Basics of Property Tax


The property tax is levied only by local governments in Nebraska. State government has been prohibited from levying a property tax since a successful initiative petition in 1966. The property tax is levied on real estate and most personal property used for the production of income. The tax on real estate is levied based on the actual or market value of the real estate. Most is assessed at 100% of actual value, but agricultural land had historically been assessed at 80% of actual value; but beginning with 2007, agricultural land has been assessed at 75% of actual value. Agricultural land that has greater value if developed for other uses may be assessed at 75% of its value for agricultural use only under what is generally known as Nebraska’s “greenbelt provision”.

There are few exemptions from the real property tax. Government property is exempt if used for a public purpose and property owned by not for profit organizations and used for cemetery, educational, religious or charitable purposes may apply for exemption.

With regard to personal property, the story is different. Intangibles are exempt, as are household goods, business and farm inventories, and breeding livestock. Generally, income producing, tangible personal property is taxable. There were also limited personal property exemptions available under the upper tier of qualification under the Employment and Investment Growth Act (LB 775 (1987)), and similar exemptions are available under the Nebraska Advantage Act, which replaced the Employment and Investment Growth Act on Jan. 1, 2006. A complete history of the property tax and its assessment may be found in the “Program History and Description” section below.

Tax Policy and the Property Tax

Adequacy – The chief strength of the property tax is its stability and reliability. Property values do not change much from year to year and the local governments that levy the tax have historically adjusted the levy to the level that is necessary to fund the budget. This attribute is what makes the property tax the preferred tax for securing bond issues.The rate can be adjusted every year to satisfy the obligations to the bondholders.

The tax is also suitable for very small units of government. Property can not move from place to place to avoid local taxes. The property tax may always be levied, even in locations where there is no retail outlet to collect sales taxes or even residents to pay income tax.

Historically, the property tax base grew more slowly relative to the sales and income tax bases. The property tax base since 1930 has grown only 70% as fast as the state’s economy, measured by Nebraska personal income, compared to 93% for the sales tax base and 118% for the individual income tax as calculated since those taxes came into existence in 1967. In the past 20 years, however the growth has been 115% of the personal income growth. This is much faster than every tax base except individual income tax.Which will be the future trend

Equity – Ask anyone on the street if the property tax is a fair tax and nearly everyone will answer “No”.Unemotional analysis gives a different picture however.

Many will say that the property tax is regressive, but as applied to residential property, the tax is roughly proportional. Everyone pays the same rate on the value of their property within the same tax district.Wealthier people also tend to own more expensive homes. The low-income, elderly homestead exemption program provides some measure of progressivity. The assessment standard of 100% of market value is identical across the state and differences in rates across the state have been sharply reduced with recent school finance and levy limit legislation. The tax is therefore relatively sound from the standpoint of horizontal equity.

Finally, the tax reflects the benefits received principal with regard to at least some local governments. Ownership of property gives rise to the need for law enforcement, legal structures, roads and fire suppression services that are provided by county and city governments. This principle is not served well by financing education with the property tax. While businesses do rely on the educational system for the workforce of the future, ownership of property, real and personal, bears little relationship to the need for an educated workforce.

Simplicity – The property tax has some weaknesses as well. It is very expensive to administer. Determining actual value is very subjective and our law provides extensive due process and other appeal mechanisms. Also, because the initial valuation determination is made locally, there is a need for the state to intervene to “equalize” value between counties to assure that our state aid policy works evenly across the state. It takes a year , from the January 1 assessment date until the Dec. 31 tax due date for the entire assessment, equalization, appeal and levy process to take place. This process is detailed in the “Program History and Description” section.

Accountability – The tax is highly accountable to taxpayers. The property tax is paid in two installments that are highly visible to taxpayers. Also, because the tax is paid to many single purpose governments, like school districts, taxpayers are more aware of what the tax goes for than is the case with sales or income taxes.

