Local Government and Nebraska Tax Incentives FAQs
This guidance document is advisory in nature but is binding on the Nebraska Department of Revenue (DOR) until amended. A guidance document does not include internal procedural documents that only affect the internal operations of DOR and does not impose additional requirements or penalties on regulated parties or include confidential information or rules and regulations made in accordance with the Administrative Procedure Act. If you believe that this guidance document imposes additional requirements or penalties on regulated parties, you may request a review of the document.
This guidance document may change with updated information or added examples. DOR recommends you do not print this document. Instead, sign up for the subscription service at revenue.nebraska.gov to get updates on your topics of interest.
Introduction to FAQs about Local Tax Incentives Refunds
Under the Employment and Investment Growth Act (LB 775) and Nebraska Advantage Act (LB 312), a business may seek a refund of Nebraska sales and use taxes (including local sales and use taxes) paid on purchases of qualified property for use at an approved project, if the project is successful in meeting the required investment and employment thresholds established under either incentive program. Tax incentive refunds are not the only types of refunds that may impact a locality. For example, individuals and businesses may also file refund claims for any overpayment of sales and use tax, such as taxes paid on exempt items or a bad debt deduction.
A tax incentive refund can significantly reduce or even eliminate city or county (for simplicity, will be referred to as city) sales tax receipts for a single month or multiple months. These FAQs will assist you in preparing for the impact of a possible refund of sales tax resulting from a tax incentive project in your city.
How do I know if there are tax incentive projects in my city?
The Nebraska Department of Revenue (Department) publishes an annual report that includes the name and location of businesses with tax incentive projects. See the Nebraska Tax Incentives Annual Report. While some of the projects listed in the annual report may not ultimately qualify for benefits, the report can help cities identify businesses they may want to talk to about potential refund claims.
It is important to speak with local businesses and the local chamber of commerce in your city on a regular basis. They may know of new projects in the area as well.
In addition, a city will often see an increase in sales tax or use tax receipts in years preceding a refund claim (up to seven years before a refund claim is filed). If there is a significant and unexplained increase in your local sales and use tax receipts, the increase may be the result of a new incentive project. For example, over 10,000 businesses remitted $15 million in use tax on purchases they made (through direct pay permits) in 2011. A significant portion of these remittances could involve an incentive project.
Can a single business have multiple tax incentive projects in the state?
Yes. A business can have multiple projects in the state, or even multiple projects at a single location.
Can a business enter into a subsequent agreement for the same project or another project at the same location?
Yes. A taxpayer may enter into a new agreement for a project. The project may include the same qualified activities as the previous project (
Revenue Ruling 29-05-11), or be conducted at the same location. However, a business must have additional investment and employment to meet the requirements for the new project and qualify for a local sales tax refund.
When will a refund be deducted from the city's monthly local sales tax receipts?
Cities of the Metropolitan or Primary Class
A refund will only be issued after a refund claim is submitted by a taxpayer and reviewed and approved by the Department. If a refund claim is approved, a refund will be issued by the State to the taxpayer, usually within two weeks after the date of approval.
The local sales tax portion of the refund will then be deducted from the city’s sales tax receipts for the following month.
Cities of the First or Second Class and Villages
A refund will only be issued after a refund claim is submitted by a taxpayer and reviewed and approved by the Department. If a refund claim is approved, a refund will be issued by the State to the taxpayer, usually within two weeks after the date of approval.
Before January 1, 2014, the city's sales tax portion of the refund will be deducted from the city’s sales and use tax receipts for the following month.
On or after January 1, 2014, for cities of the first and second class and villages, a refund will be deducted from a city or village’s sales and use tax receipts no sooner than 13 months after the refund is paid by the State to the taxpayer. If the refund is more than 25% of the city's annual sales and use tax receipts, payment will be spread out over the following months as described below.
Local Tax Incentive Refunds Less Than 25%
If a refund is less than or equal to 25% of the city’s total sales and use tax receipts for the prior fiscal year, the refund will not be deducted from a city's sales and use tax receipts until the 13th month following the payment of the refund.
Example #1
In March 2014, the Department approves a $500,000 refund of sales and use tax previously paid to South Sioux City for an Employment and Investment Growth Act (LB 775) project. South Sioux City had sales and use tax receipts of $2.5 million for the prior fiscal year. As a result, the refund will be deducted from South Sioux City's sales and use tax receipts in April 2015 because the refund does not exceed the 25% threshold under Neb. Rev. Stat. § 77-27,144.
