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The Imagine Nebraska Act: Nebraska's Third Generation Tax Incentive Platform Is Now Law

As we work across Nebraska with Business and Economic Development Leaders to deploy the best ways to grow companies beyond COVID-19, Governor Ricketts and the Nebraska Legislature have just provided a strong, timely and helpful new Tax Incentive Platform: The 2020 Imagine Nebraska Act. The Imagine Nebraska Act was enacted August 17, 2020, and becomes effective on January 1, 2021. It replaces the 2005 Nebraska Advantage Act, which had previously replaced the 1987 Employment and Investment Growth Act.

Key Changes Under Imagine Nebraska Act

The Imagine Nebraska Act is substantially different from the Nebraska Advantage Act. In many ways it is better, and in some compromised, negotiated ways it is not as strong. Key differences include the following:

  • Incentive Mix. Different levels of income, sales and property tax incentives apply based on new required levels of jobs and investment.
  • Immediate Incentive Use. Incentives may generally be claimed once a business attains the required investment and employment thresholds. Companies need not complete a Qualification Audit prior to claiming incentives (which was, for many companies, holding up incentives). The Department of Revenue can conduct an audit at a later time (as it can for all other tax matters).
  • No Segregation of Qualified Locations. Locations will now qualify as long as a majority of the activities occurring at that location are “qualified activities.” Companies should no longer need to segregate qualified and non-qualified activities at a given location.
  • No Part-Time Employees. Hours worked by part-time employees will no longer be included in the calculation of new employees at a project.
  • Application Review By DED. Applications for incentives will now be reviewed by the Department of Economic Development. The Department of Revenue will be responsible for auditing the levels of employment and investment, as well as approving a company’s refunds, credits and exemptions.
  • Expansion of Qualified Activities. The listing of qualified business activities has expanded. In addition, most businesses which derive 75% or more of the sales from outside Nebraska may qualify for incentives (excluding businesses engaged in agriculture, transportation and warehousing, information, utilities, public administration and construction).
  • Qualified Activities For All Incentive Levels. All types of qualified businesses are eligible for all incentive levels under the Imagine Nebraska Act. The lowest level of incentives is not restricted to certain business activities.
  • Wage Levels. For most projects, employers must pay at least the state average wage for a new employee to count towards meeting the employment thresholds. Lower wage requirements apply for certain manufacturers and companies engaged in aircraft servicing.
  • Employee Benefits. Employers must offer a new employee health insurance and benefits for that employee to count towards meeting the employment thresholds.
  • Base Year Adjustment For 2021 Applications. A company’s beginning number of employees is based on the employment in the company’s base year. This is generally the number of employees in the year prior to applying. Because of the employment effects from COVID-19, for 2021 applications, a company’s base year employment will be based on the higher of its employment in 2019 or 2020.
  • Incentive Caps. Refunds will be subject to an annual cap, which begins at $25 million for 2021 and 2022, increases to $100 million for 2023 and 2024, and increases to $150 million for 2025. After 2025 the cap is tied to Nebraska’s fiscal receipts. This has the potential to delay incentive use and/or project approval, so it is likely beneficial to file claims and applications as quickly as possible.
  • Anti-Discrimination Provision. There were two amendments made by senators during the legislative process which pose specific legal concerns with the Imagine Nebraska Act. The Legislature decided not to resolve these during the legislative session. The first of these is an anti-discrimination provision which was added to the Act. While well intentioned, this provision would potentially revoke the project incentives entirely for a company which violated “any state or federal law against discrimination.” In addition, this requires a company officer to first determine, and then affirm, in signing the incentive application, that the company does not violate any state or federal law against discrimination. The Act does not specify which discrimination laws apply, so the company needs to assume this is every federal discrimination law and every discrimination law in every state it does business. Because of the vagueness and breadth of the provision, any violation could cause a company to be in breach of the tax incentive agreement and as a result lose all of its incentives if any of its personnel, anywhere in the country, was found to have discriminated in any way against even one fellow employee (whether or not this resulted in a claim or case). Any act of discrimination could potentially also hold up payment of a company’s incentives. This could also lead to a burdensome audit by the Department of Revenue, which by law needs to assure compliance with the Act. Hopefully this provision will be clarified in the next legislative session (or be interpreted and applied by the State in a workable, appropriate way).
  • Nebraska Resident Requirement. The second amendment by the senators concerns a new requirement that employees must be Nebraska residents in order to be included in the count of new employees working at the project. While this residency distinction may present overall policy and legal issues, it may also raise particular business concerns for companies which are located near Nebraska’s borders.

Grandfather Decision By December 31, 2020

While the Imagine Nebraska Act “replaces” the 2005 Nebraska Advantage Act (NAA), in fact the State of Nebraska has given companies a big choice. For a limited period of time (through December 31, 2020), you can actually choose which Tax Incentive Platform is best for you.

With that in mind, we have prepared a full detailed Nebraska Tax Incentive Briefing to help describe this Grandfather option and to illustrate the difference in incentive benefits for a variety of projects. This is available upon request.

Based on 30+ years of working with Nebraska’s Business and Economic Development Leaders to design and draft these Tax Incentive Platforms, we want Business Leaders to be aware that each Platform has different strengths, due to compromises needed to achieve enactment. Depending on your specific situation, one may be significantly better for you than the other.

The reason this choice exists is because under the Nebraska Advantage Grandfather provision, you have 4-6 years to actually meet the new job and investment thresholds—if you file the Nebraska Advantage Application by December 31, 2020. So, even if you are presently uncertain about your future growth, you can file your Application by December 31, 2020, and then have until 2024/26 to actually implement your expansion (and then continue to earn the potentially higher NAA tax incentive benefits for 6-10 years after that).

In essence, this becomes a Grandfathered “protective filing”. If you decide later to change your site or your plans, you can do so. Or, if you decide later you won’t reach the new job and investment threshold, you can simply withdraw the Application (and if you so choose, switch and then file under the Imagine Nebraska Act).

Our Briefing provides a comparison of the existing and new Platforms. Our Optimal Tax Incentive System™ (OTIS) enables us to quickly evaluate the 15 specific business, legal and financial criteria which determine which Platform will be better for your specific project.

We welcome the opportunity to discuss this with you as Business Leaders continue to quickly adjust and refocus their Business Models towards the future. Please contact us for a copy of the full Tax Incentive Briefing or to discuss the Grandfather option for your Company.