Opinion ID: 2016681
Heading Depth: 1
Heading Rank: 4

Heading: The 1970 Amendment and Stahmer

Text: In 1967, the Legislature for the first time enacted a state sales tax and an income tax. 1967 Neb. Laws, ch. 487, p. 1533 (codified as amended at Neb.Rev.Stat. § 77-2701 et seq. (Reissue 1990 & Supp. 1991)). Thereafter, concerns arose that certain groups were shouldering a disproportionate share of the tax burden. One such group was farmers, who were forced to pay both sales and property taxes on large amounts of equipment, livestock, and inventory, as well as on their extensive land holdings. Revenue Committee Hearing, L.B. 290, 80th Leg. 2 (April 16, 1969). Certain businesses with large inventories of merchandise and slow turnover rates, such as automobile and lumber dealers, also complained that they were being taxed unfairly in comparison to service-oriented enterprises. Id. at 2-5. In response to this problem the Legislature submitted, and the people adopted, a constitutional amendment authorizing the Legislature to separately classify and exempt personal property for purposes of taxation. See Neb. Const. art. VIII, § 2. Pursuant to the authority granted in article VIII, § 2, the Legislature in 1972 partially exempted several categories of property from the personal property tax. These categories included most agricultural income-producing machinery and equipment; livestock; grain, fertilizer, seed, and other farm inventories; business inventories; and poultry, fish, honeybees, and fur-bearing animals. 1972 Neb. Laws, L.B. 1241, § 1 (codified as amended at § 77-202(6) through (9)). The bill further directed the State Treasurer to reimburse the county taxing authorities for any revenues lost due to the exemptions, the money to come from funds generated by the sales tax and the income tax. 1972 Neb. Laws, L.B. 1241, § 6. This court upheld the 1972 exemptions against a constitutional challenge in Stahmer v. State, 192 Neb. 63, 218 N.W.2d 893 (1974), overruled, MAPCO Ammonia Pipeline v. State Bd. of Equal., 238 Neb. 565, 471 N.W.2d 734 (1991). In so doing, the court relied heavily on the authority granted in article VIII, § 2, as a specific exception to the general requirement of uniformity contained in article VIII, § 1. Nonetheless, the court recognized the possibility that legislative exemptions from personal property taxation remain subject to a standard of reasonableness emanating from the uniformity clause and the special legislation provision of article III, § 18, the state's equal protection clause. Stahmer, 192 Neb. at 67, 218 N.W.2d at 896. Assuming such a limitation existed, the court concluded that the exemptions were a reasonable attempt to alleviate the heavy tax burden placed upon farmers and businesses with large inventories. Stahmer represents the court's first attempt to balance the authority granted in article VIII, § 2, with the requirement of uniformity contained in article VIII, § 1. In analyzing the decision, it is important to note that the 1972 exemptions did not affect the property tax burden of the remaining owners of real or nonexempt personal property because the exemptions were fully funded with moneys from the sales tax and the income tax. See Revenue Committee Hearing, L.B. 299 and 829, 92d Leg., 1st Sess. 3 (March 20, 1991). In the absence of any increase in the property tax burden of the remaining taxpayers, the chief evil targeted by the framers of the uniformity clause, the only issue remaining for the Stahmer court was the reasonableness of the classifications drawn. The approach taken in Stahmer is very similar to that exhibited in Banner County. In Banner County, the court recognized that a statutorily prescribed method of assessment resulting in lower valuations of agricultural lands cannot conform to the requirements of the uniformity clause. A systematic undervaluation of agricultural land necessarily involves a reduction in the property taxes levied upon owners of such property. Because the level of funding necessary to sustain local government remains constant, such a reduction also necessarily entails a shift of the property tax burden to the remaining tax base. Thus, despite express constitutional authority to separately classify agricultural land, the Banner County court struck down 1985 Neb. Laws, L.B. 271, to prevent the Legislature from doing indirectly what it is prevented by the Constitution from doing directly[taxing] agricultural land in a nonuniform manner from the taxation of other tangible property. Banner County, 226 Neb. at 254, 411 N.W.2d at 46. Significantly, the court noted that had the uniformity clause been repealed, the only limitation on the Legislature's scheme would be the reasonableness of the classifications under the Equal Protection Clause of the federal Constitution. Just as the Legislature left the uniformity clause intact in submitting the amendment at issue in Banner County, it did so in submitting the 1970 amendment to article VIII, § 2, as well. For that reason we cannot agree with the State's contention that the classification clause of article VIII, § 2, is an express exception to the requirement of uniformity in Article VIII, § 1. Brief for defendants at 30. Instead, in exercising its power to exempt, the Legislature must adhere to the dictates of both clauses. Banner County and Stahmer indicate that in determining whether exemptions enacted pursuant to article VIII, § 2, are valid, this court must consider (1) whether the exemptions improperly shift the property tax burden to the remaining tax base, and (2) whether there is a substantial difference of situation or circumstance justifying differing legislation for the objects classified.