State Sen. Al Davis of Hyannis describes water ownership as a conjunctive use between the landowner and the state. A farmer or rancher owns the water under his property, but he or she has a responsibility to manage it well. He believes this bill has no future.
Davis said Schumacher is an urban senator and traditionally takes a hard view of agriculture and farmers and ranchers, believing they receive many tax cuts and federal benefits.
Nevertheless, tax reform is the elephant in the room no one wants to address but cannot ignore, Davis said.
Last summer and fall, Davis met with several legislators, emphasizing the biggest tax issue they would face this year would be ag property taxes. They had to be prepared to make some tough decisions and they needed to take action, he said.
Schumacher’s bill proposes a tax that would be equal to one cent for every 10 gallons of water pumped from a well with a capacity of producing at least 5,000 gallons of water per day would be created.
That may sound simple until it’s put in layman’s lingo.
Neligh rancher Dave Wright attended a recent meeting of the Lower Elkhorn NRD where attendees discussed Schumacher’s bill. The NRDs do not believe the irrigation tax bill will gain any traction in the Unicameral, but Wright still has concerns.
"If we don’t speak up, if we allow it to be considered and don’t speak our mind, the legislators will do it," Wright said. "We need to speak out against a tax law like this, or next session, someone will suggest using a lower tax rate like a half or quarter-cent. We need to stomp it out now."
With a new crop year gearing up, Crofton farmer and Lewis & Clark Natural Resources Board member Jeff Steffen ran the numbers for his farm and he does not like what he comes up with.
Steffen said if he uses his pivot to irrigate one acre with eight inches of water in a growing season, the tax expense for one acre would be $200. Obviously, Steffen traditionally irrigates more than one acre.
"It will kill irrigation in eastern Nebraska," Steffen said. "The ag economy right now is in a very depressed state, and this will only increase the loss of profit."
He compared Schumacher’s proposal to beating a dead horse. While preparing for input expenses for his 2018 crop, Steffen said the biggest line item is not the items one would normally think like seed or chemicals, but his property tax.
"There are 44 million ag acres in Nebraska, and if this tax law passes, there will only be 8 million ag acres identified as irrigated acres which will be taxed," Steffen said. "The senators will be shifting the tax burden to an even smaller group of people."
Steffen also serves on the Nebraska Natural Resources Commission, and, along with the work that the NRDs from across the state perform, the commission members try to manage Nebraska’s water so it is available for years to come.
"Across the state, Nebraska residents and legislators will have to make changes which will not make anyone happy," Davis said. "Changing sales tax exemptions or removing income tax credits are just some of the suggested ways to reform the tax system in Nebraska, and we all need to accept reform is on the horizon."