Occupation Tax for Irrigation Constitutional - Nebraska

October 5, 2011 | Erin Herbold-Swalwell


Here, the Nebraska Supreme Court was faced with the question of whether an occupation tax enacted by the state legislature violated Art. VIII §1A of the Nebraska Constitution. The landowners, in this case, appealed a trial court ruling upholding the constitutionality of the occupation tax. The tax was enacted in 2007 when the state legislature passed L.B. 710- a statute designed to address water usage problems in the Republican River Basin and to provide a guarantee that Nebraska would stay in compliance with a compact regarding use of the water in the basin in coordination with Kansas and Colorado.  Under the terms of the Compact, each state is allowed a specific percentage of the water supply per year: Nebraska receives 29% of the water supply, Kansas receives 40% and Colorado receives the remaining 11%. L.B. 710 authorized the creation of a natural resources district containing the Republic River Basin and allowed the district to issue “river-flow enhancement bonds” for the purpose of achieving sustainable water use throughout Nebraska. The bonds are payable partly through an occupation tax authorized by L.B. 710. The statute allows the district to levy an occupation tax upon irrigation activity on ag lands within the district on an annual basis, not to exceed ten dollars per irrigated acre.

The appellants, landowner residents and taxpayers of the natural resources district, alleged that the occupation tax was a “property tax for state purposes” that violated Neb. Constitution Art. VIII, §1A. The trial court upheld the constitutionality of the occupation tax and determined that the tax was not a property tax, but, rather, an excise tax levied “upon the activity of irrigation.” The landowners appealed.

Art. VIII, §1A of the Nebraska Constitution states that “the state shall be prohibited from levying a property tax for state purposes.” Thus, the question before the court was whether the occupation tax was a prohibited property tax or, merely, an excise tax. An excise tax is a tax imposed upon doing an act and is not associated with the value of the property being tax. The appellate court concluded that the occupation tax authorized by L.B. 701 is not a property tax for state purposes and affirmed the trial court.  According to the court, the occupation tax was levied upon the “activity of irrigation” and was not dependent on the value of the land being taxed.  Kiplinger, et al. v. Nebraska Dept. of Natural Resources, et al., 282 Neb. 237 (2011).