Omaha, Lincoln face tax showdown

LINCOLN — Nebraska's two largest cities are facing showdowns over a taxation matter that has earned Nebraska national notoriety and, now, scrutiny from state lawmakers.

The issue is occupation taxes — particularly the high taxes on cell phones.

A national study a year ago proclaimed that if you averaged the taxes levied in Omaha and Lincoln, Nebraska had the nation's highest cell phone taxes.

The study put a spotlight on all kinds of occupation taxes, an often overlooked form of taxation that cities are turning to as traditional revenue sources falter in the poor economy.

In Omaha, it's a proposed tax on entertainment that is prompting the outcry.

In the capital city, a plan to raise a cell phone tax has drawn the ire of wireless telephone industry officials and one anti-tax groups, which want a cap on cell phone taxes.

They say such taxes are unfairly high compared with other taxes, prompt undeserved complaints to wireless companies, and reduce business for wireless companies — because consumers will forgo some services when they feel taxes are too high.

“I don't like hearing that Nebraska is No. 1 in taxing anything,” said State Sen. Abbie Cornett of Bellevue, chairwoman of the Legislature's Revenue Committee, which is conducting an interim study on cell phone taxes.

The authority for Nebraska cities to levy occupation taxes dates to the 1880s. State law allows such taxes on any businesses or occupation within a city.

The authority granted to Omaha spells out a colorful array of taxing targets, including pawnbrokers, peddlers, showmen, jugglers, innkeepers, liquor dealers and telegraph and express companies.

Cities began levying an occupation tax on telephones in exchange for the use of city rights of way for phone lines. Now the tax extends to cell phones and is coupled with several other phone-related surcharges.

In Omaha, cell phones carry a 6.25 percent occupation tax — the state's highest — along with state and federal “universal service fees” to expand wireless services to rural areas; state fees to finance upgrades of 911 emergency response centers and provide telephone services for the blind; and state and local sales taxes.

Taxes add up to an average of 22.54 percent on a cell phone bill in Omaha and Lincoln, according to a survey of 2008 taxes conducted for CTIA-The Wireless Association, which represents the nation's cell phone industry.

Nebraska's rate in the survey is almost double that of Iowa's (11.46 percent) and higher than more typical high-tax states such as New York (20.14 percent) and California (15.16).

“It's a fairness issue,” said Scott Mackey, who conducted the survey.

Why, he asked, should cell phone users in Omaha and Lincoln pay upward of 18 percent in local and state taxes and surcharges while sales tax rates are 7 percent?

The topic of occupation taxes, as a whole, has heated up this summer.

Lincoln Mayor Chris Beutler, to stave off more spending cuts, has recommended raising the city's occupation tax on cell phones, cable TV and other telecommunications services from 5.5 percent to 6 percent.

Omaha Mayor Jim Suttle's budget proposal, unveiled Tuesday, includes a 2 percent entertainment tax on restaurant meals, movies, concerts and other entertainment.

An earlier idea — an occupation tax on Omaha workers and their employers — appears to be on the back burner, though Suttle wasn't ruling anything out.

Opponents of the Omaha entertainment tax say that it's a poor time to hike expenses on families, and that higher taxes on things like concert tickets and restaurant meals would further erode the sales of such items.

Omaha already charges occupation taxes on hotel and motel bills and car rental contracts, in addition to the phone tax. While property and sales taxes are by far the Big Two in financing city government, occupation taxes rank No. 3.

These days, occupation taxes are becoming more attractive to cities caught between rising costs and declining revenue from sales and property taxes.

Occupation taxes are easy to pass; unlike some other taxes, they do not require voter approval or legislative action. They are collected by utility companies and tend to be overlooked among the fine print of such bills, unlike the annual property tax statements that taxpayers receive.

“They're invisible. People don't realize they're paying them,” said Ken Kriz, an associate professor at the University of Nebraska at Omaha. “The old saying is ‘Don't tax me, don't tax thee, tax that guy behind the tree.' ”

But Carol Ebdon, who is returning to UNO after serving as the City of Omaha's finance director, said that with property taxes so despised and sales tax collections flat or dropping, cities have to look somewhere else to raise revenue.

Anne Boyle, an Omaha representative on the state's Public Service Commission, defended the cell phone surcharges.

Boyle said Nebraska's “No. 1” ranking from the CTIA-The Wireless Institute is “patently wrong,” as the survey looked only at cell phone tax rates in Omaha and Lincoln.

If lower taxes levied in other communities and the lack of occupation taxes in rural areas were figured in, Nebraska would rank somewhere around No. 30, Boyle said.

Mackey, the wireless industry pollster, said he ranked each state based on the cell phone taxes in the state's capital and largest city. So the “average” consumer in Nebraska, he said, pays some of the country's highest cell phone taxes.

Boyle's campaign opponent last year, John S. McCollister, and a political think tank he now works for, the Platte Institute, have called for a reduction or cap in the cell phone taxes levied by cities and a lowering of surcharges levied by the Public Service Commission.

The institute maintains that cell phones are no longer a luxury and that Nebraska needs to get its cell phone taxes more in line with neighboring states and with other taxes. The latest wireless industry survey, for instance, indicates the taxes are about 6 percentage points lower in South Dakota and 7 points lower in Kansas.

McCollister added that Nebraska's universal service fee — a fee that is not charged in Iowa — has pretty much accomplished its purpose. Maybe it's time to eliminate it, he said.

Boyle said the fee, which brought in $51 million last year, is helping bring high-speed Internet services to rural Nebraska and helps finance telemedicine services at hospitals.

The broadband coverage available in rural areas isn't reliable, she said, leaving rural residents and businesses at a competitive disadvantage.

At least 26 Nebraska communities levy occupation taxes on phones, wired as well as wireless. Most are 3 percent taxes.

They aren't always easy and popular: North Platte shot down a proposed 5 percent cell phone tax this spring before it even got to the City Council.

Meanwhile, the Lincoln City Council, after a heated debate Monday, recommended by a 4-to-3 vote that its cell phone tax be increased.

Coby Mach, president of the Lincoln Independent Business Association, said such a rate hike hurts families already struggling in a “rough year” and sends the wrong message to call centers considering expanding or locating in Lincoln, because they would pay taxes on every line they use. Cutting spending is preferable, Mach said.

The cell phone tax would be especially hard on a new Verizon call center, which would pay an estimated $100,000 more in taxes a year if the phone tax is increased, Verizon officials said.

“The impression is that (Lincoln) might not be the most friendly environment for this business,” said Curt Bromm, a Nebraska lobbyist for Verizon.

But Lincoln City Council President Doug Emery said Lincoln is facing a $2.5 million reduction in sales tax revenue and has cut services already.

“If you don't want to raise property taxes, where else do you get the money?” Emery asked. He said he hadn't received one negative phone call or e-mail about increasing the cell phone tax.

State Sen. Pete Pirsch of Omaha, who asked for the interim study on cell phone taxes, introduced a bill this year to cap local taxes at 6 percent. Pirsch said he hopes the study discovers “a different approach” rather than a tax rate of 22 percent.

“That just seems way out of kilter, way out of line with taxes on other services,” he said.

Contact the writer:

402-473-9584, paul.hammel@owh.com

« Metro/Region

Share