Nebraska Sales Tax Increase Gains Steam

Lawmakers in Nebraska recently advanced a new bill that could increase the state tax from 5.5% to 6.5%. Many small businesses and consumers in the state are concerned about this bill, as it could result in higher costs for multiple products. If this bill passes, Nebraska would have one of the highest state tax rates in the United States.

Reasons for the Nebraska Sales Tax Hike

This bill is one of the critical components of Republican Governor Jim Pillen’s plans to help people struggling with the impact of rising property taxes in the state. Home values have soared in recent years, which has put pressure on elderly individuals who can’t afford the tax payments on the homes that they own. Local assessors are required to mark homes at 100% of fair value, which has made it particularly hard for residents in this state to keep up with rising property taxes. Therefore, some people on fixed income may benefit from this new state tax if they own a property that has significantly appreciated in recent years.

Proposed Sales Tax Increase

If this bill is passed, then Nebraska’s state tax would only be 0.75% lower than that of California. However, some areas of Nebraska have a local sales tax that ranges between 0.5-2 cents per dollar, so some areas of the state would actually have an 8.5% state tax, which is higher than California’s 7.25% rate.

The state would also expand the tax to include other things, like digital advertising, and also implement a much higher tax on items like candy, soda, hemp, and CBD products. Some of these products could be taxed as high as 100%, which would put a significant strain on consumers in this state. Most notably, many small businesses could struggle with the new proposed digital advertising tax. Critics say regulations will make it difficult for small business to manage their margins.

Public Impact

However, some aspects of this bill could provide relief to Nebraskans struggling with higher power bills.The bill also proposes cutting the sales tax on utility bills, which could help lower income individuals who struggle with this new tax. Many politicians debating this bill have mentioned how these taxes could disproportionately impact low-income residents. In response, this bill would provide some extra relief for lower income state residents.

Small businesses operating in the state of Nebraska should be aware of these changes, as they could significantly impact their business. Consumers, who are already struggling with sustained inflation, may be more price-sensitive if these taxes are implemented. This may make it difficult for your business to raise costs in line with inflation.

However, one of the most significant barriers for small businesses could be the tax on digital advertisements, as many small businesses rely on affordable digital advertising to boost their revenue. Small businesses may already spend 7-8% of their revenue on digital advertising, so any taxes on digital advertising could be challenging for these small businesses.

Closing Thoughts

The bill needs to go through two more rounds of debate before it is potentially passed. If so, this new bill may go into effect after the end of the legislative session on April the 18th. However, this bill initially only received the minimum 33 votes that it needed to advance in the beginning of April. Nebraska small businesses, or businesses that want to expand into this state, should monitor this bill, as it could significantly impact their operations in this state.

About the Author

Miguel Alexander Centeno

Miguel Alexander Centeno is an author, speaker, and tax leader at Tax Hack Accounting Group. A former Big 4 tax manager, he represents taxpayers in all matters before the IRS, including the U.S. Tax Court. He has been quoted in the Wall Street Journal, Fox Business, and MSNBC on tax related articles and has testified before the U.S. House of Representatives as a part of hearings for the Tax Cuts and Jobs Act. A father of three, Miguel is an avid acoustic guitar player, gravel cyclist and once-a-week yogi.
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