To close out its 2020 Session, the Nebraska Legislature passed LB 1107, which was referred to as the “Grand Compromise” by many Nebraska senators. This is because it represented a compromise on numerous Nebraska tax and incentive issues that were unresolved with very little time left in the Session.
In a previous Alert, we discussed key topics in the Imagine Nebraska Act incentives that were passed as part of this Bill. In this article, we’ll highlight other key Nebraska tax and incentive provisions in LB 1107. These changes include:
The Nebraska Property Tax Incentive Act
This Act establishes a refundable credit that can be used against Nebraska income taxes by individuals, business entities, trusts and estates who own real property in the State of Nebraska. This credit is intended as property tax relief, and is based on the value of the real estate owned by the taxpayer.
The total amount of the credit varies by year, but it is scheduled to significantly increase over the next five years. For example, the total credits for tax year 2020 will be equal to $125 million. For tax years 2021-2023, the total credits will equal $125 million plus an increase based on Nebraska’s growth in tax receipts during those years. If Nebraska’s tax revenues increase more than 3.5%, and Nebraska’s cash reserve fund has at least $500 million, 50% of that excess revenue would be used for the credit.
For tax year 2024, the total credits will increase to $375 million. Then, for tax year 2025 and later, the credits will equal $375 million plus a growth percentage tied to the growth in total assessed real property in Nebraska (maximum 5% growth per year).
This Act has been criticized for providing too little relief in the next few years. The Nebraska Farm Bureau estimated that this Act would provide $855 in property tax relief to the average farm in 2020. One theme for the “grand compromise” was that legislators tried to address key tax issues but recognized that it may take a few years to provide meaningful relief given the budget uncertainty due to COVID-19. As evident from above, the monetary impact of this credit will grow significantly from the 2020 tax year. By 2025, the Nebraska Farm Bureau estimated that the value of this credit will be equal to $2,227 per average farm.
Elimination Of $10,000 Personal Property Tax Exemption
As a slight offset to the costs of the credit, LB 1107 repealed Nebraska’s de minimis tangible personal property tax exemption. Under the prior law, owners of taxable tangible personal property could exclude the first $10,000 worth of tangible personal property when calculating their personal property tax liability.
One key effect of this repeal is that it may cause many Nebraska businesses to owe personal property taxes for the first time. Business owners, and their advisors, will want to make sure that they are keeping up with compliance requirements given this change. This change should not affect property held for personal use, because the exemption for such property still exists.
Key Employer and Jobs Retention Act
This Act creates a wage retention credit to keep key employers who have undergone a change in control or ownership and are at risk of leaving Nebraska. Applications under this Act must be filed by May 31, 2021, so there is a relatively short period to apply for funding under the Act.
To qualify for incentives, the company must meet certain criteria, including the following: (1) employ at least 1,000 full-time equivalent employees in Nebraska; (2) provide health insurance and additional benefits; (3) enforce a discrimination policy; (4) be in a qualified business (as defined in the Imagine Nebraska Act); and (5) retain at least 90% of their employees.
The wage retention credit is equal to five percent of the wages paid to the retained employees who make at least 100% of the Nebraska statewide average wage for the year of application. The credit is allowed for the year of application and the following nine years and can be used against income tax and withholding tax liabilities. Credits can be carried forward, but not more than nine years after the year of application.
The total credits granted under this Act cannot exceed $4 million per year. In the event that the requests under this Act exceed the funding, the earlier applications shall be funded first.
If an employer drops below 90% of its existing Nebraska employees, it cannot earn credits under the Act. In addition, it will lose one tenth of the credits that it earned for each year that it is below ninety percent of the existing level.
Customized Job Training Act
This Act provides grants to employers for reimbursement of job training expenses for jobs that are “net new” jobs, meaning they are new jobs that do not replace existing jobs, or that result in a net increase in wages per employee. The jobs being trained for must meet or exceed the Nebraska average annual wage. The amount of each grant will be determined by the Department of Economic Development.
The training itself may be provided by a community college, a secondary school, a Nebraska ESU or another qualified provider if the training results in (1) a national, state, or locally recognized certificate; (2) preparation for a professional examination or licensure; (3) endorsement for an existing credential or license; or (4) development of recognized skill standards as defined by an industrial sector.
If you, or your client, are interested in any of these programs, please contact a member of the McGrath North Tax Group for more information.