- Associated Press - Friday, February 21, 2014

LINCOLN, Neb. (AP) - Cities that don’t already impose occupation taxes on alcohol, tobacco and vehicle fuels would be banned from doing so in the future, under a bill advanced Friday by Nebraska lawmakers.

The measure was originally aimed at Omaha’s new tobacco tax, but lawmakers agreed to a compromise that will allow city officials to keep the tax until it expires.

City officials have promised that the tax will sunset once it generates $35 million, or by 2022 at the latest. The revenue will help pay for a new cancer research center at the University of Nebraska Medical Center.

The measure’s sponsor, Sen. Bob Krist of Omaha, said he agreed to the compromise after Omaha officials said the tobacco tax was temporary. Krist said he supported the $370 million cancer center, but was frustrated because he wasn’t initially told the city would use the 3 percent tobacco tax, passed by the Omaha City Council in 2012, to help pay for it.

The bill “is a more measured, balanced approach to reinforcing the taxing authority of the state versus local municipalities,” Krist said. “If you take it to a vote of the people, that’s one thing. If you impose something without asking, that’s a whole different matter.”

Cities won’t dig into a tax base that has traditionally belonged to the state under this bill, said Sen. Galen Hadley, chairman of the Legislature’s Revenue Committee. Alcohol sold by bars and other retailers is unaffected because the state only imposes excise taxes on distributors.

“If we didn’t do this bill, cities in the future could have put a 10-cent-a-gallon excise tax on gasoline,” said Hadley, of Kearney. “We’ve stopped them from doing that.”

The bill has already cleared the first of three required votes before it can be sent to Gov. Dave Heineman.

Sen. Burke Harr of Omaha said Friday he’ll propose new language that would also prohibit cities from imposing occupation taxes on groceries.

Omaha city officials are considering a local occupation tax to help revitalize an aging mall, and Harr’s amendment would guarantee that groceries sold at a Target store within the district wouldn’t be subject to the tax.

“We don’t want to put a tax on food,” Harr said.

Nebraska cities levy occupation taxes against businesses for the privilege of doing business within their boundaries. They’re most often imposed on hotels, car rental companies, restaurants and bars. The Omaha occupation tax targeted tobacco retailers.

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The bill is LB474