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> Major Policy Trends - The Growth of Economic Development Tax Incentives
POLICY TRENDS -
GROWTH OF ECONOMIC DEVELOPMENT TAX INCENTIVES
economic well being of Nebraska is an issue of vital importance to
and local policymakers. Recent years have seen tremendous competition
between states for jobs, the primary policies being financial, training
and other programs benefiting prospective employers. Typically, the tax
system is one of the means of providing these incentives. This section
will examine the tax incentives available through legislation in Nebraska,
discuss their cost, their growth, and provide an overview of programs
nationally. It does not examine economic development efforts that are
not in the form of tax incentives. Nor will it resolve the debate
how much tax incentives affect job growth, or the relative cost versus
benefit of such programs.
below is an analysis of the cost and growth of the largest and oldest
of tax incentive programs in Nebraska, the Employment and Investment
Act, usually called by the bill number that enacted it, LB 775. While
under LB 312 (2005) there are to be no new applications for benefits
under this act after Dec. 31, 2005, beneficiaries will be receiving
benefits for many years into the future. Also linked is a textual description
of all tax incentive programs available in Nebraska,
and a chronology of significant Legislative changes to these programs.
Finally, there is a link to a comparison to programs in other states.
Incentive Program Descriptions
incentive programs available in Nebraska are as follows:
Employment and Investment Growth Act (NEB. REV. STAT. Sec. 77-4101
Employment and Investment Growth Act, usually known as LB 775 (1987)
provides three levels of benefits for businesses which invest and/or
increase employment by specified amounts. Businesses that qualify
must be involved in research, data processing, finance or insurance,
manufacturing, or a headquarters operation. The Act is available to
businesses transporting, wholesaling, storing, or selling products,
but not retailers who do not make their own products.
proposing a qualifying project must file an application detailing
the project before approval of the benefits is provided. Once the
Tax Commissioner is convinced that the project qualifies, an agreement
is signed setting out the responsibilities of the state and the business.
The increased employment and investment are calculated on a project
only basis, not company wide. In other words, companies may qualify
for LB 775 (1987) benefits by modernizing and centralizing a manufacturing
operation at a project location while decreasing the number of jobs
overall. However, the statute prohibits receiving benefits by transferring
jobs to a different location within the state. If the project qualifies
for benefits, but later falls below the required levels of jobs or
investment, the company receives no benefits for that year and one-seventh
of the benefits already received are recaptured for each year the
company fails to qualify.
three levels of qualification are as follows:
Businesses with projects promising $3 million of investment and 30
new employees receive the following tax incentives:
A refund of sales taxes paid on tangible personal property used
in connection with the project,
An income tax credit of five percent of wages paid to new employees
added by the presence of the project for seven years, and
An income tax credit of ten percent of the investment made at the
Businesses with qualifying projects calling for at least $10 million
in new investment and at least 100 new jobs receive the benefits described
above, plus a 15-year personal property tax exemption for mainframe
computers, certain aircraft, and business equipment used in connection
with the project.
Businesses with qualifying projects calling for at least $20 million
in investment and fewer than 30 new employees qualify for only the
refund of sales taxes paid on tangible personal property used in the
may be carried over for up to eight years. The company also has the
option of using the credits to obtain a refund of the state or any
local sales or use tax paid anywhere in the state.
Under LB 312 (2005) there are to be no new applications for benefits
under the Employment and Investment Growth Act after Dec. 31, 2005.
Applications that are received by that time are to be processed normally
and are eligible for benefits under that act. Applications after that
date will be filed under the Nebraska Advantage Act. There are many similarities
between the two acts.
The Nebraska Advantage Act
There are many similarities between
the Employment and Investment Growth Act and the new Nebraska Advantage
Act. Applications are still reviewed by the Department of Revenue for
compliance with the requirements of the act, and if approved, the obligations
of each party are set out in a contract. The procedural aspects are
identical. Failure to maintain the required levels of of employment
or investment will result in recapture of one-seventh of the benefits
granted for each year of non-compliance.
