Employment Expansion & Investment Incentive Act FAQ's

The Employment Expansion and Investment Incentive Act provides for credits to taxpayers who hire additional employees and make qualified investment. A taxpayer can reduce its income tax liability by half and receive refunds of Nebraska sales and use taxes paid for up to five years. In some cases the taxpayer may distribute credits to the owners of the business entity, who can reduce their income tax liability by up to fifty percent for up to five years.

Credits are established initially by increasing employment by at least two Nebraska equivalent employees and making a minimum investment of $75,000 in the same year. Credits can be established for additional employee increases of at least two Nebraska equivalent employees without a corresponding investment increase during the next five years.

The following information is for tax years 1998 and later. Incentive credits under this act have been available since 1987. Credits may be claimed on amended returns. Please contact the Nebraska Department of Revenue, Economic Incentive Group, with questions about credits that may have been earned in earlier tax years.

A qualifying business is any business engaged in the following activities:

• Assembly, fabrication, manufacture, or processing of tangible personal property;
• Storage, warehousing, distribution, or transportation of tangible personal property;
• Sale of tangible personal property (see Who Does Not Qualify);
• Feeding or raising of livestock;
• Farming or ranching;
• Conduct of research, development or testing for scientific, agricultural, animal husbandry, or industrial purposes;
• Performance of data processing, telecommunication, insurance, or financial services;
• Administrative management or headquarters of any business activity listed above, or the headquarters of a retailer; or
• Any combination of business activities listed above.

• Restaurants;
• Retailers in which 80% or more of the total sales are sales to the ultimate consumer of tangible personal property which is not (a) assembled, fabricated, manufactured, or processed by the taxpayer or (b) used by the purchaser in qualifying activities; or
• Contractors, repair persons, installers, and most persons providing services.

• Increased Nebraska employment is the increase in the number of Nebraska equivalent employees in the current year compared to the highest number of Nebraska equivalent employees in the three preceding years.
• Nebraska employee means an individual who is either a resident or partial-year resident of Nebraska.
• The number of Nebraska equivalent employees is computed by dividing the total hours paid in a year to Nebraska employees by the product of forty hours times the number of weeks in the year.
• Nebraska employees who work both within and without Nebraska are considered only to the extent they are paid for work performed within Nebraska.

• Increased investment during a year is the increase in the value of the property used or available for use on the last day of the taxable year compared to the larger of (a) the value of all property used or available for use on the first day of the taxable year or (b) the average investment in this state during each of the three preceding taxable years.
• Purchased property will be valued at its tax basis before allowance for depreciation. Rental Property is to be valued at the annual rental obligation, multiplied by eight.

Only investments in improvements to real property (e.g., buildings) and tangible personal property that is depreciable under the Internal Revenue Code will be allowed.

• Land, vehicles, planes, and railroad rolling stock; 
• Intangible investments, such as computer software; 
• Any investment acquired from a related party by any means; or
• The acquisition of an existing business.

• Conduct a qualifying business activity;
• Meet the minimum required increases of employment and investment in the same tax year; and
• File Form 3800N, Nebraska Employment and Investment Credit Computation, with your income tax return to claim the credit.

Taxpayers who add at least two equivalent employees and make an investment of at least $75,000, as described above, qualify for credits under the Employment Expansion and Investment Incentive Act. The credits are for each employee added, or for each $75,000 of investment made. Partial or prorated credits are not allowed for fractional employment or investment increases.

After the taxpayer has added both employment and investment in the same year, additional employment increases of at least two Nebraska equivalent employees during the five succeeding taxable years can earn credits without any additional investment in the same year. Credits can only be earned for additional investment when employment increases by at least two equivalent employees in the same tax year.

Taxpayers operating within the boundaries of an enterprise zone as designated by the Nebraska Department of Economic Development may receive enhanced credits. The total enterprise zone credits will not exceed $75,000 for any one tax year. The taxpayer has the option of receiving either the enterprise zone credits or the regular tax incentive credits.

Employment & Investment Increase

• Incentives Earned Per Employee
  • $1,500
     
• Incentives Earned Per $75,000 Investment
  • $1,000
     

Subsequent Employment Increase Only

• Incentives Earned Per Employee
  • $1,500
     
• Incentives Earned Per $75,000 Investment
  • $0
     

Enterprise Zone, 50% or More Zone Residents

• Incentives Earned Per Employee
  • $4,500
     
• Incentives Earned Per $75,000 Investment
  • $3,000

Enterprise Zone, Below 50% Zone Residents

• Incentives Earned Per Employee
  • $1,500
  • $4,500 zone residents
     
• Incentives Earned Per $75,000 Investment
  • $1,000

The credits established by a qualifying business may be used to obtain a refund of sales and use taxes paid or against the income tax liability of the taxpayer. The credits must be used in the order they were established, the oldest credits used first.

A claim for refund of sales and use taxes paid may be made after the filing of the income tax return for the taxable year in which the credit was first allowed.

The initial claim for a refund of sales and use taxes paid is limited to the amount of sales and use taxes paid on qualifying investment made in the year of qualification. Claims may be made for the sales and use taxes paid during the five succeeding taxable years on qualifying property or other items such as office supplies, utilities, etc.

When a contractor is used for property incorporated into an improvement to real estate built by the taxpayer, the taxpayer shall be considered to have paid indirectly any sales or use taxes paid by a contractor.

The contractor shall certify to the taxpayer the amount of the Nebraska sales and use taxes paid on the materials, or the taxpayer, with the permission of the Tax Commissioner and a certification from the contractor that Nebraska sales and use taxes were paid on all materials, may presume that fifty percent of the cost of the improvement was for materials incorporated into real estate.

The credits are nonrefundable credits when used against the income tax liability of the taxpayer. The credits used must be used in the order they were established, the oldest credits used first.

The amount of credit that may be used for income tax in any taxable year cannot exceed fifty percent of the income tax liability of the taxpayer reduced by all other nonrefundable credits.

Credits not used against liabilities in the year the credits were established may be carried over and used against liabilities incurred in the five succeeding taxable years. Credits not used for income tax or sales tax liabilities by the end of the fifth succeeding year will expire and will no longer be available.

The credits allowed under the Employment Expansion and Investment Incentive Act are not transferable, except in the following situations:

• Credits may be distributed to partners, limited liability company members, S corporation shareholders, or beneficiaries. These distributed credits may only be used to offset up to 50% of the income tax liability of the partner, member, shareholder, or beneficiary receiving the distributed credits.
• The personal representative of an individual taxpayer who dies with credits remaining after filing of the final tax return for the taxpayer, shall determine the distribution of the credits or any remaining carry over with the initial fiduciary return filed for the estate.