Nebraska overhauls state incentive offerings


Mike Eickhoff
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Ross Benitz
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Clare Walter
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Clayton Adamson
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On Aug. 17, 2020, Nebraska Gov. Pete Ricketts signed legislation, L.B. 1107, into law to provide comprehensive reform of the state’s incentive program offerings.1 The new incentive offerings provided in the legislation include the ImagiNE Nebraska Act,2 the Key Employer and Jobs Retention Act,3 the Nebraska Revolving Loan Fund,4 the Customized Job Training Act,5 the Renewable Chemical Production Tax Credit Act,6 and the Nebraska Property Tax Incentive Act.7

Background on state incentives Currently, Nebraska offers economic development incentives through the Nebraska Advantage Act, which is set to expire on Dec. 31, 2020.8 In the waning days of the recent legislative session, Nebraska lawmakers reached a compromise on a bill, L.B. 1107, to overhaul the incentive programs available to businesses and individuals in the state. Several programs were eliminated, replaced, or allowed to expire as a result of L.B. 1107, most notably, the flagship incentives program, the comprehensive Nebraska Advantage Act. In addition, L.B. 1107 amended and eliminated, respectively, the Property Tax Credit Act9 and the exemptions provided under the Personal Property Tax Relief Act.10 The new programs will go into effect on Jan. 1, 2021 and are authorized through 2030.11

ImagiNE Nebraska Act The new ImagiNE Nebraska Act offers a combination of wage credits, investment tax credits, sales tax refunds, and personal property tax exemptions.12 Each incentive has its own eligibility requirements based on the project’s job creation and capital investment over a five-year period known as the “ramp-up period.”13 Under the ImagiNE Nebraska Act, benefits may be realized over a seven-year period and carried forward for up to three years.14

To earn the incentives offered under the ImagiNE Nebraska Act, businesses must file an application with the Director of Economic Development prior to the project capital investment being placed into service or new jobs being created.15 Since project benefits are not site-specific, a taxpayer may submit one application which includes multiple qualified business locations within the state.16 The statute defines qualified locations based on business activities, which include but are not limited to: manufacturing, testing laboratories, rail or truck transportation, research and development, and administrative functions.17 With each application, a taxpayer must include a $5,000 application fee and provide documentation of enrollment in the federal E-verify program.18 The program goes into effect on January 1, 2021, and will sunset on Dec. 31, 2030.19

Sales and use tax incentives Under the ImagiNE Nebraska Act, taxpayers may be eligible for a sales and use tax exemption through the Local Option Revenue Act for purchases of tangible property located or used at the qualified project site.20 To qualify, the taxpayer must create a minimum of 30 new jobs and invest at least $5 million during the ramp-up period.21 Alternatively a project may qualify based on capital investment alone, if investment is at least $50 million and the average wage of employees at the site remains at least 150% of the statewide average hourly wage at the time of application.22

Wage and investment credits The ImagiNE Nebraska Act provides qualified taxpayers the ability to earn income tax credits for both new employee wages and for new investment.23 To qualify for these income tax credits, a project must create at least 10 new jobs and invest at least $1 million.24 However, with the goal of promoting investment in certain areas of the state, qualification requirements are relaxed for projects located within an economic redevelopment area.25 Investment and wage credits can be applied against state income tax and are refundable if used for the repayment of qualified childcare costs, job training costs, loans related to job training or infrastructure development, and for sales and use tax not otherwise refunded.26

The amount of credit awarded is applied on a sliding scale statutorily determined based on job creation and capital investment during the ramp-up period. The investment credit ranges from 4% to 7% of the investment in qualified property at the project location.27 The wage credit ranges from 4% to 9% of the average annual wages paid to project employees.28 For purposes of the wage credit, projects creating at least 20 new jobs are exempted from the minimum capital investment requirement.29 Additionally, wage credits are eligible to be used against employer withholding tax.30

Property tax exemption Additionally, the ImagiNE Nebraska Act provides qualified taxpayers a 10-year personal property tax exemption for property placed in service after the date of application.31 To qualify, a taxpayer must (i) invest at least $5 million and create at least 30 new jobs, or (ii) invest at least $50 million and the average wage of employees at the site remain at least 150% of the statewide average hourly wage at the time of application.32

Other provisions of L.B. 1107 L.B. 1107 outlines several incentive provisions in addition to those prescribed as part of the ImagiNE Nebraska Act. Specifically, L.B. 1107 pledges $5 million in loans for the purposes of workforce training and infrastructure development under the Nebraska Revolving Loan Fund, starting in the fiscal year beginning July 2022.33 To apply, taxpayers must file an application with the Department of Economic Development.34 Interest and loan repayment may be made via credits received through the ImagiNE Nebraska Act.35

The Nebraska Property Tax Incentives Act allows taxpayers paying school district taxes a refundable income tax or franchise tax credit, beginning in the 2020 tax year.36 The amount of credit is determined by taking the amount of school district taxes a taxpayer paid during the year and multiplying by a credit percentage specified by the Nebraska Department of Revenue.