The most significant changes from the Employment and Investment
Growth Act were (1) a requirement of a wage equal to at least 60%
of the state's average wage for all employers for purposes
of qualifying for and earning benefits, (2) granting larger wage
credits for better-paying new jobs, (3) indexing investment thresholds
the future to changes in the producer price index, (4) creating a
jobs-only tier, (5) allowing jobs credits to be taken against the
withholding of new employees, (6) expanding the definition of taxpayer
to eliminate the necessity that at least 90% of the owners
be subject to income tax, (7) allowing teleworkers to count as jobs
at the project if the telework is interrelated to the project, (8)
limiting benefits of the newly-created Tiers 1 and 3 so that they
cannot extend more than ten years after the application date, including
any carryover, (9) expanding the definition of "qualified business" to
grant benefits to businesses involved in technology-related services
where more than 75% of the sales are to an out-of-state customer
or to the federal government, (10) increasing the investment requirement
for the investment-only tier from $20 million to $30 million and
requiring the taxpayers under this tier to retain at least the same
number of jobs at the project or lose benefits, (11) delaying large
refunds of local sales taxes to meet budgeting requirements of cities,
and (12) requiring disclosure of project-specific credits used information
every other year.
There are five tiers of benefits allowed under LB 312:
Tier 1 - $1 million of new investment and ten new jobs. This tier
is only available to manufacturers, research and development or testing
businesses, and high tech services that export at least 75%
of their product. Qualifying businesses under this tier will be eligible
for a refund of one-half of any sales tax paid for purchases at the
project, a sliding-scale jobs credit (detailed below), and a 3%
Tier 2 - $3 million of new investment and 30 new jobs. This tier
is available to manufacturers, data processing companies, financial
services companies, transportation and distribution companies, telecommunications
companies, research and development or testing businesses, and high
tech services that export at least 75% of their product.
This tier is currently provided in the Employment and Investment
Act. Beneficiaries receive a 100% sales tax refund for purchases
at the project, the wage credit and a 10% investment credit.
Tier 3 - $0 investment and 30 jobs. This tier is available to the
same types of businesses as Tier 2, and will allow the beneficiaries
to receive only the wage credit.
Tier 4 - $10 million in investment and 100 new jobs. This tier is
available to the same types of businesses as Tier 2 and is also currently
provided in the Employment and Investment Growth Act. In addition
to the sales tax refund, jobs credit, and the ten percent investment
credit, qualifying businesses under this tier will receive a personal
property tax exemption for turbine-powered aircraft, mainframe computers,
agricultural processing machinery, and distribution personal property
like shelving, conveyer belts and forklifts.
Tier 5 - $30 million in investment with no new jobs requirement.
This tier is available to the same types of businesses as Tier 2
and exists in the Employment and Investment Growth Act, except that
the investment threshold has been increased from $20 million to $30
million and beneficiaries are required to maintain at least the same
number of jobs at the project as were in existence the year before
The new tiers of beneficiaries created by LB 312, Tier 1 and Tier
3, will sunset after five years.
Qualifiers in all tiers except Tier 5 will receive a wage credit
equal to 3% of the increased compensation at the project
if the jobs pay between 60% and 75% of the state average
wage, 4% if they pay between 75% and 100%;
5% if they pay between 100% and 125%; and
6% if they pay more than 125% of the state average
wage. Employees must be paid at least 60% of the state average
wage to count as new employees under the act and to be considered
in determining the percentage amount of credit received. Credits
are earned for employment and investment made any time during the
LB 312 requires an annual report from the Tax Commissioner every
July 15. The report will list agreements under the act, the identity
of the taxpayers, and the location of the projects. The report will
also show investment, employment and benefits earned by industry
group. This is the information that is currently reported under the
Employment and Investment Growth Act.
LB 312 imposes a new requirement for project-specific information.
The new information to be reported is (1) the identity of the taxpayer,
(2) the location of the project, and (3) the total amount of investment
and jobs credits used and refunds granted over the prior two years
as a single aggregated number. This information will be reported
every other year. The report will also have to describe the methodology
used in calculating the net impact of the program and any investment
or industry multipliers used, and any limitations in the methodology.
Quality Jobs Act
to the original legislation, the state could no longer accept
for benefits under the Quality Jobs Act after Feb. 1, 2000.
(NEB. REV. STAT. Sec. 77-4935.) It will be described in this section
it existed prior to its termination.
