2018 Nebraska Legislative Changes

Social Security Taxability Thresholds Adjusted for Inflation ( LB 738 – Operative for taxable years beginning with 2020)

For tax years beginning or deemed to begin on or after January 1, 2020, LB 738 indexes the threshold AGI for purposes of the decreasing adjustment for social security benefits. The indexing percentage is the same as is used to adjust individual income tax brackets.

Overpayments Clarified ( LB 1089 – Operative April 18, 2018)

LB 1089 amended Neb. Rev. Stat. § 77-2791 to clarify that a refundable tax credit is considered an overpayment only to the extent that the refundable credit exceeds tax liability.

Personal Exemption Credit, Inflation Adjustment based on CPI Restored ( LB 1090 – Operative for taxable years after 2017)

LB 1090 avoided an unintended state personal income tax increase that otherwise would have occurred due to the enactment of the federal Tax Cuts and Jobs Act of 2017. This federal act eliminated personal exemptions and changed the calculation of inflation adjustments from the familiar Consumer Price Index (CPI) to Chained CPI.

LB 1090 amended Neb. Rev. Stat. § 77-2715.03 to provide that the method used to adjust the individual income tax brackets for inflation will no longer be the federal method after 2017, and instead will be based upon the Consumer Price Index – All Urban Consumers for tax years beginning or deemed to begin on or after January 1, 2018. The method will continue to measure from the CPI-U for the 12 months ending August 31, 2016 through the 12 months ending the August 31 before the beginning of the tax year.

The bill also amended Neb. Rev. Stat. § 77-2716.01 to provide that, beginning with taxable years beginning on or after January 1, 2018, the $134 personal exemption credit will be multiplied by the sum of the number of child credits and dependent credits claimed on the federal return, plus two for a married, filing jointly return, or plus one for any other return. The personal exemption credit is available for any person that cannot be claimed as a dependent on another taxpayer’s income tax return. The personal exemption credit amount is indexed for inflation using the CPI-U index with the 12 months ending August 31, 2017 as the base for cumulative inflation.

Standard Deductions Increased  LB 1090 – Operative for tax year 2018)

LB 1090 established the Nebraska standard deduction as $6,750 for single or married, filing separately taxpayers; $13,500 for married, filing jointly taxpayers; and $9,900 for head of household taxpayers. This is approximately a $250 increase for single returns and a $500 increase for joint returns. The additional amounts for age 65 or more or blind are $1,300 for married taxpayers and $1,600 for single or head-of-household taxpayers. These standard deduction amounts are indexed for inflation using the CPI-U index with the 12 months ending August 31, 2017 as the base for cumulative inflation.

Volunteer Emergency Responders Tax Credit Expanded ( LB 760 – Operative retroactive to July 21, 2016)

LB 760 amended the Volunteer Emergency Responders Incentive Act (which allows a $250 refundable income tax credit to qualifying emergency responders) to include counties among the political subdivisions that may approve and certify the list of those volunteers who have qualified for the tax credit.

The bill is operative retroactively to July 21, 2016. Any volunteer department reporting to a county may submit the list of qualifiers for 2016 and 2017 to the county board no later than 20 days after the effective date of the Act (April 12, 2018). The county board then may approve and certify the list for both years no later than May 12, 2018. If these timelines are met, the submissions and certifications will be treated as if they were filed timely, and those volunteers who met the requirements for qualification in both years are eligible to receive the tax credit on their 2017 individual income tax return.

Refunds of Local Sales and Use Taxes ( LB 745 – Operative July 19, 2018)

Beginning July 1, 2020, LB 745 requires notice to the affected local government within 20 days after receiving a claim for refund of local sales tax of at least $5,000. If the Tax Commissioner approves a refund of at least $5,000 of local sales tax, he or she must provide another notice to the affected local government, and the local government has the option of having the refund deducted from its sales tax proceeds in a lump sum or in 12 equal monthly installments. The city, village, county, or municipal county must certify its choice within 20 days after receiving notice of the approved refund.

This bill does not apply to refunds claimed as part of incentive programs because these refunds are specifically governed by Neb. Rev. Stat. § 77-27,144(2).

Exemption for Sales and Leases of Dark Fiber ( LB 994 – Operative October 1, 2018)

LB 994 amended Neb. Rev. Stat. § 77-2704.51 to exempt sales and leases of dark fiber from sales and use taxes when the transaction is between telecommunications companies. Dark fiber is defined pursuant to Neb. Rev. Stat. § 86-574 as "any unused fiber optic cable through which no light is transmitted or any installed fiber optic cable not carrying a signal."