Under Neb. Rev. Stat. § 77-27,144, sales and use tax refunds will be delayed one year after a refund has been paid to a taxpayer; if the refund exceeds 25% of a city's sales and use tax receipts for the prior fiscal year in which the refund is paid to the taxpayer, the refund will be deducted from a city's sales and use tax receipts in 12 equal installments beginning one year after the refund is paid to the taxpayer.
Example #2
In January 2014, the Department approves a $1 million refund of sales and use tax previously paid to the City of Norfolk for a Nebraska Advantage project. Under the Nebraska Advantage Act, the refund will not be paid to the taxpayer until November 2014. Norfolk had sales and use tax receipts of $6 million for the prior fiscal year. As a result, the refund will be deducted from Norfolk's sales and use tax receipts in December 2015 because the refund does not exceed the 25% threshold under Neb. Rev. Stat. § 77-27,144.
Under the Nebraska Advantage Act, if a refund exceeds $25,000 and the refund claim is filed before June 15th of a given year, then the refund will be paid to the taxpayer on or after November 15th of the same year. See Neb. Rev. Stat. § 77-5726(2)(e). Neb. Rev. Stat. § 77-27,144 also provides that a Nebraska Advantage refund will be delayed one year after the refund is paid to the taxpayer. All other refunds, other than local tax incentive refunds, will continue to be processed and deducted from sales and use tax receipts each month.
Local Tax Incentive Refunds Greater Than 25%
If a refund exceeds 25% of the city’s total sales and use tax receipts for the prior fiscal year, the refund will be deducted in 12 equal installments commencing one year after the refund is paid to the taxpayer.
Example #3
In January 2015, the Department approves a $3 million refund of sales and use tax paid to the City of Norfolk for a Nebraska Advantage project. Under the Nebraska Advantage Act, the refund will be paid to the taxpayer in November 2015. Norfolk had sales and use tax receipts of $6 million for the prior fiscal year. As a result, the refund will be deducted from Norfolk's sales and use tax receipts in 12 equal installments between December 2016 and November 2017. Refunds, other than local tax incentive refunds, will continue to be processed and deducted from sales and use tax receipts each month.
Under Neb. Rev. Stat. § 77-5726(2)(e), a refund under the Nebraska Advantage Act will be paid to a taxpayer on or after November 15th of the same year if the refund claim filed by the taxpayer exceeds $25,000 and the refund claim was filed before June 15th of the given year. Under Neb. Rev. Stat. § 77-27,144, sales and use tax refunds under the Nebraska Advantage Act will be delayed one year after a refund has been paid to a taxpayer; if the refund exceeds 25% of a city's sales and use tax receipts for the prior fiscal year in which the refund is paid to the taxpayer, the refund will be deducted from a city's sales and use tax receipts in 12 equal installments beginning one year after the refund is paid to the taxpayer.
Example #4
In August 2014, the Department approves a $40,000 refund of sales and use tax paid to the City of Ravenna for a Nebraska Advantage project. Under the Nebraska Advantage Act, the refund will be paid to the taxpayer in November 2015. Ravenna had sales and use tax receipts of $100,000 for the prior fiscal year in which the refund was paid. As a result, the refund will be deducted from Ravenna's sales and use tax receipts in 12 equal installments between December 2016 and November 2017.
Under Neb. Rev. Stat. § 77-5726(2)(e), a refund under the Nebraska Advantage Act will be paid to a taxpayer on or after November 15th the year following the refund claim was filed by the taxpayer if the refund exceeds $25,000 and the refund claim was filed on or after June 15th of the given year. Under Neb. Rev. Stat. § 77-27,144, sales and use tax refunds under the Nebraska Advantage Act will be delayed one year after a refund has been paid to a taxpayer; if the refund exceeds 25% of a city's sales and use tax receipts for the prior fiscal year in which the refund is paid to the taxpayer, the refund will be deducted from a city's sales and use tax receipts in 12 equal installments beginning one year after the refund is paid to the taxpayer.
