A Nebraska group that advocates for lowering taxes is urging lawmakers to get rid of sales tax exemptions on many goods and services and use the extra revenue to lower property taxes and the state’s sales tax rate.
The Platte Institute said Tuesday that Nebraska’s sales tax system hasn’t kept pace with the state economy. The report says services have grown as a share of Nebraska’s economy, but many of them are exempt from sales taxes.
The Institute’s Policy Director, Sarah Curry, says the report is meant to provide some guiding principles for Nebraska lawmakers as they consider adjustments to the state’s sales taxes as part of a revamp of the overall tax system. “The main bread-and-butter of that is to avoid ‘tax pyramiding’, which means taxing business inputs to where the sales tax is embedded in the price of the final consumption product many times over,” says Curry, “And then also having exemptions that really serve no economic purpose, that are really political in nature, so that distorts the sales tax to not be an efficient method of collecting revenue.”
While any service that loses its exemption would be subject to sales tax, the Platte Institute report argues that it would broaden the sales tax base. The report says the extra revenue generated should then be used to lower property taxes and the state’s sales tax rate.
Curry says there are many states across the country making sales tax changes in an effort to provide tax relief, boost economic activity or both at the same time. She cites South Dakota as a nearby example with a broad sales tax base, but low income and property taxes, while North Carolina broadened their sales tax base in a reform effort that has seen that state’s revenue numbers exceeding forecasts and fueling additional tax cuts.