Opinion ID: 2016681
Heading Depth: 1
Heading Rank: 5

Heading: back into the litigation labyrinth

Text: As a result of today's decision, some Nebraska property owners will very likely find themselves in considerable tax trouble. According to the majority, the Legislature might constitutionally (1) tax all tangible property, real and personal, in an identical manner; (2) exempt all real and personal property from taxation; or (3) exempt some tangible property from taxation, but from some source replace tax revenue lost through exemptions and thereby prevent increasing the tax burden on remaining property owners. Consequently, under today's decision, the Legislature cannot exempt all personal property from taxation, while retaining the property tax on real estate; therefore, Nebraska political subdivisions have either collected too much property tax from property owners who have paid an unconstitutional property tax, or not collected enough taxes from property owners who have availed themselves of unconstitutional property tax exemptions. This situation presents two courses of action: (1) honor claims for refunds on all property tax revenues which were unconstitutionally imposed and collected, or (2) collect additional taxes from those who were undertaxed or escaped taxation as the result of unconstitutional exemptions. The majority's novel test, proclaimed today, is in nowise limited to personal property exemptions. Although the Nebraska Constitution authorizes tax exemptions for property of charitable, religious, and educational organizations, exemptions are not automatic and require enabling legislation to achieve the actual exemption. See Indian Hills Comm. Ch. v. County Bd. of Equal., 226 Neb. 510, 412 N.W.2d 459 (1987) (Nebraska's Constitution does not extend automatic tax exemptions to property of a charitable, religious, or educational organization, but authorizes exemption achieved by legislative implementation). Within the majority's new test is a tax equation: if, as the majority announces, all real and personal property is entitled to equal tax treatment, and tax exemptions that are not fully funded are constitutionally impermissible, then, as a result, all Nebraska's property tax exemptions, existing by legislation and unfunded, are unconstitutional. Consequently, in the absence of constitutionally valid property tax exemptions, all tangible property, whether real estate or personal property and without exception, must be placed on the tax rolls for 1991. The tax equation in today's decision leaves no room for any property tax exemptions, including exemptions for business and agricultural inventories, a private school building, or property previously exempt under Nebraska's Employment and Investment Growth Act, that is, L.B. 775 enacted in 1987 and now codified as Neb. Rev.Stat. § 77-4105 et seq. (Reissue 1990). As a patent paradox springing from its novel test, the majority strikes down the tax exemptions available under L.B. 775, which has generated new employment and an increase in Nebraska's work force, with corresponding increases in revenue from sales and income taxes paid by new employees as consumers and taxpayers. Enabling legislation for the aforementioned illustrative exemptions of tangible property and many other personal property exemptions was contained in § 7 of L.B. 829 pertaining to 1991, legislation which has been struck down by this court. Therefore, as the result of the majority's approach based on absolutely equal tax treatment for real estate and tangible personal property, all tangible property has become taxable for the year 1991. Thus, the potential tax horribles set out in the dissent in MAPCO Ammonia Pipeline v. State Bd. of Equal., 238 Neb. 565, 471 N.W.2d 734 (1991) (Shanahan, J., dissenting), have today become reality in Nebraska. Perhaps, there may be a question whether and how far the State or its political subdivisions can reach into past tax years to collect additional taxes from taxpayers who have already paid their tax liability under existing statutes. If the State or political subdivisions can reach back and collect additional taxes on property which was, at the time, unconstitutionally exempted from taxation, then Nebraskans owning tax-exempt tangible property may be subject to taxation for all their tangible property previously omitted from taxation. On the other hand, it may be unfair to collect additional taxes from those who, relying on existing tax statutes, were unknowingly undertaxed or untaxed. If the State's political subdivisions are forced to refund taxes that are unconstitutional as the result of the majority's new test and tax equation, the amount of money at risk absolutely staggers the imagination. According to the majority, an unfair tax burden was shifted to owners of tangible property in 1980, when the State discontinued distribution of sales and income tax revenues to political subdivisions, that is, if local budget and tax revenue requirements remained constant or were increased after termination of the distributions. The inescapable conclusion, based on the majority's test and decision, is that Nebraska's property tax structure has continuously violated the uniformity clause since 1980 and, therefore, has been continuously unconstitutional since 1980. Assume a 2-year statute of limitations, although in view of today's decision, the statute of limitations for a tax refund is no settled question. In the tax year 1990, Nebraska Department of Revenue figures show that the total of all Nebraska property taxes levied was $1.219 billion. Preliminary figures from the Department of Revenue indicate that the amount may be as high as $1.258 billion for 1991. After today, and with the assumed 2-year statute of limitations, every property tax dollar collected for 1990 and 1991 is potentially subject to refund. A billion here, a billion there, and pretty soon you are talking about a lot of money. The burden of such a cataclysmic tax refund would, paradoxically, fall on all the state's taxpayers through higher property taxes, increases in sales and income taxes, or any other form of additional taxes earmarked as a source of revenue to defray property tax refunds.