Finally, under the Key Employer and Jobs Retention Act, current Nebraska businesses experiencing a change in ownership over the last 24 months and at risk of relocating at least 1,000 jobs out-of-state may be eligible for withholding or income tax credits.37

Commentary The enactment of L.B. 1107 provides a timely replacement of the current regime of incentive offerings in Nebraska, the Nebraska Advantage Act, set to expire at the end of 2020.38 The new incentive programs provide a standard framework to reward a range of different projects, while increasing incentive value for larger projects choosing to locate within Nebraska. With automation on the rise and overall unemployment down (prior to the COVID-19 pandemic), Nebraska has targeted its incentives to reflect the current trend of larger capital investment projects with little job creation. The total allowable incentives authorized under L.B. 1107 grows from $25 million per year in 2021-2022, to $100 million in 2023-2024, to $150 million in 2025, and up to 3% of state net tax receipts beginning in 2026.39 These figures actually are a reduction from the original slate of incentives earmarked under earlier versions of the bill.40 The reduction in scope of the incentives bill may be driven by macro-level economic conditions, as the COVID-19 pandemic has had negative consequences on the fiscal health of states.41 The projected budget shortfall of states in 2021 is expected to exceed the levels faced in any year of the last two recessions.42 Heading into the COVID-19 pandemic, Nebraska garnered the highest fiscal health score of any state in 2018, suggesting perhaps a better than average ability to stave off adverse effects of the COVID-19 recession.43

1 L.B. 1107, Laws 2020, enacted Aug. 17, 2020.
2 L.B. 1107, §§ 1–43.
3 L.B. 1107, §§ 44–66.
4 L.B. 1107, § 41.
5 L.B. 1107, §§ 78–83.
6 L.B. 1107, §§ 67–77.
7 L.B. 1107, §§ 111–115.
8 NEB. REV. STAT. §§ 77-5701–77-5735. Under the Nebraska Advantage Act, new project applications may not be filed after December 31, 2020. NEB. REV. STAT. § 77-5725(1).
9 NEB. REV. STAT. § 77-4212.
10 NEB. REV. STAT. § 77-202(11).
11 L.B. 1107, §§ 27(6); 145; Fiscal Note for L.B. 1107, Nebraska Legislature, Aug. 11, 2020.
12 L.B. 1107, §§ 1–43. Note that Mega Projects that create at least 250 jobs and invest at least $250 million generally are eligible to receive the incentives discussed below, including an unlimited personal property tax exemption.
13 L.B. 1107, § 20.
14 L.B. 1107, §§ 7; 16; 20.
15 L.B. 1107, § 27.
16 L.B. 1107, § 18(1). In order to be considered a qualified location as part of the development project, at least 75% of sales must be made to unrelated parties located outside Nebraska. Additional sites cannot be included as a qualified location if the majority of business activities performed at the site are within the following North American Industry Classification System (NAICS) categories: agriculture, forestry, fishing, and hunting (11); transportation and warehousing (48-49); information (51); utilities (22); mining, quarrying, and oil and gas extraction (21); public administration (92); or construction (23).
17 Id. Other business activities include warehousing, data centers, renewable energy production, financial services, computer facilities management, and telecommunications.
18 L.B. 1107, §§ 27(2)(i); 28(1)(d).
19 L.B. 1107, §§ 27(6); 145.
20 L.B. 1107, § 31.
21 L.B. 1107, § 31(1)(a).
22 L.B. 1107, § 31(1)(c).
23 L.B. 1107, § 31(4), (5).
24 Id.
25 L.B. 1107, § 31(4)(e), (5)(d), (6). Other factors include the location of the project in an extremely blighted area (§ 31(6)(a)), in a county with a population under 100,000 (§ 31(5)(a)(iii)), or the business is a benefit corporation (§ 31(6)(b)).
26 L.B. 1107, § 32.
27 L.B. 1107, § 31(5).
28 L.B. 1107, § 31(4).
29 L.B. 1107, § 31(4)(b).
30 L.B. 1107, § 32(1)(b).
31 L.B. 1107, § 31(8).
32 L.B. 1107, § 31(8)(b).
33 L.B. 1107, § 41(2), (3).
34 L.B. 1107, § 42(1).
35 L.B. 1107, § 41(4).
36 L.B. 1107, §§ 111; 113(1).
37 L.B. 1107, §§ 44; 45; 52(6), (7); 59(6).
38 NEB. REV. STAT. § 77-5725(1).
39 L.B. 1107, § 39(2)(b).
40 Katherine Loughead, Nebraska’s Property Tax Compromise Provides Temporary Relief, but Structural Reform is Needed, TAX FOUNDATION, Aug. 13, 2020.
41 Fiscal 50: State Trends and Analysis, THE PEW CHARITABLE TRUSTS, Sep. 4, 2020.
42 Elizabeth McNichol & Michael Leachman, States Continue to Face Large Shortfalls Due to COVID-19 Effects, CENTER ON BUDGET AND POLICY PRIORITIES, July 7, 2020.
43 Eileen Norcross and Olivia Gonzales, Ranking the States by Fiscal Condition, 2018 Edition, Mercatus Center, George Mason University, Oct. 9, 2018.

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