Lawmakers passed a bill containing several major tax proposals Aug. 13.
LB1107, introduced by Norfolk Sen. Jim Scheer, contains numerous provisions, including a new tax credit based on the amount of property taxes paid to a taxpayer’s school district, a new business tax incentive program and a requirement to provide matching funds for a potential project at the University of Nebraska Medical Center.
Nebraska Property Tax Incentive Act
The bill creates a refundable income tax credit based on the amount an eligible taxpayer paid in property taxes to their school district during the previous year, not including those amounts levied for bonded indebtedness or a levy override. The credit is allowed to each individual, business or other entity that pays school district taxes.
For calendar year 2020, the total amount of credits is limited to $125 million. For the following three years, that amount could increase based on growth in the state’s net tax receipts and the level of its cash reserve.
The credit cap will increase to $375 million in 2024. For each year after that, the total amount of credits will be $375 million plus an allowable growth percentage equal to the growth in real property value, not to exceed 5 percent in any one year.
Another provision ensures that the state’s cash reserve could not drop below $500 million after any transfer of funds to the new program.
ImagiNE Nebraska Act
LB1107 creates a new business tax incentive program, the ImagiNE Nebraska Act. The application period for the state’s current program, the Nebraska Advantage Act, ends this year.
Sen. Mark Kolterman of Seward introduced the original proposal, LB720, last session. Under LB1107, qualifying businesses will receive a varying combination of incentives based on their level of capital investment and the number of employees they hire at a minimum qualifying wage.
To qualify for sales and use tax incentives under the act, a taxpayer must offer full-time employees the opportunity to enroll in minimum essential health care coverage under an employer-sponsored plan and offer a “sufficient package of benefits.”
The director of the state Department of Economic Development may not approve applications that would include refunds or credits for a calendar year in which a “base authority” is projected to be exceeded.
Base authority is $25 million for calendar years 2021 and 2022, $100 million for 2023 and 2024 and $150 million for 2025.
Beginning in 2026, the director will adjust the base authority every three years to an amount equal to three percent of the state’s general fund net receipts for the most recent fiscal year. Unused base authority will carry forward to the following year, but base authority prior to 2026 may not exceed $400 million.
The bill requires the director and the state tax commissioner to submit an annual report to the Legislature listing the tax incentive agreements signed in the previous year, the agreements still in effect, the identity of each taxpayer who is party to an agreement, the qualified location or locations and other information.
Nebraska Transformational Projects Act
LB1107 includes the amended provisions of Kolterman’s LB1084, which requires the state to provide $300 million in matching funds for a potential academic hospital and all-hazards disaster response facility at the University of Nebraska Medical Center.
The state will not provide matching funds unless the applicant’s project has been selected for participation in the federal program and $1.3 billion in federal funds and private donations have been received.
In no case will matching funds be transferred before fiscal year 2025-26 or before the total amount of credits granted annually under the Nebraska Property Tax Incentive Act reaches $375 million.
Under LB1107, the state will grant $275 million in credits each year under the Property Tax Credit Relief Act, which uses state sales and income tax revenue to provide Nebraskans with credits meant to offset part of what they pay in local property taxes.
Any amount transferred or credited to the Property Tax Credit Cash Fund pursuant to any other state law will be added to the minimum amount when determining the total amount of relief granted under the act.
In addition, the bill includes provisions meant to encourage “key employers,” or those with at least 1,000 equivalent employees during the base year, to retain jobs in Nebraska when new owners of those companies are considering moving all or some of those jobs out of the state.
Key employers that retain at least 90 percent of their equivalent base-year employment and meet certain other requirements may apply to receive a wage retention credit equal to five percent of the total compensation paid by the employer in the year to all retained Nebraska employees who are paid wages at the required level.
The credit earned for all employers may not exceed $4 million in any year, and the total amount of credits received under the act may not exceed $40 million.
The bill directs the state Department of Economic Development to create and administer a revolving loan program for workforce training and infrastructure development expenses incurred by ImagiNE Act applicants. Applicants may repay loans for job training or infrastructure development with certain credits earned under the act.
LB1107 also creates a job training fund to be administered by the state Department of Economic Development to provide grants to employers for reimbursement of job training expenses.
For an employer to qualify for a job training reimbursement grant, the jobs being trained for must be net new jobs or result in a net increase in wages per employee, and the jobs must meet or exceed the Nebraska average annual wage.
Finally, the bill provides a refundable income tax credit to Nebraska businesses that produce renewable chemicals made from agricultural products. The director of the state Department of Economic Development could approve up to $3 million in tax credits for calendar years 2022 and 2023 and up to $6 million per calendar year after that.
LB1107 also repeals a tangible personal property tax exemption. The Legislative Fiscal Office estimates that the change will reduce general fund expenditures by $14.8 million in FY2020-21 and an additional $15.2 million in FY2021-22.
The office estimates that the bill will reduce general fund revenue by $95 million in FY2020-21 and an additional $135 million in FY2021-22.
By FY2024-25, when the total amount of refundable credits reaches $375 million, the office estimates that the bill will reduce general fund revenue by $441 million.
Assuming that UNMC is selected for the federal program and the state transfers $50 million in matching funds annually beginning in FY2025-26, the office estimates that the bill will reduce general fund revenue by $526 million that year and an additional $559 million in FY2026-27.
After 45 minutes of debate on final reading, Scheer filed a motion to invoke cloture, which ceases debate and forces a vote on a bill. The motion succeeded on a vote of 42-3. Thirty-three votes were needed.
Senators then voted 41-4 to pass LB1107.