EDITOR’S NOTE: This blog has been edited to correct the years in which the cost of LB 1107 refundable income tax credit will change.

With the release of the Department of Revenue’s June tax receipts numbers, it’s important to keep in mind that the report compares receipts to the “certified forecast,” which was made last year and not the revised projections the Nebraska Economic Forecasting Advisory Board board made in April.

While receipts exceeded the year-old certified forecast by $958 million, they tracked closer to the more recent April forecast, surpassing it by $379 million. Nebraska lawmakers used the April forecast to craft the budget they passed in the recently-completed session.

A bill passed by lawmakers this year will have the Department of Revenue start comparing receipts to the most recent forecasts as opposed to certified forecasts. This will help ensure monthly receipts reports reflect current projections and allow policymakers and others to have a more up-to-date perspective on state revenue.

Extended tax filing deadline played a significant role in receipts beating forecasts

Receipts in FY 21 were bolstered by a one-time, $280 million influx of income tax revenue that were collected because of an extension in the income tax filing deadline. If the extension had not been in place, that money would have been collected the prior year and receipts in FY 21 would have been $280 million less.

LB 1107 income tax credit gets another bump

FY 21’s receipts — including the $280 million due to the filing extension — have significant implications for the LB 1107 refundable income tax credit, which became law in 2020. The credit was set at $125 million for its first year, 2020, but has a provision that allows it to grow in 2021, 2022 and 2023 if state revenues increase by more than 3.5% over the previous year. The filing deadline extension played a major role in state revenue growth exceeding 20% in FY 21, which will allow the LB 1107 credit to increase to about $548 million in FY 22. This will then be the baseline amount of the credit through 2023 regardless of the state’s fiscal condition at those times.

Because tax credits such as the one created by LB 1107 come off the top of state revenues before other priorities are funded, the large increase in the LB 1107 credit could put support for K-12 education, health care and other services in jeopardy should future revenues lag.