Example #5
In January 2015, the Department approves a $24,000 refund of sales and use tax paid to the City of Palmyra for a Nebraska Advantage project. Under the Nebraska Advantage Act, the refund will be paid to the taxpayer in February 2015 since the refund was filed before June 15th and did not exceed $25,000. Palmyra had sales and use tax receipts of $80,000 for the prior fiscal year in which the refund was paid. Since the refund exceeds 25% of Palmyra's sales and use tax receipts, the refund will be deducted from Palmyra's sales and use tax receipts in 12 equal installments between March 2016 and February 2017.
Under Neb. Rev. Stat. § 77-5726(2)(e), a refund under the Nebraska Advantage Act will be paid to a taxpayer on or after November 15th the year following the year in which the refund claim was filed by the taxpayer if the refund exceeds $25,000 and the refund claim was filed on or after June 15th of the given year. Under Neb. Rev. Stat. § 77-27,144, sales and use tax refunds under the Nebraska Advantage Act will be delayed one year after a refund has been paid to a taxpayer; if the refund exceeds 25% of a city's sales and use tax receipts for the prior fiscal year in which the refund is paid to the taxpayer, the refund will be deducted from a city's sales and use tax receipts in 12 equal installments beginning one year after the refund is paid to the taxpayer.
Does DOR notify a city that a refund claim has been filed?
No. The confidentiality laws of the State do not permit the Department to disclose that a refund claim has been filed by any taxpayer. See Neb. Rev. Stat. § 77-2711.
In addition, each refund claim is unique and subject to a thorough review by the Department. A review of a refund claim can take several days to several months, depending on the size and complexity of the refund claim and the information submitted by the taxpayer in support of the refund claim. The amount of the refund claim may also change substantially, or the claim may even be withdrawn and resubmitted at a later date by the taxpayer seeking the refund.
When will a city be notified that a refund claim has been approved?
DOR publishes a monthly report on each city’s sales and use tax receipts, including all approved refund claims.
What if the refund claim exceeds the city's monthly receipts?
The refund will be deducted from a city’s sales and use tax receipts each month until the balance has been paid off.
How can I prepare for a refund claim?
Once you have identified a project in your city, contact the business and discuss any potential refund claims. While most refund claims result in a small or modest reduction in a city’s monthly sales and use tax receipts, the first refund claim for a project can often result in a significant reduction in local sales and use tax receipts.
Why was the refund claim so large?
The first refund claim often includes all local sales and use taxes paid over a period of several years, because no refunds will be approved until the taxpayer has met the required levels of investment and employment.
How does a business claim a local sales tax refund?
A business must file a refund claim with DOR. See Neb. Rev. Stat. § 77-5726. DOR's Audit Section will conduct a qualification audit of the business to determine whether or not the business has met the required levels of investment and/or employment under the tax incentive program for which it applied.
How long does a qualification audit take to complete?
Each qualification audit is different. A qualification audit can take anywhere from several days to several months as DOR audits a business’s books and records. DOR will often make additional requests for information to validate a refund claim.
Can a city have a local sales and use tax refund claim due to a project that is not located there?
Yes, a business can have a project in another community, but file a refund claim for sales taxes paid to businesses in your city that are attributable to its project.
For example, a business may have a project in Madison, but file a refund claim for taxes paid in Omaha, Lincoln, and Madison because the business paid sales tax on the items it purchased in each community. The business would be entitled to a refund for taxes paid in each city for a qualifying project.
What if a business and its incentive project move to another city? Is my city responsible for refunds of taxes paid in the other city?
A business may relocate at any time. However, there will only be a refund of sales and use taxes paid to the city for taxes previously remitted to the same city.
Example #6
A business starts a Nebraska Advantage project in Hastings in 2013. In 2014, the business relocates to Kearney. In 2016, the business files a refund claim for sales and use taxes paid in both communities. The Department determines the business is entitled to a refund of $100,000 for taxes paid - $30,000 from Hastings and $70,000 from Kearney. The Department will only make a deduction for taxes actually paid in each community.
Example #7
A business starts a Nebraska Advantage project in McCook and North Platte in 2013. In 2014, the business makes an investment in the portion of the project located in McCook, and makes additional investments in the portion of the project located in North Platte in 2013, 2014, and 2015. In 2016, the business files a refund claim for sales and use taxes paid in both communities. The Department determines the business is entitled to a refund of $100,000 for taxes paid - $10,000 from McCook and $90,000 from North Platte. The Department will only make a deduction for taxes actually paid in each community.
