Taxes in Nebraska > Sources of Major State and Local Taxes > Income Tax > Corporate Income Tax > Nebraska Corporate Income Tax History and Program Description


A. History - Like the individual income tax, the Corporate Income Tax was enacted in 1967 and went into effect Jan. 1, 1968. At that time, the rate was two percent of federal taxable income. In 1975, a two-tiered rate structure was enacted which imposed one rate for corporate taxable income up to $25,000 and a higher rate for incomes in excess of $25,000, and in 1982 this bracket separation point was increased to $50,000.

LB 829 (1991) imposed a 15 percent surcharge on corporate incomes greater than $200,000 for tax year 1991 only. This was a combined rate of 8.98%. After the surcharge was struck down by the Nebraska Supreme Court in Bahensky v. State, 241 Neb. 147 (1992), (for other reasons), LB 1 (1992, Fourth Special Session) re-enacted the one-year surcharge for tax year 1992 only.

B. Base - The Nebraska Corporate Income Tax uses federal taxable income as its base. In cases where the corporation operates in more than one state, the total income of the multistate businesses of the corporation must be apportioned among the states where the corporation operates those businesses. Through the mid 1980s, the income was apportioned by a three-factor formula based one-third on the property in the state as compared to the property of the corporation located in the U.S.; one-third on the payroll in the state as compared to payroll in the U.S.; and one-third on the sales in the state as compared to sales in the U.S. LB 772 (1987), however, began to phase in a formula based on sales alone. Since 1992, apportionment has been based on sales alone. (NEB REV. STAT. Section 77-2734.05 )

Prior to 1995, sales delivered from a Nebraska location into a state where such state is constitutionally prohibited from levying an income tax on that corporation due to insufficient contacts with that state were "thrown back" to Nebraska for apportionment purposes. This "throw back" rule was phased out from 1995 through 1997. Two-thirds of such sales were thrown back in 1995, one-third in 1996, and beginning in 1997, no sales have been thrown back to Nebraska.

Also, under NEB. REV. STAT. Section 77-2734.06, all income is presumed to be unitary. The taxpayer must show by a preponderance of the evidence that income is not attributable to the unitary business and is not apportioned in another state. Therefore, Nebraska-based multi-state companies may accept the presumption and apportion away part of its non-business income while out-of-state businesses may exclude such income entirely by petitioning the Tax Commissioner.

This combination of variations from the Uniform Distribution of Income for Tax Purposes Act, (1) sales only apportionment, (2) the lack of a throw back rule, and (3) apportionment of non business income make Nebraska one of the most favorable states for corporate income tax of all states that have the tax. A recent study by Charles Swenson, a Leventhal research fellow at the University of Southern California School of Accounting found that Nebraska's overall effective tax rate on business was 3.1%, second lowest in the nation. Only South Dakota was lower. In addition to the corporate income tax, the study considered sales taxes, motor vehicle taxes, unemployment taxes, excise taxes and document recording fees.

Other studies are not as charitable to Nebraska's business tax climate. However, no study seems to show that Nebraska's overall tax burden on business is above average.

Exemptions, deductions and credits

The most significant exemptions, deductions or credits from the corporate income tax are tax incentives for new or expanding businesses. For 2006, credits under the Employment and Investment Growth Act, quite often called by the bill number that enacted it, LB 775 (1987) were $38.4 million. Also, an additional $40 million in credits were taken as refunds of sales taxes. In 2006, the Nebraska Advantage Act replaced the Employment and Investment Growth Act, but no data from that Act is available yet. The Employment Expansion and Investment Incentive Act (replaced by the Nebraska Advantage rural Development Act) cost the state an additional $604,000 in used credits for 2006. The Quality Jobs Act and the Invest Nebraska Act have not had enough qualifiers to permit disclosure of the amount of credits earned.

Further analysis and detail regarding Nebraska's tax incentive programs may be found at "Major Trends in Tax Policy - Economic Development Tax Incentives."

Other deductions from the corporate income tax base include a deduction for foreign income taxes that are in excess of the U.S. rate ($9.4 million) and the carry forward or carry back of a capital or operating loss connected with Nebraska operations ($23.8 million).

C. Rate - Two rates are provided for the corporate income tax based on the primary income tax rate. For taxable income up to $50,000, the rate is 150.7% of the primary rate, and for income in excess of $50,000, it is 211% of the primary rate. Currently, the rates are 5.58% and 7.81%. (NEB. REV. STAT. Section 77-2734.02.)

D. Administration and Disposition - The Nebraska Department of Revenue administers the corporate income tax. Enforcement procedures that are available to the Department are the same as with regard to the individual income tax. All proceeds go to the state's general fund.