OFFICIAL PUBLICATION OF THE NEBRASKA SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS

Pub. 3 2021 Issue 6

Nebraska-seal-legal-justice-scales

State Tax Briefing: The Critical Legal Criteria for Optimizing Nebraska’s Incentives

Nebraska Society of Certified Public Accountants
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In our previous article, we reviewed the CPA’s key role in Nebraska business expansions. As part of that review, we highlighted a number of Nebraska’s incentive programs that companies should consider in connection with their business expansion decisions.

In deciding how best to obtain and optimize Nebraska’s various incentives, we’ve identified several critical legal criteria that should be addressed by the business expansion team up front in the project planning phase. Business expansion incentive results, including the speed of the incentive approval and payment/refund process, are generally much better when the team works together in advance to address these criteria.

The critical legal criteria include the following:

Application Issues and Project Design

  • Which Program: Several Nebraska business expansion (tax and nontax) incentives are available. Before beginning an expansion, these should be reviewed to determine which may fit and be of overall value.
  • Project Entities: The company unitary group needs to meet the eligible entity statutory requirements.
  • Qualified Business: The project must be proven to be for one or more “qualified business” activities.
  • Project Activities Description: This needs to be carefully addressed to achieve eligibility and to address intended exclusions.
  • Commitment: The company needs to carefully decide on or understand the level of new employment and investment impacting the tier or level of benefits. This will impact the company’s maximum incentives and future options.
  • Employees: Base year employee count and statutory compensation levels need to be understood up front.
  • Coordinate With State & Local “Entitlements”: Project parameters and timing need to be coordinated with state and local government approvals, site specific “entitlements,” and other incentives.

Multiple Locations

  • Locations: The scope of the project needs to be determined up front to optimize results.
  • Multiple Sites: For multiple locations to qualify as one project, specific interdependence factors or certain geographic options must be determined up front.

Contract With State

  • Legal Contract: The state or local government will issue an incentive agreement to the company. This agreement normally legally incorporates into the contract all of the wording in the application (including in any preprinted form) and the application addenda. So, the application should be drafted and reviewed by legal counsel for legal considerations like all other contracts.

Claiming Benefits

  • Filing Claims: Claims filed for incentives should include specific statutory legal grounds and include a backup hearing request to preserve legal options that may be needed.

Qualified Property

  • Eligible Property: Property must meet certain project use tests and be located at a project location.
  • Relevant Dates: New property is normally eligible only if acquired after the application date and before the end of the entitlement or performance period.
  • Software as Eligible Asset: To constitute qualified property for Nebraska tax incentive purposes, the company must have specific terms in its agreement with the software provider and must have received a nonexclusive license for use of the software.

Real Property Construction

  • Contract Terms: Certain contract requirements need to be met regarding the purchasing agent appointment, the general contractor certification, and specific language in the construction contract relating to tax obligations. This includes build-to-suit leases.

Incentive Optimizing

  • Compliance: Specific, detailed documentation will need to be kept to obtain the available tax and nontax incentives.
  • Equipment: Purchase and lease contracts should contain tax situs and payment provisions.

Statutory Limits

  • Prohibited Actions: Nebraska law restricts incentive benefits for certain transactions and activities (such as between affiliated companies), which need to be understood in advance.

Resolving Issues

  • Project Issues: Special legal procedures and time limits apply for reporting and for challenging the Nebraska Department of Revenue or Nebraska Department of Economic Development or local government.

Business Sale

  • Project Transfer: Specific requirements normally apply to transfer the project to a buyer while protecting the seller. Advisors should be sure they understand these, because misapplication of the transfer rules can have significant tax consequences.

Nebraska’s business expansion incentive platform has helped hundreds of companies remain and expand in Nebraska. Attention to these types of planning details is one of the main reasons why.

Nick-Niemann

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 full publication, The Anatomy of Resolving State Tax Matters, or their Nebraska Business Expansion Decision Guide, please visit their websites or contact Niemann or Ottemann at (402) 341-3070 or at nniemann@mcgrathnorth.com or mottemann@mcgrathnorth.com, respectively.

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