Sourcing for Motor Vehicles Purchased by Public Power Districts ( LB 1030 – Operative January 1, 2021)

LB 1030 amended Neb. Rev. Stat. §§ 13-2816 and 77-2703.01 to provide that, beginning in 2021, sales of any motor vehicle or trailer operated by a public power district will be sourced for sales tax purposes at the place where the motor vehicle or trailer has situs as defined in section 60-349. Generally, motor vehicles and trailers are sourced for sales tax purposes where the motor vehicle or trailer is required to be registered. In 2016, LB 783 changed the place of registration for motor vehicles and trailers owned by certain large public power districts to the place the public power district is headquartered. LB 1030 returns the sourcing to the place where the motor vehicle or trailer has situs, beginning in 2021. Section 60-349 provides that situs is the place where the motor vehicle or trailer is stored and kept for the greater portion of the calendar year.

Performance Audit Standards Clarified ( LB 936 – Operative July 19, 2018)

LB 936 amended Neb. Rev. Stat. § 50-1209 to define terms and specify what the Legislative Audit Office is to examine when conducting performance audits of state tax incentive programs. The bill defines "distressed area" to mean an area of substantial unemployment as determined by the Department of Labor. Full-time worker means working 35 hours or more per week for at least two quarters. A high-quality job means a job earning wages that are at least 10% higher than the statewide industry sector average; and at least 110% higher than the Nebraska average weekly wage in counties with a population of less than 100,000, or 120% for counties with populations of 100,000 or more. High tech firm and renewable energy firm are defined with reference to North American Industry Classification System (NAICS) Code numbers. New business means a person or unitary group that did not pay income tax or wages in the state more than two years prior to submitting a tax incentive application. LB 936 also focuses the responsibilities of the Legislative Audit Office to measure full-time workers and their cost, including investment credits earned.

Keno Operators May Commingle Funds ( LB 724 – Operative July 19, 2018)

LB 724 allows a sales outlet to commingle cash receipts from the sale of keno with all other cash receipts of the sales outlet subject to authorization from the Department of Revenue and subject to the applicable regulations as promulgated by the Department. A sales outlet’s keno and non-keno cash receipts may be deposited into the sales outlet’s non-segregated general business account for purposes of an electronic funds transfer. The bill also clarifies that funds generated by keno must be deposited into the bank account of the keno operator, or the county, city, or village no later than five business days following the day the funds were collected.

Tax Increment Financing (TIF) ( LB 496 – Operative Date: July 18, 2018)

LB 496 amends Neb. Rev. Stat. § 18-2103 to change the definition of a redevelopment project (TIF project) to include the construction of workforce housing either in a rural community or in an extremely blighted area within a municipality, and defines those terms; this bill also requires a study and public hearing prior to approving a redevelopment project that includes constructing workforce housing.

Payment in Lieu of Tax – Water Augmentation Projects  ( LB 758 – Operative Date: February 28, 2018)

LB 758 authorizes entities developing and operating a water augmentation project for streamflow enhancement to make voluntary payments in lieu of taxes. Such entities are required to hold public hearings prior to implementing the project, seek input on how to minimize the effects of the project on the county, and publish an annual report of certain information about the project.

Tax Increment Financing  ( LB 874 – Operative Date: July 18, 2018)

LB 874 makes multiple alterations to the Community Development Law, which allows tax increment financing (TIF). Among other things:

• Section 16 of the bill requires each redevelopment authority to report the progress of the redevelopment project to the governing body of each political subdivision whose property taxes are affected by the division of taxes.
• Section 18 of the bill requires each city with a TIF project to retain copies of the redevelopment plans and all supporting documents at least three years after the end of the division of taxes.
• Section 34 of the bill provides that if a redevelopment project divides the taxes on only a portion of the real property included in the project, the property must be related to the development project.
• Section 36 of the bill amends Neb. Rev. Stat. § 77-1704.01 to require the tax statement for real property in a TIF project to reflect the amount of taxes allocated to each political subdivision, the amount of taxes going to the TIF project, and a statement explaining that the taxes on the real property have been divided as part of a TIF project.

Real Property Valuation Protests ( LB 885 – Operative Date January 1, 2019)

LB 885 provides that protests of the value of real property must indicate whether the person protesting is the owner of the property or authorized to protest on behalf of the owner. If not, the county clerk must mail a copy of the protest to the owner of the property; written notice of the board’s decision on any such protest must also be sent to the owner of the property.

