LINCOLN — State lawmakers were told Thursday that unless state law is changed, some Nebraska cities, including Omaha and Lincoln, might be forced to raise property taxes to pay millions of dollars in new property and sales taxes to themselves and other government entities on previously tax-exempt properties.
That, they were told, would be the absurd result of a couple of new tax interpretations by the Nebraska Department of Revenue.
Omaha is facing an unexpected $8.5 million tax bill on public facilities such as TD Ameritrade Park and eight parking garages because of a tax ruling last summer. That same ruling would force the taxation of other government buildings across the state that are financed through nonprofit corporations created by cities, counties, colleges and other government entities.
Omaha City Attorney Paul Kratz said that the city has used a nonprofit corporation the City Council formed 30 years ago to finance a library, renovation of Rosenblatt Stadium, eight parking garages, expansion of the city-owned Hilton Omaha hotel and TD Ameritrade Park. All were thought to be tax exempt until last summer's surprise ruling from the state.
All are public structures developed by a government-created entity that shouldn't have to pay taxes, Kratz said. He estimated the city would face an $8.5 million tax bill if state senators did not act.
"That would be money that comes out of taxpayers' pockets and comes from the City of Omaha to pay other taxing entities," Kratz said.
The City of Lincoln, meanwhile, unveiled a new, multimillion-dollar tax problem Thursday related to the development of its new Pinnacle Bank Arena in the Haymarket.
City Attorney Rod Confer said the city was recently advised that the joint city-University of Nebraska entity that is developing the arena may be required to pay sales taxes on the $170 million facility. That would translate into a nearly $12 million bill.
State tax officials, Confer said, called the city about a month ago, voicing the preliminary opinion that although joint government entities formed between cities and counties enjoy sales tax exemptions, joint entities formed by cities and a university do not.
The city attorney said it doesn't make sense that purchases by both the city and NU are tax exempt, but when they join together for a government purpose such as building a new arena, they are not.
"We think that would achieve an absolutely absurd result," Confer said.
The tax interpretation problems began after the City of Norfolk inquired about a new building it was purchasing, through a nonprofit leasing corporation, for use as a city hall. The city was informed that it would be subject to property taxes — which came as a surprise to government officials across the state and inspired a push to clarify state law. That, in turn, led to the new interpretations.
Members of the Legislature's Revenue Committee appeared sympathetic to the problem, and to a solution proposed by State Sen. Burke Harr of Omaha.
Harr's proposal, Legislative Bill 902, would clarify that property held by a nonprofit corporation that is leased back to a government entity for a public purpose would be exempt from property and sales taxes.
The Omaha senator said the state would not lose any tax revenue, because no taxes are currently being paid on the lease-purchased properties.
"This is money you never had, so you're not going to miss it," Harr told the committee.
Bellevue Sen. Abbie Cornett, who is chairwoman of the Revenue Committee, said she would support a property tax exemption, but questioned if sales taxes paid to the state ought to be exempted as well. If that were the case Omaha would still owe about $4.5 million a year in sales taxes on sales from TD Ameritrade Park and the city-owned Hilton.
York Sen. Greg Adams voiced concerns about the sales tax exemption sought for the Hilton, which is adjacent to the CenturyLink Center Omaha. Why, he asked, is that tax exempt when sales at privately owned hotels nearby are not?
City Attorney Kratz said that the hotel, which was built when the arena was opened and recently expanded, would not have been built without the tax breaks.
Contact the writer:
402-473-9584, paul.hammel@owh.com
Copyright ©2012 Omaha World-Herald®. All rights reserved. This material may not be published, broadcast, rewritten, displayed or redistributed for any purpose without permission from the Omaha World-Herald.
