Nebraska Enacts New Tax Credit & Incentive Provisions
On August 17, 2020, Nebraska Gov. Pete Ricketts signed Legislative Bill 1107 into law. The bill includes several tax incentives and credits to encourage business growth and maintain employment and investment levels in the state.
As the state’s current incentives program, the Nebraska Advantage Act, sunsets on December 31, 2020, the ImagiNE Nebraska Act will take its place effective January 1, 2021. Under the ImagiNE Nebraska Act, qualifying businesses are eligible for employee payment credits, investment credits, sales and use tax refunds, and personal and property tax exemptions.
While existing project applications filed through the end of 2020 will continue under the terms of the Nebraska Advantage Act, new applications will not be accepted after December 31, 2020. Therefore, companies with job growth and/or investment in the state should weigh the benefits of applying for incentives under the Nebraska Advantage Act before year-end or applying in 2021 under the new ImagiNE Nebraska program.
For example, applicants that are potentially making significant investments in Nebraska may want to apply under the Nebraska Advantage Act, which offers a credit of up to 15 percent of eligible investment rather than ImagiNE Nebraska, which is capped at 7 percent for the same investment. Alternatively, applicants that are anticipating significant job growth may consider waiting to apply for ImagiNE Nebraska, as this program delivers more value related to the creation of new jobs, especially those that compensate employees above the average wage in the state.
An additional consideration is that the total amount of credit available for ImagiNE Nebraska is capped annually at $25 million for calendar years 2021 and 2022, $100 million for calendar years 2023 and 2024, and $150 million for the calendar year 2025; for calendar year 2026 and forward, the cap will be equal to 3 percent of the general fund net receipt amount for the most recent fiscal year.
Below is a summary of the benefits provided by the ImagiNE Nebraska Act based on investment, job growth, and compensation.
The ImagiNE Nebraska program has up to a five-year “ramp up” period, a seven-year performance period, and a three-year carryover period. Upon completion of the ImagiNE Nebraska application, a company has up to five years, including the year of application, to meet job growth and investment commitments. The base year for employment is set as the year immediately preceding the year of the application. Thus, a company applying through ImagiNE Nebraska for calendar year 2021 will use calendar year 2020 to determine its base employment level. Any job creation beyond that base employment level for the following five years will count toward the company’s job creation commitment.
Once the job creation and investment requirements are met, a company will receive the tax benefits over a seven-year performance period, beginning with the tax year that includes December 31 of the year the company meets the required minimum threshold. The company has an additional three-year carryover period during which the credits may be used. The last year for which credits may be used is the tax year that includes December 31 of the last year of that carryover period.
In addition to ImagiNE Nebraska, Legislative Bill 1107 also features the Key Employer and Jobs Retention Act. This act’s goal is to encourage established "key employers" in Nebraska to remain in the state. Qualifying key employers with at least 1,000 full-time equivalent employees are eligible for a wage retention credit. The credit is equal to 5 percent of the total compensation paid to all retained employees who were paid 100 percent of the Nebraska average hourly wage applicable during the year the application is submitted, not to exceed $4 million. The total amount of credits available in the program is $40 million.
The bill also provides for the Renewable Chemical Production Tax Credit Act, a refundable tax credit for eligible businesses in the biotechnology and bioproducts industry that produce at least 1 million pounds of renewable chemicals made from Nebraska-based agricultural products. The credit is equal to 7 1/2 cents per pound of the increase in renewable chemicals produced, up to $3 million for the 2022 and 2023 calendar years, and up to $6 million for years 2024 and beyond.
Further, the bill introduces the Customized Job Training Act, which reimburses employers for job training expenses that relate to the creation of net new jobs or that will result in a net increase in employee wages.
To learn more about how to take advantage of Nebraska tax incentives, reach out to your BKD Trusted Advisor™ or use the Contact Us form below.