- Associated Press - Friday, January 24, 2014

LINCOLN, Neb. (AP) - Nebraska farmers and ranchers would no longer have to pay sales taxes when repairing or replacing their equipment, under a bill that won initial approval from lawmakers on Friday.

The measure was the first tax proposal to move in this year’s legislative session, in the wake of a statewide study by the Legislature’s Tax Modernization Committee. Several economists testified at hearings last summer that sales taxes for business purchases create a “pyramiding” effect - increasing the cost of doing business, which is then passed down to consumers.

The lead sponsor, Sen. Annette Dubas, of Fullerton, said it’s intended to keep jobs in the machinery repair and parts businesses in Nebraska. The bill seeks to address a complaint that farmers can often buy parts cheaper in neighboring states, such as Kansas, that don’t impose the tax. Nebraska is one of eight states that impose a sales tax on repair and replacement parts.

“The profit margins are slim even when prices are good,” said Dubas, who helps run a family farm. “Inputs continue to climb, so shopping around to save dollars is just a part of running a profitable farm or ranch. It’s not out of line for a farmer to travel additional miles to avoid paying prices as a result of our sales tax.”

Sen. Tom Carlson, of Holdrege, said the bill will take effect in what could be a downturn year for farmers. Grain prices have slipped from their record highs, which Carlson said would lead more producers to repair their equipment instead of replacing it at greater cost.

“We must have a tax system that is both fair and competitive, and those two things are difficult to come by,” Carlson said. “I think that this bill is headed in that direction.”

The bill would take effect on Oct. 1. If passed, the new tax exemption would reduce the state’s general fund by nearly $6.8 million in fiscal year 2015, and $9.2 million in fiscal 2016.

But Sen. Galen Hadley, the Revenue Committee chairman, said the state is not collecting sales taxes now when farmers and ranchers go to other states. Hadley said the bill would help keep jobs at implement dealerships.

Lawmakers voted 44-0 to advance the bill. Two more votes are required before it advances to Gov. Dave Heineman.

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The bill is LB96

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