Quality Jobs Act provided for a "wage benefit credit"
for businesses (1) investing at least $50 million and employing at
least 500 new employees, or (2) investing at least $100 million
employing at least 250 new employees. Businesses seeking these benefits
were to apply to the Quality Jobs Board, consisting of the Governor,
State Treasurer, and the Chairperson of the Investment Council, who
could approve the application if they found that the project met
goals of the Act after considering the project employment and its
quality, the type of industry, the type of investment, and whether
the project would have occurred without the incentive. A qualifying
business was defined as one involved in research, data processing,
telecommunications, insurance, financial services, manufacturing,
warehousing, transportation, distribution, or a headquarters. It
not available for retailing or food service businesses.
a project received approval, it was eligible for the wage benefit
credit for ten years. The wage benefit credit could be taken in
one of two forms: (1) The company could retain the state income
of the employees of the project, not to exceed five percent of
the total wages at the project, and instead of returning the withholding
to the state the company could have applied the withholding to
employee benefit programs, educational training programs, and
programs. The employee was to apply the withholding as an income
tax credit up to the amount of liability attributable to income
project employer, or (2) The company could have taken a credit
against the corporate income tax in an amount that varied depending
average wages at the project. If the average wage was more than
$40,000, the credit was equal to 5% of the wages at
if the average wage was $30,000 to $40,000, the credit was 4%;
if $20,000 to $30,000, it was 3%; and if the average
at the project was less than $20,000, no credit was allowed.
the company failed to maintain the required levels of investment
employment, it was not to be eligible for some or all future benefits,
and some or all past benefits would be recaptured depending on
portion of the 10-year period that the company did qualify.
Nebraska Act (NEB. REV. STAT. Sec. 77-5501 et. seq.)
to the legislation that enacted it, there can be no new applications
for benefits under the Invest Nebraska Act after June 1, 2005.
There were 11 qualifiers for benefits under the act as of the end
of 2004. Like the Quality Jobs Act, the description below is how
the act was prior to its expiration.
Invest Nebraska Act was enacted in 2001 to provide for a new program
to replace the Quality Jobs Act. Many provisions were the same
act, but there were critical differences. First, projects in counties
with a population less than 100,000 may qualify for the benefits
lower thresholds of investment and employment. For these so-called
rural tier qualifiers, the company must meet thresholds of at
$10 million in new investment and 25 new employees. Second, the wage
benefit credit was calculated using only the alternative method
calculation from the Quality Jobs Act. Under this method, the wage
benefit credit is an increasing percentage of the compensation
based on the average wage of the jobs. The credit is 5% if
the jobs pay $40,000 or more, 4% if they pay $30,000 to
and 3% if they pay $20,000 to $30,000. The benefits may still
be claimed as a credit against withholding.
the new jobs must pay at least the state average annual wage of
$27,000 to qualify as new jobs in the rural tier of benefits. To
qualify under the old Quality Jobs Act, thresholds of $50 million
of new investment
and 500 new jobs or $100 million of new investment and 250 new jobs,
the new jobs must pay 110% of the state average annual
There was also a higher qualification level of $200 million of new
investment and 500 new jobs at 120% of the state average
wage. Qualifiers at this level receive a 15% investment credit
or the wage benefit credit, whichever they choose.
the definitions under the act, qualifying businesses, applications,
standards for approval, and recapture provisions were the same
as was the case with the Quality Jobs Act. The only
qualification under the Invest Nebraska Act was a requirement that
the company have a written policy prohibiting genetic testing.
the act contains a requirement for an independent audit.
Expansion and Investment Incentive Act (NEB. REV. STAT.
77-27, 185 et. seq.) (Renamed
the Nebraska Advantage Rural Development Act.)
Employment Expansion and Investment Incentive Act was initially
in 1986 and expanded in 1987. For many years it was known by the
1987 bill number, LB 270. However, LB 608 (2003) rewrote
the entire act and LB 312 (2005) amended it and renamed
it the Nebraska Advantage Rural Development Act.
Following is a description of the act as it exists currently.
amended, businesses file an application for receiving benefits under
the act as is the case with the Employment and Investment Growth Act.
The application is accompanied with a $500 fee and the contents of
the application are confidential. $400 of the application fee is returned
if the application is rejected because the available funds have been
used up. The application states the maximum amount of expected credits
that may be earned.
reviewing the application, the Tax Commissioner is to approve
application and set the maximum amount of credits that may be earned.
The Tax Commissioner may not approve projects totaling more than
million for FY2004-05 and FY2005-06 and $3 million for later years.
