In a surprising turn of events, Governor Jim Pillen's ambitious plan to raise sales taxes as a means to decrease local property taxes, known as Legislative Bill 388 (LB 388), was dealt a devastating blow on the final day of the 2024 state legislative session. The defeat of the bill has all but ensured that state lawmakers will reconvene in a special session on taxes later this summer.

Opposition to the tax shift bill was led by State Sen. Julie Slama of Dunbar, who conducted a final-round filibuster, arguing that LB 388 represented an unpopular tax increase that included a potentially unconstitutional provision to tax digital ads. Slama contended that the bill would only benefit those Nebraskans who hadn't already taken advantage of the available tax credit on their property taxes.

Several senators echoed Slama's concerns, calling for a more thorough and thoughtful discussion on the bill, which had undergone multiple last-minute amendments, including the removal of Pillen's proposed 1-cent hike in state sales taxes. Supporters of LB 388 acknowledged its imperfections but believed it was the best solution available to address the pressing demand from constituents to reduce local property taxes.

However, LB 388 fell short of the governor's goal of a 40% reduction in property taxes. After the removal of the sales tax hike and other new taxes from the bill, it was estimated to provide only a 22% decrease in local property taxes, leading to further criticism from legislators like Bayard Sen. Steve Erdman who considered the impact insufficient.

Critics of the bill also raised concerns about the hurried manner in which it was put together and argued that there were smarter alternatives to reducing property taxes. State Sen. Danielle Conrad noted the rising dissatisfaction among her colleagues, emphasizing the need for a comprehensive approach.

Property taxes, which have seen a 53% increase over the past decade, have become a major burden for Nebraskans, with the tax burden disproportionately shifting from sales and income taxes to property taxes. Sen. Mike Jacobson of North Platte stressed the urgency for action, stating that his constituents were tired of waiting for relief.

The chief sponsor of LB 388, Elkhorn Sen. Lou Ann Linehan, initially defended the bill, suggesting that taxing soda pop and candy would help ease the burden on homeowners. However, facing mounting opposition during floor debate, Linehan ultimately requested that LB 388 be withdrawn from the agenda, effectively sealing its fate.

LB 388 had faced a fierce advertising campaign against it, with Nebraska broadcasters and a coalition led by the state's grocery association launching a last-minute blitz to defeat the bill. Their opposition was fueled by concerns over increased taxes on items such as cigarettes, vaping products, and the imposition of new sales taxes on goods and services like pet care, digital ads, and dry cleaning.

In the wake of the bill's defeat, Linehan expressed frustration that organizations like the state chamber, Platte Institute, and OpenSky Policy Institute, which had previously supported the expansion of the sales tax base, were now opposing LB 388.

With the special session on taxes looming, the focus now shifts to finding alternative paths for lowering property taxes. Some senators are already discussing ideas such as legalizing marijuana and online gaming, proposing to tax these activities as a replacement for property tax revenue.

The demise of Pillen's tax shift bill is a significant setback for his administration and highlights the challenging road ahead in addressing Nebraska's property tax burden.