In our “Nebraska Business Expansion Decision Guide,” we identify the 22 state and local site selection features most commonly considered by companies when deciding where to locate or expand a business. These 22 features collectively establish the framework for a state’s business climate.
While this year’s Nebraska legislative session was noteworthy for a number of reasons, it was particularly noteworthy in regard to the state’s tax and incentive policies. The Legislature enacted several significant tax and incentive changes, which collectively improved the state’s business climate for attracting and retaining new business. These changes positively impact at least eight of the 22 state and local site selection features:
- Business State & Local Tax System
- Workforce Costs
- Quality of Life
- State & Local Incentives
- Skilled Workforce
- Personal State & Local Tax System
- Area Cost of Living
- Workforce Development
Below we review some of the most significant tax and incentive changes passed this year. 2024 was a significant legislative session for taxes and incentives in Nebraska, both for the bills that passed the Legislature and one that did not. While the focus of this article will be on the tax changes that did pass the Legislature this year—and became law—we would be remiss if we failed to also mention the Governor’s Property Tax Reform package that did not become law.
Governor’s Proposed Property Tax Reform
As many know from following media coverage, LB 388 represented the Governor’s plan (as amended through the legislative process) to reduce property taxes by subjecting additional items to sales tax, taxing vaping products, raising taxes on cigarettes, and imposing a tax on digital advertising. LB 388 also would have increased Nebraska’s earned income tax credit, instituted certain caps on local government spending, and removed Nebraska’s property tax credit that was claimed on Nebraska income tax returns. LB 388 did not include an increase in Nebraska’s sales tax rate, although the Governor had initially proposed that. LB 388 failed to pass on its Final Reading at the Legislature.
The Governor has repeatedly stated that he would call a Special Session for the Legislature to continue work on his proposed reforms. The timing on that Special Session is unclear, as the Governor has also stated that he would not call the session until he has the necessary votes to pass his plan. The Governor has been touring Nebraska to develop those votes and explain his proposal to voters.
So, we remain on hold as to the Governor’s plans for a Special Session.
Tax Changes Impacting Nebraska’s Competitive Business Climate
A number of significant tax changes did become law in Nebraska. These include the following:
Employees Working Remotely for a Nebraska Company
Beginning in 2025, LB 1023 amends Nebraska’s “Convenience of the Employer” rule. This rule had subjected to Nebraska income tax the income earned by a nonresident individual who worked for Nebraska companies and whose service, except for the individual’s convenience, could have been performed in Nebraska. LB 1023 amends this provision to state that such rule shall only apply if the individual is present in Nebraska, in connection with such business, trade, or profession, for more than seven days during a year.
If a nonresident is taxed under the amended “Convenience of the Employer” rule, only compensation paid to the individual for services performed within Nebraska will be subject to tax. So, the impact of the rule will be much lower than in the past.
In addition, LB 1023 amends Nebraska law to specifically state that compensation paid to a nonresident individual shall not constitute Nebraska source income if: (a) the compensation is paid for employment duties performed by the individual while present in this state to attend a conference or training; (ii) the individual is present in the state for seven or fewer employment duty days in the taxable year; (iii) the individual performed employment duties in more than one state during the taxable year; and (iv) total compensation while in the state does not exceed $5,000 in the taxable year.
LB 1023 also specifies that a nonresident is not subject to Nebraska income tax on compensation that is paid to an individual who serves on the board of directors or similar governing body of a business and that relates to board or governing body activities taking place in this state.
Insight on These Changes: While these changes are intended to ease the burden on companies with remote employees (and those employees themselves), LB 1023 did not change the “Base of Operations” rule, which is still present in Nebraska law. The “Base of Operations” rule states that income earned by a nonresident individual is Nebraska source income if some of the individual’s service is performed in Nebraska and the base of operations or, if there is no base of operations, the place from which the service is directed or controlled is in Nebraska. So, we cannot be sure that the change to Nebraska’s “Convenience of the Employer” rule of LB 1023 will solve all the tax challenges faced by Nebraska employers who use remote employees. Of course, we recognize that LB 1023 will have very positive effects for Nebraska companies using remote employees.
New Limit on Telecommunications Occupation Tax
LB 1023 places a new limitation on the Occupation Tax that may be imposed on telecommunications service by cities. Beginning Oct. 1, 2024, the tax may no longer exceed 4%, down from 6.25%.
