LINCOLN — Decades ago, occupation taxes were levied on peddlers and jugglers passing through town.
Unless you were selling — or juggling — pots and pans, no one really noticed.
But nowadays, taxpayers are taking note of occupation taxes. They've become an extra fee on restaurant, hotel and telephone bills in cities such as Omaha, Lincoln and Grand Island. They help finance rising pension costs, build new arenas or lure the State Fair to town.
A state senator argued Wednesday that they've become so much like sales taxes that they ought to be treated like sales taxes.
Valentine Sen. Deb Fischer has introduced a proposal that would require cities to obtain voter approval before adopting or increasing any occupation tax. That is how local sales taxes are handled.
Legislative Bill 745 would also restrict cities' use of occupation fees to specific, special projects, and would require sunset dates for such taxes.
"Current occupation taxes, in my opinion, are sales taxes," Fischer said. "Municipalities have used them for more than 100 years, but things have changed, and we need to look at it."
A public hearing before the Legislature's Revenue Committee brought solid support from business and retail groups, including the Nebraska Chamber of Commerce and Industry. They said that voters should be allowed to weigh in on such tax increases and that it was a burden on businesses to collect such fees.
But representatives of cities and villages across the state said that occupation taxes are a more flexible, palatable option than raising property taxes and that such taxes better target visitors and discretionary spending.
Lynn Rex, who heads the League of Nebraska Municipalities, said she has been deluged with concerns about Fischer's bill.
Rex said that while occupation taxes account for less than 5 percent of the overall taxes collected by cities and villages statewide, they are an important source of revenue that are often used to defray costs of regulating or policing a particular business or enterprise.
While public votes are not required now to impose occupation taxes, cities such as Lincoln and Norfolk have sought voter approval before imposing the fees, she said.
But elected officials ought to have the flexibility to adopt such a tax without putting it on the ballot, Rex said. If residents object, she said, they can provide input by attending city council meetings or voting out council members.
How would it affect the state, she asked, if voters had to approve every sales or income tax change proposed by state senators?
"Are you going to hold a vote on certain city contracts? Does everything go to the people? At what point does representative government kick in?" Rex asked.
While they fund a small part of cities' overall budgets, occupation taxes in recent years have been used increasingly for special projects instead of tapping property or sales taxes.
Omaha, for instance, expects to collect $19 million this year from a 2.5 percent occupation tax on restaurant and bar bills. The tax was enacted two years ago to finance a shortfall in police and fire pensions and to pay for city services.
Lincoln is using a similar 2 percent fee to help finance its $168 million Haymarket Arena development.
As a tax issue, occupation taxes are drawing more attention from state lawmakers, as well.
Last year, they passed a law capping the amount of occupation tax that cities can impose on telephone and cellphone bills at 6.25 percent, unless local voters allow a higher levy.
Fischer, who is running for the U.S. Senate, said last year's law — which she authored — raised more questions about occupation taxes in general.
There is little restriction on their use, she said. Unlike sales taxes, city councils can adopt them without voter approval. Occupation taxes, with the exception of those on telecommunications, have no cap. And the revenue collected is outside of the state's spending limits on city government.
Bellevue Sen. Abbie Cornett, who chairs the Revenue Committee, said she's also "uncomfortable" with the lack of regulation in state law of occupation taxes.
Fischer's proposal would affect the adoption of new taxes or changes in current taxes. It would not affect current occupation taxes.
The committee took no action on LB 745 after the hearing. But Cornett said it will be part of the discussion when lawmakers consider another revenue proposal for municipalities: allowing cities, with voter approval, to impose another half-cent of local sales taxes.
Contact the writer:
402-473-9584, paul.hammel@owh.com
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