We have been seeing renewed interest in tax incentives this year, both in Nebraska with legislative action on a new incentive program and in other states.

Nebraska’s main economic development incentive program began with the 1987 Employment and Investment Growth Act (known as LB775), which was continued and enhanced through its successor in 2005, the Nebraska Advantage Act (known as LB312). The 2020 Imagine Nebraska Act is the third generation of Nebraska’s leading business growth incentive platform. These programs have incented the creation of more than 1,000 expansion projects, with over $45 billion of capital investment and 100,000-plus new jobs in Nebraska.

Nebraska also has numerous other business incentives that are available to companies in many industries. With more companies exploring expansion and investment opportunities, incentives are becoming an increasingly important part of the decision-making process. We are writing this article to share practical insights on how to approach these opportunities and avoid common pitfalls that can impact the value and receipt of available incentives.

In working on incentive projects with CPAs, company tax teams, and company leadership, we often encounter issues that might not be obvious at the outset but can significantly affect results. Many of these challenges come up early and can be difficult—or even impossible—to fix later. Based on that experience, we’ve outlined some of the most important legal and structural considerations to keep in mind, as projects tend to be most successful when these items are addressed upfront.

Application Issues & Project Design

• Which Program: Several Nebraska business expansion incentives are available—both tax and non-tax. Before moving forward with a project, it’s important to evaluate which programs are the best fit. In some cases, a single project may qualify for more than one program.
• Project Entities: Depending on the incentive, the structure of your company and its related entities may need to meet specific eligibility requirements. It’s important to confirm this early in the process.
• Qualified Business: The project must usually fall within one or more “qualified business” activities. This may sound straightforward, but the Nebraska Department of Revenue can sometimes challenge whether a business qualifies. A clear and accurate description of your operations can make a big difference.
• Project Activities Description: How you describe your project matters. Being too broad or too narrow can impact eligibility and the amount of incentives available. Careful drafting upfront can help avoid issues later.
• Commitment: You’ll usually need to determine your expected levels of new investment and employment. These decisions directly affect the level of benefits available and your flexibility going forward.
• Employees: Understanding your base year employee count and required wage levels is critical. These factors often drive qualification and benefit levels.
• Coordination With State & Local Approvals: Timing is important. Your project should align with state and local approvals, zoning or site entitlements, and any additional incentives you’re pursuing.

Multiple Locations

• Locations: Defining where your project will take place is key. The location and scope can impact both eligibility and the amount of incentives you receive.
• Multiple Sites: If your project spans multiple locations, specific rules determine whether they can be treated as a single project. These rules should be considered early to avoid surprises.

Contract With the State

• Legal Agreement: Most incentive programs require a formal agreement with the state or local government. This agreement typically incorporates everything in your application—including attachments. Because of this, the application should be reviewed carefully, just like any other legal contract.

Claiming Benefits

• Filing Claims: When claiming incentives, filings should clearly outline the legal basis for the claim. It’s also a good idea to preserve your rights by including a formal appeal or hearing request if needed.

Qualified Property

• Eligible Property: Not all property qualifies. Assets must meet specific use requirements and be located at the project site.
• Relevant Dates: Timing matters. Generally, property must be acquired after the application is filed and within the designated project period.
• Software as an Asset: Software can often qualify, but only if certain conditions are met—such as having the right type of license agreement in place.
• Manufacturing Exemption: Qualification for Nebraska’s manufacturing machinery and equipment exemption can potentially be impacted if the machinery or equipment is purchased through an Option 2 or 3 contractor. This should be addressed with vendors before a project is initiated.

Real Property Construction

• Contract Terms: Construction projects come with additional requirements. This can include how contractors are designated, certifications that must be obtained, and specific contract language related to taxes. These rules can also apply to build-to-suit lease arrangements.

Optimizing Incentives

• Compliance: Documentation is key. Keeping detailed and organized records will make it much easier to claim and support your incentives.
• Equipment: Purchase and lease agreements should include clear terms around tax location (situs) and payment structure, as these can impact eligibility.

Statutory Limits

• Prohibited Actions: Certain transactions, such as those between related parties, may limit or disqualify incentives. Understanding these restrictions ahead of time can help avoid issues.

Resolving Issues

• Project Issues: If questions or disputes arise, specific procedures and deadlines exist for addressing them with state or local agencies. Acting quickly is important to preserve your options.

Business Sale

• Project Transfer: If you sell the business or project, typically requirements must be met to transfer the incentives to a buyer while protecting the seller’s position.

Foreign Ownership or Structure

• Foreign Ownership or Subsidiaries: Nebraska has enacted certain restrictions on incentives for companies that are organized in, have their principal place of business in, or are owned (in whole or in part) by certain “foreign adversarial” countries. These countries include China, North Korea, Russia, Iran, Cuba, and the Maduro Regime of Venezuela. Those restrictions can also exist for subsidiaries of such companies. If your company may be impacted by these restrictions, you may potentially be able to take restructuring steps to reduce the impact of these restrictions.

Conclusion

Incentive programs can offer meaningful financial benefits, but getting the full value requires thoughtful planning and coordination from the beginning. By focusing on these key considerations early—and keeping your tax, legal, and operational teams aligned—you can put your project in the best position for success. Taking a proactive approach helps avoid surprises and ensures you make the most of the opportunities available.