The words
The Nebraska legislature heard mixed reviews of the proposed LB 606 on Feb. 24.

Nebraska is on the path to becoming the best state in the nation for military personnel and veterans, according to Gov. Pete Ricketts.

LB387, introduced by Sen. Tom Brewer of Gordon at Ricketts’ request, would be a key step toward reaching that goal. Introduced on Jan. 14, the bill would exempt 100% of military retired pay from state income tax. 

The purpose of the bill is to encourage retired veterans to settle in Nebraska and prevent the loss of these citizens to states that offer great tax exemptions. The exemption in LB387 is also aimed to demonstrate to the Department of Defense that Nebraska is a “military friendly” state to promote continuation of military installations in the state.

LB 387 was advanced out of the Revenue Committee with 7-1 vote. After advancing through the first and second round of approval by the full Legislature, it was voted into the final round of approval.

The bill would apply to any individual who served in the Armed Forces and was able to formally retire after 20 or more years of service. According to Brewer, it would apply to approximately 13,000 active duty servicemembers, reservists and National Guardsmen.

“We feel good that this is going to end up being a positive and even though there are some costs involved with the [tax exemption]of the military retirement, what we gain back will be very close to nullifying that cost,” Brewer said. “The result is, we get to keep some very talented folks in the Nebraska job pool and as residents of Nebraska.”

According to Unicameral Update, the Nebraska Department of Revenue estimates that the tax exemption outlined in LB387 would lower the state’s income tax revenue by approximately $13 million in 2022, $13.7 million in 2023 and $14.4 million in 2024.

“I look at this as more of an investment than spending money,” Sen. Tim Gragert of Creighton said. “The increased revenue that we would make off of these individuals with them paying their income tax alone will more than cover the expense of exempting their military retirement pay.”

Gragert, a veteran with 40 years of military service, supported Brewer, a 36-year Army veteran, by making LB387 his priority bill this session. In doing so, Gragert guaranteed that the bill would get a floor vote.

“This is not only important to military families, but I chose this bill because I feel it is also important to our state as an investment to keep quality workforce in Nebraska,” Gragert said. “I look at this as economic development, a tool that will increase our workforce. Not only to retain the individuals that retire from the military, but to attract other veterans to Nebraska.”

Individuals in the military are able to retire after 20 years of service. Many enter the service in their late teens or early 20s, allowing them to retire around age 40. Upon retirement, veterans receive 50% of their final income as retirement pay, but start looking for a second career as a civilian. 

Senators supporting the bill said due to the state’s high tax rate and lack of military retirement tax exemption, Nebraska has struggled to retain highly-trained individuals exiting the military and attract other military retirees to the workforce.

“We were getting a lot of concerns from Offutt [Air Force Base],” Brewer said. “They were in contention for the Space Command and they were losing pretty much everyone that retired. They were leaving Nebraska, so the idea was to figure out a way to keep some of the talent that was going across the river in some cases.”

Brewer said he wanted to introduce the provisions in LB387 years ago, but when he arrived at the capitol in 2017, the state was millions of dollars in debt and didn’t have money in the budget for the bill.

LB387 was presented to the Legislature in 2021 to expand provisions introduced by LB153 in Jan. 2019. Also introduced by Brewer at Ricketts’ request, LB153 aimed to exempt military retirement pay from state income tax, but only by 50%.

LB153 made it to the first round of consideration by the Legislature in May 2019 before being carried over into the Jan. 2020 session. The bill advanced and was signed into law by Ricketts on Aug. 17, 2020.

In a press release from Feb. 9, Ricketts said he testified in front of the Revenue Committee in support of LB387 to expand on the efforts that were propelled with LB153.

“We’ve already taken several steps toward our goal of being the best state for veterans, and we’re just getting started,” Ricketts said. “This year, we have an opportunity to finish the work we began on veterans tax relief in 2020.”

According to Sen. Lou Ann Linehan, chair of the Revenue Committee, LB153 was intended to create a 100% tax exemption for military retirement benefits, but was reduced to 50% due to concerns brought by the onset of the COVID-19 pandemic.

“We were afraid we weren’t going to have enough money, so we just did 50% of it,” Linehan said. “Then this year it was abundantly clear that we were going to have enough money, so we just finished what we started last year.”

At the hearing for LB387 on Jan. 29, proponents from more than a dozen local organizations testified on the bill’s behalf. 

Bryan Slone, president of the Nebraska Chamber of Commerce, testified in support of the bill. He said his decision to testify was spurred by the state’s need for skilled workers, calling it Nebraska’s number one economic issue.

“One of the greatest opportunities to attract skilled workforce to our state is people leaving the military,” Slone said. “They bring all sorts of skills from technical skills from almost every industry and technology skills and leadership skills. There’s just no better place to attract skilled workforce than people leaving the military.”

Nebraska’s biggest obstacle in retaining and attracting military retirees, according to both Brewer and Gragert, has been the competitive tax rates available in other states, particularly in neighboring states. 

Brewer said many Army veterans leave Nebraska for Kansas because of Fort Riley and Fort Leavenworth. Kansas, along with Iowa, is 100% tax exempt on military benefit and South Dakota does not collect any income tax, making these states cost-effective choices for military retirees.

“We had looked at how many people we were losing to Iowa and the numbers were huge and they were getting worse with each year,” Brewer said. “You simply drive a few extra miles and you could have your military retirement [tax exemption] and we just made up our minds that we didn’t want to see Iowa outdo us, employing people that work and want to live in Nebraska.”

Brewer said losing retirees across the Missouri River combined with the benefit of having retirees stay in the state and pay property, sales and income tax on their second job in Nebraska made it easy to sell the bill on the floor. He said the bill removes one of the last obstacles that has kept military personnel from deciding to settle in Nebraska after they retire

“I really think that this is going to even the playing field to where we’re in a position to, if they want to stay, I don’t know of a reason they wouldn’t,” Brewer said. “We really don’t have a lot of negatives. Our winters are cold, but so are Iowa’s.”

The Revenue Committee voted 8-0 in March to adopt an amendment to incorporate the provisions of LB6 into LB 387l. Introduced by Sen. Carol Blood of Bellevue, LB6 is intended to close a loophole left after LB153 was passed.

According to Blood, LB153 was written so that only veterans who received their 1099 tax form from the Department of Defense were eligible for the tax exemption on their retirement benefits. However, she said, there is a small group of veterans who receive their 1099 from the Office of Personnel Management.

Blood said military retirees who go to work for the federal government surrender their military retirement pay, which allows for a combination of federal service time and military years that qualifies them for federal service retirement. Because it includes their military retirement pay, their tax form comes from a civilian agency and they would not qualify for the exemption under LB153.

“What my LB6 did was close that loophole because that was not fair,” Blood said. “We need to make sure that if we are going to have military retirement tax exemptions, that we’re including all of our veterans who are receiving military retirement. That’s what LB6 did in a very small nutshell.”

If LB387 passes the final approval and is signed into law by Ricketts, it will apply to military retirement benefits provided in taxable years beginning on or after Jan. 1, 2022.

Senior Journalism and Broadcasting double major at the University of Nebraska-Lincoln