The state giveth and the state taketh.
One day after the City of La Vista finished drafting its 2013-2014 budget, officials received an unwelcome surprise in the form of a letter from the Nebraska Revenue Department.
Local businesses qualified for $2.4 million in sales tax refunds tied to a state incentive program, the letter dated June 28 read. Prepare to pay up.
Beginning in January, the state will withhold La Vista's sales tax receipts over a six- to eight-month period until the $2.4 million in refunds is paid off.
Officials in La Vista are the latest to complain they've been blindsided by a large sales tax refund request from companies eligible for the Nebraska Advantage Act tax incentive program. Cities from Omaha to Sidney have seen budgets hit by similar collection calls over the past few years as companies including ConAgra and Cabela's cash in on promised incentives.
“Growth is great and we want businesses here, but incentive programs should be investments, not giveaways,” Mayor Doug Kindig said.
La Vista still could owe additional refunds for claims filed but not yet approved under a second incentive program — Legislative Bill 775, known as the Employment and Investment Growth Act.
The two programs have been used by the state to attract businesses to locate or expand in Nebraska. Companies earn incentives, ranging from sales tax refunds to income tax credits, by meeting job creation and expansion targets.
A total of 15 La Vista companies have signed incentive agreements under the two programs.
Officials from La Vista and the Department of Revenue said the identity of the companies applying for refunds this year is confidential. But the participating Advantage Act businesses in La Vista are NatureWorks LLC, Omaha Financial Holdings, PayPal, Rotella's Italian Bakery, Streck Inc., Turnkey Solutions and Yahoo!.
“You can really have a perfect storm and have three companies at the same time filing their stuff,” La Vista City Administrator Brenda Gunn said. “We can't plan for that. We can't have this every other year.”
The total amount owed represents more than half the $4.1 million in sales tax revenue La Vista estimates it will receive by the end of 2013. Sales taxes make up 17 percent of the city's total revenues.
Gunn said the city can swallow the sales tax reduction by dipping into cash reserves, freezing hiring, pushing back all equipment purchases to the last few months of the fiscal year and using an earlier sales tax windfall to offset the unexpected refund.
But the last-minute refund notice is indicative of a larger problem, Kindig and Gunn said: the lack of clear, complete sales tax data provided by the state.
Due to confidentiality concerns, Gunn said she receives little to no accounting of the local sales taxes the state collects and distributes. One month the city might receive $30,000, the next month $300,000, with little explanation of tax trends. The guesswork makes it near impossible to budget or project future sales tax revenue.
“In order to run a city, you have to be able to plan for the future and to not know when the ax is going to drop, it just makes things very difficult,” she said.
A new law passed earlier this year will allow cities to receive one year's notice of coming refunds to prevent this kind of sticker shock. But it doesn't go into effect until Jan. 1.
State Tax Commissioner Doug Ewald said he had no problem sharing more information with cities, but under current state laws, there was a narrow range of information the state could provide due to corporate confidentiality .
“If they want more information shared, they have to go to the Legislature and get it changed, and that's perfectly OK with me,” he said.
Ewald sympathized with cities — the state, too, has turned over millions in Advantage Act refunds the past several years. But he recommended city officials pick up the phone and negotiate longer repayment periods with companies or ask for a heads-up the next time incentive applications are filed.