Insight on This Change: In late 2022, Nebraska was ranked as having the fourth highest cell phone taxes in America. This rule is certainly intended to help reduce those taxes and improve Nebraska’s ranking. This will reduce taxes collected by Nebraska cities. Omaha estimated such losses at $2 million annually, while Lincoln estimated the impact at $1 million annually.
Increased Immediate Deduction for New Business Assets
Beginning in 2026, taxpayers may receive a Nebraska income tax deduction (in excess of any federal deduction) for the cost of business assets that are qualified property or qualified improvement property as defined under Section 168 of the Internal Revenue Code. This deduction is limited to 60% of the full cost of such expenditures in the tax year in which the property is placed in service. The remaining 40% could be depreciated over a five-year irrevocable term.
Insight on This Change: Nebraska has intentionally decoupled from federal law to encourage Nebraska businesses to invest in additional equipment. The Legislature believes that such increased investment will have a multiplier effect that will help to offset any temporary tax reductions from this provision.
Deduction of Research & Development Expenses
Also beginning in 2026, taxpayers may elect to treat research or experimental expenditures that are paid or incurred by the taxpayer during the taxable year in connection with the taxpayer’s trade or business as deductible expenses, notwithstanding any changes to the Internal Revenue Code related to the amortization of such research or experimental expenditures. Such a deduction would be allowed only to the extent that such research or experimental expenditures have not already been deducted in determining federal income. If a taxpayer does not fully deduct the research or experimental expenditures in the taxable year in which the expenditures are paid or incurred, the taxpayer could elect to amortize the expenditures over a five-year irrevocable term.
Insight on This Change: Nebraska is looking to encourage firms to invest in research and development in Nebraska, recognizing that having dynamic companies with innovative products is the best way to have a strong economy.
Caretaker Tax Credit Act
The Caretaker Tax Credit Act, passed as part of LB 937, allows family caregivers of those needing assistance to receive a nonrefundable tax credit for eligible expenses of 50% of those expenses, with a maximum credit amount of either $2,000 or $3,000, depending on the status of the family member, from their Nebraska income tax. The credit is capped at $1.5 million annually and has an income limitation of $100,000.
Insight on This Change: The Legislature wanted to support caregivers, who are often sacrificing their own income, by providing them with a Nebraska tax credit.
Excise Tax on Commercial Electric Vehicle Charging Stations
LB 1317 imposes a new excise tax, beginning in 2028, of 3 cents per kilowatt hour on the electric energy used to charge the battery of a motor vehicle at a commercial electric vehicle charging station. The Legislature also created a sales and use tax exemption for electric energy when stored, used, or consumed by a motor vehicle and the electricity was subject to the excise tax described above.
Insight on These Changes: As the use of electric vehicles grows, and vehicles use less fuel, the revenue generated by fuel tax will need to be replaced.
Incentive Changes Impacting Nebraska’s Competitive Business Climate
The Legislature also made a number of significant changes to Nebraska’s incentive programs. These include the following:
Good Life District Economic Development Act
The Good Life District Economic Development Act, passed as part of LB 1347, was meant as an overlay to the existing Good Life Transformational Projects Act, passed last year by the Legislature. (We previously discussed the Good Life Transformational Projects Act in articles appearing in 2023 Issue No. 3 and 2024 Issue No. 1 of the Nebraska CPA journal.)
As you may recall, under the Good Life Transformational Projects Act, the Nebraska Department of Economic Development was authorized to approve applications to enact “Good Life Districts.” Such districts would have to meet certain development cost and job creation thresholds. Retail sales occurring within a Good Life District would incur a reduced state sales tax rate of 2.75%. The remaining 2.75% of tax would go toward financing the development of the district, although the Good Life Transformational Projects Act did not create a direct way to use those tax funds.
The Good Life District Economic Development Act was intended to fill that hole. Under this Act, a city may establish a Good Life District Economic Development program if approved by voters in the city. If a city establishes a Good Life District Economic Development program, the city may issue bonds that would be used to pay for the financing of the development of the Good Life District in that city. To pay off those bonds, the city may establish one or more of the following local taxes:
- Additional City Sales Tax. The city may establish a local option sales and use tax upon the same transactions that are sourced for sales tax purposes within the Good Life District. The amount of this tax may be the greater of: a) the difference between the normal state sales tax rate and the rate levied on transactions within a good life district, or b) 2.75%.
- Occupation Tax. The city may impose an occupation tax on all businesses within the Good Life District.