If approved, the applicant and the Tax Commissioner enter into
agreement that specifies the maximum available credits that may be
earned by the project.
credit amounts are $3,000 for each new employee and $2,750 for each
$50,000 in new investment. If the business creates less than 75% of
the promised employment or investment, jobs or investment credits
are recaptured. If the business fails to maintain the required levels
of investment, employment, and wages for at least three years after
the credit is allowed, 100% of any credits earned are recaptured.
990 (2006) added a new way of qualifying for benefits under the
act. The act now allows a tax credit equal to 10 percent of any
investment in livestock modernization equipment provided the investment
is at least $50,000. These investments may occur anywhere in the
state and receive the refundable tax credit. LB 990 did not increase
the overall $3 million annual cap on approved benefits.
are available only to projects in counties with a population of
or less. The credit is refundable, so it is available regardless
of whether or not the taxpayer has any liability. To qualify for
the business must employ five new employees and make at least $250,000
of new investment. If the county has a population of less than
15,000, the taxpayer may qualify with two new employees and $125,000
of new investment. The act also requires the company to pay the
employees at least $8.57 per hour in 2005. However, teleworkers
who are paid at a piece rate may still qualify as new employees
the number of new employees would be calculated by dividing the
total compensation by the minimum qualifying rate. The wage requirement
is adjusted for inflation based on the year to year growth
wage in the counties of less than 25,000.
act defines "qualified business" so that it is identical
with the Employment and Investment Growth Act. Essentially, manufacturing,
distributing, data processing, agricultural processing, financial
services and telecommunications qualify while retailing does
Casinos are specifically excluded.
There is also a project-specific disclosure requirement with regard
to the Nebraska Advantage Rural Development Act. The Department of
Revenue is to report the name and location of the company, and the
benefits received over the previous two years.
Ethanol Production Credit (NEB. REV. STAT. Sec. 66-1344)
industry-specific incentive grants producers of ethanol a production
credit of 18 cents per gallon on all ethanol produced in the state
that came on line in 1999 but had not previously received an incentive
or that came on line between 2002 and 2004. Total credits are
not to exceed 15.625 million gallons annually or 125 million gallons
total over the eight-year entitlement period for any one production
facility. The credit is taken in the form of a transferable motor
fuel tax credit certificate. In other words, it is taken from motor
vehicle fuel taxes deposited in the Highway Trust Fund. However,
loss of fuel tax revenue is reimbursed from the Ethanol Production
Incentive Cash Fund.
Ethanol Production Incentive Cash Fund is funded by a checkoff
seventh-eighths cent per bushel of corn or wheat or
hundredweight of sorghum sold through Oct. 1, 2010, a 1.25 cent
reduction in the tax credit granted for using gasoline for off-road
through 2009, $20.5 million in general funds per year between 2005
and 2012, and $1.5 million annual transfer from
the Petroleum Release
Act Fund for seven years. If the balance in the Fund ever exceeds
$20 million, the checkoff may be suspended until the balance
below $10 million.
Increment Financing (NEB. REV. STAT. Sec. 18-2101 et.seq.)
Community Development Act provides for redevelopment of blighted and
substandard areas through the issuance of bonds, which are secured
by pledging a portion of the property tax proceeds from the property.
Blighted and substandard areas are areas of deteriorating buildings,
which are characterized by high unemployment, old, unimproved buildings,
low-income residents or declining population. A redevelopment project
involves demolition or rehabilitation of existing buildings through
public or private expenditures. Cities or villages are to create Community
Redevelopment Authorities with appointed members, or community development
agencies within their governments, to develop and carry out redevelopment
or agencies may issue bonds to carry out the plans. Bonds may be secured
by pledging land or buildings owned by the authority or agency or
the revenue from any leases thereto, and also by pledging that part
of the property tax revenue attributable to increased value due to
redevelopment for up to 15 years. If this "tax increment"
option is used, the political subdivisions levying taxes on the property
receive their share of the property tax on the pre-development value
in the proportion each bears to the whole levy. Property taxes levied
on any excess are pledged to repayment of the bonds.
approving a tax-increment financed redevelopment project, the city
is to submit the blighted and substandard designation to the planning
commission, find that the project would not be feasible without the
TIF and that a required cost-benefit analysis that has been performed
and shows the project to be in the best, long-term interest of the
community. Information about the project is to be filed with the Property
Tax Administrator annually.