Sen. John McCollister of Omaha said Wednesday his proposal to expand the state sales tax base to include candy and soft drinks would raise an estimated $33 million in state revenue in the 2021-2022 fiscal year and suggested "we could talk about where the money should go."

McCollister's bill (LB115) is written to funnel that new revenue into the state's health care cash fund, but he told the Legislature's Revenue Committee that he is open to "repurposing some of that revenue."

"A low, broad sales tax is the best policy" for the state to pursue, he said.

"Nebraska now has a narrow sales tax, a high income tax and, Lord knows, a high property tax," McCollister said.

His bill would not extend the sales tax to include bottled water, eliminating one of the products that had been included in previous legislative proposals to apply the state's sales tax to candy and soft drinks.

Retail opponents testifying at a committee hearing pointed to the cost of extending the sales tax base for retailers, prompting necessary revisions in grocery and convenience store software.

"It's not easy, but not impossible," Ansley Fellers, executive director of the Nebraska Grocery Industry Association, said. "But it would be challenging, especially for smaller stores."

Taxing goods is "far more regressive than taxing services," she said, sounding a message that the Legislature recently has been focused on in considering sales tax reform that would center on elimination of dozens of sales tax exemptions for the cost of services as a means of broadening the tax base.

In terms of exempting services, "Nebraska is an outlier," McCollister said. 

A fiscal impact estimate attached to the bill suggests annual revenue could rise to $50 million in fiscal 2022-23 when it would be in effect for a full fiscal year.

In a hearing on a separate bill, Sen. Justin Wayne of Omaha urged the committee to give a green light to his proposal (LB26) to repeal the sales tax on the use and consumption of residential water.

"This is for the people," Wayne told the committee. "You can buy water from the store and not get taxed, but you get taxed for it at home."

Doug Kagan, speaking for Nebraska Taxpayers for Freedom, supported the proposal, arguing that "water is a necessity of life and should not be taxed."

Opponents included representatives of the City of Omaha and the League of Nebraska Municipalities who argued against the resulting loss of city revenue.

Jack Cheloha, lobbyist for the City of Omaha, said Omaha would lose between $1.6 million and $2 million a year in city revenue, which he described as "a significant hit to us."

The loss of revenue for state government was estimated at $4.7 million in fiscal 2021-22, rising to $8.1 million in fiscal 2022-23. 

MEET THIS YEAR'S STATE SENATORS