- Use of City’s Existing Sales Tax. The city may also choose to use the revenue from its existing sales tax on transactions occurring within the Good Life District.
If a city imposes an additional sales tax in a Good Life District (option 1 above), those funds cannot be later refunded under the Imagine Nebraska Act or another state incentive program.
Insight on These Changes: The Legislature was looking to provide Good Life Districts with another tool for financing the developments that the Legislature enacted the Good Life Transformational Projects Act to incent.
Relocation Incentive Act
Beginning in 2025, LB 1023 creates incentives for both employers hiring people who move into Nebraska and new residents moving to Nebraska.
For employers, the Relocation Incentive Act creates a refundable income tax credit for employers who pay relocation expenses for a qualifying employee who moves to Nebraska for the purpose of accepting a position of employment. The credit is equal to 50% of the relocation expenses and is limited to $5,000 per qualifying employee. An employee must make between $70,000 and $250,000 per year for the employer to qualify for the credit. The credit will be recaptured if the employee moves out of Nebraska within two years after the credit is claimed. In addition, total credits are capped at $5 million per year.
For employees, the Act allows new residents to make a one-time election, within two years of becoming a Nebraska resident, to exclude all Nebraska-sourced wage income from an employer if that employee makes between $70,000 and $250,000 per year. The employee must pay those taxes back to Nebraska if the employee moves out of Nebraska within two years after the exclusion is taken.
Insight on These Changes: Nebraska has taken a concrete step forward to incent persons to move to Nebraska—and for employers to attract persons to move to Nebraska. Nebraska has realized that it cannot just create new jobs. Nebraska must have ways to attract people to fill those jobs as well.
Amendments to Imagine Nebraska Act
LB 1023 amended the Imagine Nebraska Act to specifically allow a property tax exemption for business equipment used primarily for the capture and compression of carbon dioxide, such as at an ethanol plant. LB 1317 also amended the Imagine Nebraska Act to specifically allow property tax exemptions for business equipment used for the manufacturing of liquid fertilizer, other chemicals applied to agricultural crops, and liquid additives for farm vehicle fuel.
Insight on This Change: Nebraska continues to recognize the importance of this program in attracting new industry to Nebraska. As needed, amendments are made to the program to maintain its value.
Property Tax Exemption for Additional Low-Income Housing Developments
LB 1326 amended Nebraska law to allow a property tax exemption for the real and personal property of a controlled affiliate of a local housing agency, removing a requirement that such affiliate be wholly owned by the housing agency.
Insight on This Change: As many housing developments for low-income individuals are built in a public-private partnership, this will allow more developments to be exempt and thus hopefully increase the supply of housing in Nebraska.
Additional Property Tax Exemptions
LB 1317 amended Nebraska law to also allow a property tax exemption for nursing and assisted living facilities, in proportion to the number of beds occupied by Medicaid recipients. For example, if 50% of the beds were used for Medicaid recipients, the facility would receive a 50% exemption. LB 1317 also created a property tax exemption for charitable organizations operating student housing, equivalent to the square footage of the common areas of the housing.
Insight on This Change: These changes were intended to help increase the supply of nursing and assisted living facilities in Nebraska, as well as student housing.
Another Active Legislative Session
While the Governor’s proposed Property Tax Reform package did not pass, the Legislature was still very active in shaping Nebraska’s tax and incentive policies—generally for the better. We acknowledge and appreciate the leadership of the Nebraska business community in making those changes, particularly such groups as the Nebraska Chamber of Commerce and the Greater Omaha Chamber of Commerce. We believe the changes made this year, incrementally but collectively, enhance Nebraska’s overall competitiveness in attracting and retaining businesses and workforce to Nebraska, impacting each of the state and local site selection features highlighted above.
As we have stated, business climate is never a static dynamic. Let’s continue to encourage our business and Nebraska’s leadership to continue to press for even further improvements as today’s competition quickly changes into the future.
Nick Niemann and Matt Ottemann are partners with McGrath North Law Firm. As state and local tax and incentives attorneys, they collaborate with CPAs to help clients and companies evaluate, defend, and resolve tax matters and obtain various business expansion incentives. See their websites at www.NebraskaStateTax.com and www.NebraskaIncentives.com for more information. For a copy of their publications, The Anatomy of Resolving State Tax Matters or the Nebraska Business Expansion Decision Guide, visit their websites or contact them at (402) 341-3070 or at nniemann@mcgrathnorth.com or mottemann@mcgrathnorth.com.
