No more sales tax on home remodeling

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BY NANCY HICKS / Lincoln Journal Star

Scott and Ann Barnett remodeled their Lincoln house one year too early. The project was finished last year when the state was applying sales tax to remodeling projects. 

The Barnetts paid about $2,500 in sales tax for the remodeling project. But beginning Saturday, the state will no longer collect tax on home remodeling work.

The Legislature and governor removed the tax — despised by the construction industry —  in legislation passed this year. 

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Ann Barnett shows Gov. Dave Heineman her new kitchen as the Barnetts hosted a news conference about the elimination of home repair and remodeling labor sales tax. (Robert Becker)

Ann Barnett shows Gov. Dave Heineman her new kitchen as the Barnetts hosted a news conference about the elimination of home repair and remodeling labor sales tax. (Robert Becker)

Gov. Dave Heineman, who made cutting taxes a priority in the session, used the Barnetts’ home as a backdrop for a Friday morning news conference on the repeal of the sales tax on home repairs.

The repeal will save homeowners about $30 million over the next 12 months, according to Heineman. 

He said that next year he plans to focus on ending the estate tax and nibbling away at the income tax.

Nebraskans are moving out of the state because they don’t want to pay the estate taxes, he said. 

And over the years taxes have crept up, moving Nebraska from a moderate tax state to a high tax state, Heineman said.

Scott Barnett said they might have used the tax dollars to pay for work the family did — tearing out the old and painting the new. 

“We did make some choices to save money — on the counter tops, and doing some of the work themselves, he said.

The Barnetts, who have three children still at home, decided that enlarging the kitchen area would make the home more livable.  

“We tend to gather in the kitchen,” he said. 

“We wish ending the sales tax would have been sooner, but anytime is great,” he said.

The sales tax meant that some people put off projects or decided not to do them at all, said Herb Reese, whose company  did the remodeling work that added an eating area and laundry room to the house.

In fact the $600 sales tax on a deck put the cost over one couple’s remodeling budget and they backed off the project, Reese said. 

With the repeal, homeowners can save money or put more money into their projects, Reese said.  

The Legislature added the sales tax to home and business remodeling projects in 2003  when the state was facing serious financial problems because of the recession.

Contractors have complained that the new tax was complicated, cumbersome and unfair. 

During the recessionary period the Legislature increased the sales and income tax rates, began to apply the sales tax to more services,  increased the cigarette and liquor taxes, and cut back on state aid to local governments.

This year, as the economy improved, senators passed a tax cut package that included a decrease in the income tax rate, property tax reductions for some low-income homeowners, an earned income tax credit for low-income parents, and the repeal of the sales tax on home repair labor.  

Senators repealed the sales tax on home remodeling labor but not on business remodeling labor.  There is still a sales tax on the material used for remodeling.

Reach Nancy Hicks at 473-7250 or nhicks@journalstar.com.