LINCOLN, Neb. (AP) - A Nebraska lawmaker who took aim at Omaha's new tobacco tax is working on a deal that would allow the city to continue collecting it, at least until the tax fulfills its purpose of helping finance a University of Nebraska cancer research center.
 
     The bill introduced by Sen. Bob Krist of Omaha is among several tobacco-tax issues that lawmakers will consider in a committee hearing Wednesday.
 
     As Krist's bill is now written, cities would be prohibited from giving their occupation tax revenue to other political subdivisions, such as the University of Nebraska. The current measure would prevent the city from collecting the tax, starting in January 2015.
 
     Krist said he will consider removing that requirement from the bill if Omaha agrees to end its tax after six years, instead of 10. The tax is expected to generate about $6 million a year, and Krist said it would still generate the $35 million that the city has pledged to the university project planned to be built in the city. Krist said the current 10-year window would generate more money than the city needs for the cancer center.
 
     "There is a deal on the table," Krist said. "But the Omaha City Council has to come back and tell me that they're going to change their ordinance before I submit an amendment to take it further out."
 
     The Omaha City Council approved the tax in October with a 5-2 vote. The ordinance imposes a 3 percent tax on the cigarettes and other tobacco products sold within the city.
 
     The so-called occupation tax is levied directly on restaurants, hotels, car rental companies and other businesses, according to the Department of Revenue. By contrast, sales taxes are imposed on consumers, although businesses are required to collect that tax from customers and remit all of the revenue to the state.
 
     Krist said he's heard from merchants who were concerned that the city might try to apply the tax to other products in the future. He said that taxing specific products amounts to a "tax on a tax" - the state imposes a sales tax first, and then an occupation tax is applied to the total.
 
     "That is not the correct way to collect an occupation tax," he said.
 
     Omaha lobbyist Jack Cheloha said he plans to oppose the bill during Wednesday's hearing. Cheloha said the city has followed state laws, including one approved last year that imposed a $6 million annual cap on what the city can collect.
 
     "We followed it and scrutinized it closely to make sure we were within the realm of the law that the Legislature passed," he said. "It's a little discouraging for us when, once again, here's another bill introduced that's trying to change the rules again."
 
     Cheloha said the city signed a contract with the university to build the center, with the belief that the project would generate high-paying jobs. Earlier proposals would have imposed a 7 percent tax, which city officials lowered to 4.5 percent and then again to 3 percent. Cheloha said the council intends to let the tax expire once the city collects its $35 million or 10 years passes, whichever comes first.
 
     The bill would also prevent cities from imposing occupation taxes as a percentage of a sale. If approved, the measure would force cities such as Omaha, Lincoln and Grand Island to drop the occupation taxes that are levied in that fashion.
 
     The cancer center is expected to cost $370 million, with money coming from a combination of private and public sources. University officials estimate the center will create 1,200 jobs. Douglas County, encompassing Omaha, has also pledged $5 million for the project 10 years.
 
     University of Nebraska spokeswoman Melissa Lee said the university opposes the current language in the bill that would prevent the city from collecting the tax.
 
     "The Omaha City Council, Omaha's elected body, recognized the tremendous value of the cancer center and has committed to invest $35 million," she said. The bill "as currently written would prohibit that investment."
 
     Gov. Dave Heineman has said he supports the project, but in September he took issue with the use of local tax dollars to help pay for it. The Republican governor has argued that the Omaha ordinance amounts to "double taxation" on smokers, who now must pay both the local cigarette tax and state taxes. The cancer center project is already receiving $50 million in state money that Heineman approved.
 
     A lobbyist for the state's grocery industry plans to support Krist's bill. The Nebraska Grocery Industry Association will argue that Omaha is improperly applying the tax to a specific product, instead of an occupation, said Kathy Siefken, the group's executive director.
 
     Siefken said the city shouldn't levy the tax on a specific product, when it was designed to target businesses as a whole. She said the tax would disproportionately affect businesses on the city's border, because it could drive customers to buy cheaper cigarettes in the suburbs.
 
     "This bill, as far as our industry is concerned, is not about the cancer center at all," Siefken said. "It's about the proper use of an occupation tax, and we just want to get it clarified, cleaned up, and make sure it's good tax policy that everyone is following."
 
     The proposal affects more than 500 grocers and retailers in Omaha, according to the Nebraska Grocery Industry Association.
 
     Sen. Brad Ashford, an Omaha mayoral candidate and a key vote on the city's issues, said he hadn't reviewed the bill but would consider supporting it if wasn't applied to taxes already collected. Ashford said the University of Nebraska cancer center was too important to cut off the funding, but he said lawmakers should look at eliminating certain sales tax exemptions to broaden the city's tax base.
 
     "We over-rely on the occupation tax," Ashford said. "I support broadening the sales-tax base. That's the best way to handle these things."

(Copyright 2012 by The Associated Press.  All Rights Reserved.)

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