Economic competitiveness – The property tax is higher in Nebraska than most states, so it could be a factor for the location of property intensive industries. Many states, however, relieve the burden on residential property through lower assessment ratios and assess agricultural land at a lower ratio than Nebraska.In many cases, the owners of commercial and industrial property are the only class which is assessed at 100% of actual value.Also, our high property taxes have been mitigated somewhat by the recent successful efforts to reduce the rate of growth of the property tax.(See the “Property Tax Rankings” for comparisons.)

Key Points from the Analysis

The analysis links below will allow you to view property taxes in Nebraska from more than one perspective. The “Property Tax Growth” page examines data from more than 20 years of property tax growth as compared to the growth in the Nebraska economy and inflation. The “Property Tax Information by Sector” page explores five property tax sectors: residential property taxes, commercial and industrial property taxes, railroad and public service property taxes, taxes on motor vehicles, and agricultural property taxes.

Review of these charts would show the following five trends or key points:

1. Total property tax growth kept up with the growth in Nebraska personal income throughout the 1980s and early 1990s. However, the property tax relief legislative packages beginning in 1996 caused the rate of growth in overall property taxes to decrease to approximately the rate of inflation until 2000. This is described in even more detail in “Property Tax Relief in Nebraska, Progress Since 1995.” This report reviews the multi-year efforts of the Legislature to limit the growth in property taxes beginning in 1995. These efforts included budget limitations, levy limits and changes in state aid to local governments enacted over a number of years. This report also examines the effectiveness of these efforts in the aggregate, as applied to economic sectors, and in a number of locations in Nebraska analyzed separately.

The rate of growth in property taxes from 1995 through 2000 may have been less than the rate of inflation had there not been a dramatic increase in bond activity during the period.While there is far less data on bonds versus non-bond use of the property tax for other local governments, municipal bond activity has also been accelerating in recent years.

FY2001-02 is the first year in which state revenue difficulties caused cuts in state aid to local governments (LB 898 (2002)). Years since then show a reversal of this reduction in the use of the property tax. For a more complete discussion of this policy trend, go to “Major Trends in Tax Policy – The Shift Away From Use of the Property Tax.”

2. This rate of growth is not even between all sectors of the economy. The growth in residential and commercial and industrial sectors has kept pace with the growth in the economy while the growth in agricultural property taxes has only grown as fast as inflation since 1980.In fact, residential property taxes have grown from 40% of all property taxes in 1980 to more than 50% today.This is at least partly due to the fact that there is less agricultural land as farms are purchased for development.The elimination of the property tax on motor vehicle and the change to net book value assessment for taxable personal property in 1992 are also contributing factors. The chronology link below gives a brief summary of all property tax legislation enacted during the study period.

3. The rate of growth in the railroad and public service sector has slowed considerably since the adoption of the net book value method of assessment for personal property in 1992. The rate of growth for motor vehicle property taxes until 1997, and then the replacement motor vehicle tax and fee since then has greatly exceeded the rate of growth in the Nebraska economy.These relative growth rates are shown in the “Property TaxInformation by Sector” analysis page below.

4. The slowing of the growth rate for property taxes from 1995 to 2000 resulted in a sharp decline in the average property tax rate and a lessening of dependence on the tax relative to other states.The average property tax rate declined from $2.39 per $100 of taxable value in 1995 to $1.86 in 2000. According to the annual Tax Rates and Tax Burdens study of the Department of Finance of the District of Columbia, our ranking on household property tax burden for a family of four with a $50,000 adjusted gross income declined from 13th to 17th between 1996 and 2000. Finally,Governing Magazine in the 2003 Sourcebook ranked the state 20th in per capital property tax collections, our lowest ranking ever. (See the rankings link below to compare Nebraska to its border states using several measures).

5. Since 2000, property tax growth has resumed a higher rate of growth as state budget difficulties reduced money available for state aid to local governments. Again, this is shown in more detail in the analysis link below entitled “Property Tax Growth and the Economy”, but essentially, the rate of growth in property taxes since 2000 has exceeded the growth rate of the economy and our ranking in Governing magazine has worsened from 20th highest per capita property tax burden, to 15th highest.