A bill to lower Nebraska’s corporate income taxes is expected to be debated by the full Legislature early next week. LB888 was introduced by Senators Carroll Burling of Kenesaw and Tim Gay of Papillion, and prioritized by Senator Scott Lautenbaugh of Omaha.

Currently, Nebraska’s corporate tax is comprised of two brackets: 5.58% for the first $50,000 earned by corporations, and 7.81% for income above $50,000. The $50,000 threshold has gone unchanged for 26 years, despite tax rate increases over the years. As amended, LB888 would expand the income threshold for the state’s top corporate tax rate – so that the higher tax rate would not apply until a business generated $100,000 in income (as opposed to the current $50,000). The bill would be operative for tax years beginning on or after January 1, 2008.

The Legislature spent last week debating priority bills – most of which are still on General File. Lawmakers also advanced to Select File several bills on the consent calendar including LB1004 by Senator Abbie Cornett of Bellevue. The bill would amend provisions of LB223 passed last year and would lower the new income tax withholding amount from 3 percent to 1.5 percent for employers who employ 25 or more employees. When senators returned to the State Capitol March 17, they began debate on the budget, which could prove controversial. Even though the state is in the middle of a two-year budget cycle, and most of the major decisions on the $6.8 billion budget were made last session, lawmakers must decide this session how to reconcile a $62 million budget shortfall that has resulted following a recent revision of the state revenue forecast.

Legislature Advances Bill With Contractor Withholding Provision

On March 12, the Legislature voted to advance legislation that would create a new 5 percent income tax withholding rate on wages to unregistered independent contractors performing work in Nebraska. By a 35-0 vote, the Legislature gave first-round approval to LB1001 by Senator Tom White of Omaha. The main objective of the bill is to allow electric utilities to opt into a program to provide grants for low income residents to make energy conservation improvements to their homes through the use of grants funded by sales and use tax received from the utility and matched from the utility’s own funds. LB1001 would also exempt from sales tax the energy-saving improvements that are funded by the program.

During floor debate, the Legislature adopted two amendments offered by the Revenue Committee and Senator White to address the withholding on pay to general contractors. The amendments contained language with intent similar to Senator White’s LB1175.

As amended, LB1001 would amend the income tax withholding statute, adding a new 5-percent withholding requirement for any contractor making payments of more than $600 for construction services to a contractor or a person that is not an employee. This requirement would not apply if the payee shows that any income that is earned would not be subject to income tax because of a treaty obligation of the United States, or that the payor determines that the payee is a contractor that is registered under the Contractor Registration Act – which was passed earlier this year under LB204 by Senator John Synowiecki of Omaha. Under LB1001, the state Revenue Department would create a database of licensed contractors, which would be accessible on the department’s Web site.