Revenue Omnibus Bill  ( LB 1089 – Sections 1, 9, 10, and 21 are effective April 17, 2018. Sections 4-8 and 11-20 are effective January 1, 2019)

• Section 1 of the bill amends Neb. Rev. Stat. § 77-118 to provide that, for purchases of depreciable tangible personal property made between January 1, 2018 and January 1, 2020, if there is an election to expense the property under Section 179 of the Internal Revenue Code, and similar personal property is traded in as part of the payment, the Nebraska adjusted basis will be the remaining net book value of the property being traded, plus cash paid.
• Section 6 of the bill amends § 77-3506 to move the homestead exemption for the unremarried surviving spouse of a service member who dies while on active duty (what had been the Department’s Category 6) into Category 4. Sections 4, 5, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 19, and 20 of the bill all reflect this change.
• Sections 9 and 10 of the bill also amend §§ 77-3507 and 77-3508 to retain the indexing for homestead income eligibility amounts based on the Consumer Price Index.
• Section 11 amends § 77-3509.01 to require homestead transfer applications to be filed on or before August 15 or within 30 days of receiving a notice of rejection.
• Section 16 amends § 77-3513 so that persons who have qualified for a homestead exemption in the preceding year must apply in succeeding years, instead of recertifying their status.
• Section 17 amends § 77-3514 to delete references to certification of homestead status by prior year homestead recipients.
• Section 19 amends § 77-3516 to provide that the county assessor must send a notice of rejection within 10 days after determining that a homestead exemption application should be rejected.
• Section 21 amends § 77-3523 to provide that both the county treasurer and the county assessor certify the amount of taxes lost because of homestead exemptions which have been granted.
• Section 25 repeals § 77-3509 outright.

Prepaid Wireless Surcharge Expanded to Include the Universal Service Fund Charge ( LB 157 – Operative July 19, 2018)

LB 157 amended Neb. Rev. Stat. §§ 86-328 (the Universal Service Fund) and §§ 86-903 through 86-905 (prepaid wireless surcharge) to change the funding of the Nebraska Universal Service Fund (USF) for sales of prepaid wireless service. Currently, the Public Service Commission collects the USF assessment from all carriers. Under LB 157, the USF assessments for prepaid wireless services would instead be collected by the retailers and remitted to the Department of Revenue under the Prepaid Wireless Surcharge Act. 

LB 157 adds another percentage to the calculation of the prepaid wireless surcharge: the USF surcharge percentage rate for other wireless services times one minus the FCC safe harbor percentage for determining the interstate portion of a fixed wireless charge. Sellers are to remit the prepaid wireless surcharge monthly except that, if the seller collected less than $1,000 in the prior year, the remittance can be annual. The 2% collection fee that is currently retained by the Department of Revenue for collecting the prepaid wireless surcharge was changed to ½% under LB 157. 

The bill provides that the Department of Revenue is to provide the Public Service Commission with prepaid wireless surcharge calculation and collection data upon request.

Audit Selection Criteria is Confidential ( LB 1089 –Operative April 18, 2018)

LB 1089 amended Neb. Rev. Stat. § 77-376 to clarify that audit selection criteria and standards, the discovery techniques used by the Department, and the design of automated detection systems are confidential information.

Music Licensing Agency Act Adopted ( LB 1120 – Operative July 19, 2018)

The Music Licensing Agency Act adopts procedures and rights for restaurant and bar owners with respect to payment of royalties to copyright licensing agencies like BMI and ASCAP. LB 1120 also changes the responsibility for collection and enforcement of the 3% tax on revenues from licensing rights in any copyrighted musical composition from the Secretary of State to the Department of Revenue. The Department is required to adopt rules and regulations. 

Beginning January 1, 2019, any licensing agency must register with the Department of Revenue by each February 15 and provide an electronic copy of each licensing contract providing for royalty payments. The bill imposes a penalty of $10,000 for each 45 days the registration is late. Proceeds from the penalty (but not the tax) are deposited in the Revenue Enforcement Fund. A music licensing agency may not enter into or offer to enter into a licensing agreement unless it provides a schedule of rates and notice that the information is available at the Department at least 72 hours earlier.

Beginning January 1, 2019, a music licensing contract must be in writing and include the names and signatures of the parties and a schedule of rates and terms. The Act also contains a list of prohibited actions including coercive conduct and any practice that is substantially disruptive to the proprietor’s business. Persons violating the Music Licensing Agency Act are subject to a fine in an amount not less than $500 (currently $100) and not more than $2,000 (currently $1,000). Multiple violations on a single day may be considered separate violations. The Department must inform proprietors of their rights and responsibilities under this Act.

Nebraska Uniform Protected Series Act Adopted ( LB 1121 – Operative January 1, 2021)

LB 1121 authorizes the creation, governance, distributions to and liability of members of one or more “protected series” within a series LLC. Each protected series has a separate existence, separate management, and can acquire assets and incur liabilities separate from the company itself without exposing the rest of the company to liability. An LLC creates a protected series LLC by an affirmative vote of all members of an LLC and filing a protected series designation with the Secretary of State. A protected series LLC is like a series LLC, but the act allows the series LLC to create a separate protected series for each separate line of business conducted by the LLC.

Each protected series may acquire and hold assets that are not subject to execution for the debts of the company. However, any assets contributed to the protected series by the LLC or its members are subject to execution. The protected series can be merged or dissolved within the LLC.