In our first article on LB644, published in Issue 4, 2025, of the Nebraska CPA journal, we discussed how Section 31 of that law, now codified at Neb. Rev. Stat. § 77-3,114, was impacting Nebraska’s existing incentive contracts as well as posing a threat to Nebraska’s economic development. LB644 became operative on Oct. 1, 2025. Given the importance of this topic to so many Nebraskans and Nebraska companies, and the impact this is also having on potential new expansion projects in Nebraska, we are providing updates that have arisen on this topic since our first article was published.

Since its initial publication, we and other members of the business community have been addressing the legal and constitutional issues, as well as business climate issues, regarding LB644. It appears our concerns are gaining traction within the Nebraska Department of Revenue. On Feb. 12, 2026, the Department issued a statement saying: “At this time the Nebraska Department of Revenue is pausing enforcement of the foreign adversarial company incentive ban for programs with statutorily mandated agreements signed prior to Oct. 1, 2025, for further analysis.”

Based on this statement, the Department could determine that it has the authority to permanently pause enforcement of LB644, with respect to existing agreements, without a statutory amendment. The Nebraska Department of Revenue may also conclude that legislative action is needed to permanently pause enforcement. At this time, it is unclear whether the Department will continue its enforcement pause. Regardless, the statement from the Department did not address pausing enforcement for agreements signed after Oct. 1, 2025. 

This article should be reviewed in that context.

A Review: The Basics of LB644

LB644 declares that any “foreign adversarial company” is ineligible to receive benefits under any incentive program of the state of Nebraska. The Department of Revenue has specifically identified at least 24 incentive programs to which this applies.

The statute’s definition of a “foreign adversarial company” is extraordinarily broad. It can include a company that:

• Has a subsidiary organized in any of six listed foreign governments, or
• Has any ownership interest held by one of those governments.

The six foreign governments are those of the following countries: China, Cuba, North Korea, Russia, and Iran, plus the Maduro Regime of Venezuela. Together, these countries represent more than 20% of the world’s GDP (with the vast majority coming from China).

Under the statute’s definition, a company could be deemed a “foreign adversarial company” based solely on having a Chinese subsidiary, for example, or merely because one of those governments, such as through a sovereign investment fund, acquires a single share of its stock.

Crucially, LB644 contains no grandfather clause for existing incentive contracts. On its face, the law would impose new conditions on companies that already have binding agreements with the state of Nebraska. The Department had previously confirmed that it would apply LB644 to existing projects, even where the company already had an incentive contract with the state signed prior to Oct. 1, 2025. Those contracts, of course, do not contain the new LB644 restrictions. 

This was significant because it marked the first time that we are aware of where Nebraska had attempted to impose a substantive, adverse, retroactive change to an existing project incentive contract. 

As previously referenced, the Department has now paused enforcement of LB644 to existing projects with agreements signed prior to Oct. 1, 2025. It is unclear how long this “pause” will last.

On Jan. 16, 2026, the Nebraska Department of Revenue posted a document on its website titled “Foreign Adversarial Company FAQs.” This article reviews and analyzes several of the principal issues addressed in that publication.

Department Contends a Parent Company May Directly or Indirectly Hold More Than 50% Control of a Subsidiary

LB644 specifies that it applies to entities that are “a subsidiary or parent of any company” that otherwise constitutes a “foreign adversarial company.” The Department recently provided its position that “a parent company is a company that directly or indirectly holds more than 50% control of the subsidiary.” Direct control, per the Department, is “holding more than 50% control of the subsidiary by direct ownership.” Indirect control, per the Department, is “when an ultimate parent holds more than 50% control of other subsidiaries that in turn hold more than 50% control of an underlying subsidiary. An ultimate parent is the topmost company within the hierarchy of the entire organization.”

The Department’s assertion that “indirect control” creates a parent-subsidiary relationship significantly expands the scope of entities that could fall within the definition of a “foreign adversarial company.” Impacted companies should carefully evaluate the multiple legal arguments and defenses available to them.

Refund Claims That Do Not Address LB644 Status May Be Legally Incomplete

If LB644 is legally valid, demonstration that a taxpayer is not a “foreign adversarial company” is mandatory to receive incentives. Thus, any refund claim on file that does not address the taxpayer’s status under LB644 may be legally incomplete. That claim may remain unpaid until the company’s LB644 status is addressed. Alternatively, that claim could be formally denied by the Department because the claim does not include the new requisite condition (or the proof relating to this new condition) that all requirements for receipt of the refund have been met.

The same is true for income tax returns that utilize credits to pay an income tax liability. The Department may decide that such return is incomplete and take steps to deny the use of those credits if the LB644 status is not addressed.

Some companies have adopted a wait-and-see approach with respect to LB644, choosing to address the issue only if and when it is raised by the Department. However, that approach may be a risky strategy, as the Department can formally deny any claim that does not demonstrate compliance with all requirements. Companies should proactively evaluate and support both newly filed and existing refund claims, as well as income tax returns utilizing credits, by addressing LB644 considerations before questions arise.

The Importance of a Protective Hearing Request for Refund Claims

For most Nebraska refund claims, the Department must act to allow or deny that claim within 180 days of its filing. Given this firm deadline, the Department has been asking multiple companies to address their status under LB644 in a condensed timeframe—sometimes within a few weeks. Failure to provide this status in the timeframe stated by the Department may cause the Department to deny the refund claim. 

If the Department denies your claim, a company’s only recourse is to appeal that decision to the District Court. At District Court, the company normally is not allowed to introduce any additional information in support of the claim. Rather, the Court normally reviews the case on the factual record previously submitted by the company to the Department. This generally puts the taxpayer at a potentially fatal disadvantage as to the outcome.

This procedural trap can be avoided if a company simply makes a protective formal hearing request concerning their refund claim. For claims requesting a refund of sales or use tax, this request can be made when the claim is filed or any time before the Department formally acts on the claim. This hearing request has multiple effects. First, it will stop the 180-day period to act on a refund claim, so a company is not rushed into addressing its LB644 status. More importantly, the Department will not be able to formally deny the claim without providing the taxpayer with a formal hearing before a hearing officer at the Department of Revenue. At that hearing, a taxpayer can introduce evidence in support of its claim.

Rather than having to hurriedly address a company’s status under LB644, and potentially failing to introduce evidence the Department considers necessary, we recommend that clients add a protective request for hearing for both the company’s existing and new refund claims. This is an important procedural step that can sometimes be the difference between successfully obtaining a refund or not.

LB644 Status: How to Protect Your Company

As noted in our prior article, we are working with companies and their CPAs on the specific written statement that should be attached to a company’s incentive claims and filings. This statement will outline the company’s specific facts and corporate structure, express the presence of a binding incentive contract, and invoke the legal and constitutional defenses that exist against LB644. This will help avoid a waiver situation by preserving your legal and constitutional rights and help prevent the state from successfully contending that the company implicitly accepted the conditions established under LB644 (as well as other new conditions that may be enacted later). Now is the time to clearly assert that you believe a binding contract exists and to state that new or future unilateral, retroactive changes to its terms will not be accepted.