One often overlooked aspect of a business is its location and the governing tax jurisdiction. With many states offering tax incentives, it’s important for a business to choose a location that maximizes its human workforce, capital expansion, and state tax benefits. States understand the benefits that manufacturing businesses can bring into the state and the workforce that they employ. Effective January 1, 2021, Nebraska revised its state tax incentive program and rebranded to ImagiNE Nebraska.
What Businesses Qualify for ImagiNE
Under ImagiNE Nebraska, a business can qualify for tax incentives if their business classification code (NAICS) falls under one of the following categories:
- Manufacturing – 31, 32, or 33
- Testing Labs – 541380
- Rail Transportation – 482
- Truck Transportation – 484
- Insurance Carriers – 5241
- Wired Telecom Carriers – 517311 and 517312
- Telemarketing – 561422
- Data Processing – 518210
- Computer Facility Management – 541513
- Warehousing – 4931
- Logistics of Facilities – Portions of 488210, 488310, 488490
- Computer Systems Design – 5415
- Others include: Admin Management, RD&T, Electricity Production using Renewables, Performance of Financial Services, Postharvest Crop Activities, the Processing of tangible personal property, and Waste Treatment and Disposal.
Written by,
Phillip S. Oman, CPA
Manager | HBE LLP
While there are many types of businesses that qualify under this program, we will be focusing this article on the two main application types for manufacturing businesses:
- Manufacturing Growth and Expansion (Rural) and,
- Manufacturing Growth and Expansion (Urban)
Manufacturing Growth and Expansion Application Levels
In order to qualify for the state tax credits, a business must determine if they will be able to grow through both their workforce and through capital investment. Both Rural and Urban have both of these requirements and are summarized below.
Manufacturing Growth and Expansion (Rural) Qualifications:
- Job Growth Req.: 5 Full Time Employees (FTEs)
- Investment Required: $1 million
- Wage Threshold: 70% NE Avg. Wage ($19.27/hour)
- Qualified Location: Limited to Counties with Populations Less Than 100,000
- Business Activities: Manufacturing (NAICS 31-33)
Manufacturing Growth and Expansion (Rural) Benefits:
- Wage Credit: 6% of the Avg. Wage of New Employees
- Bonus Wage Credit: +1% if Benefit Corp. and +1% if location is in extremely blighted area
- Investment Tax Credit: 4% or 7% if $10,000,000 investment
- Bonus Investment Credit: +1% if Benefit Corp. and +1% if location is in extremely blighted area
The qualifications for Manufacturing Growth and Expansion (Urban) are similar with the following differences:
- Job Growth Requirement is 10 FTEs
- Limited to Counties with Populations Greater Than 100,000
- Wage Threshold is 75% NE Avg. Wage (20.64/hour)
- Wage credit is 4% of the Avg. Wage of New Employees
Meeting the Application Threshold and Using the Tax Credits
Once the application process and base year certifications have been completed, the business can focus on expansion through their workforce and capital investment. Additionally, there are three stages within the program:
Ramp up Period – Up to 5 years
The Business has up to 5 years to meet the minimum Full Time Employee and $1,000,000 investment to begin receiving the tax credits. If after 5 years, the growth hasn’t occurred then no credits will be received.
Performance Period – 7 years
Once the FTE and investment criteria has been achieved, the performance period immediately takes effect and the business can begin applying for and receiving credits. The wage credit can be received via a reduction of NE income tax and through NE withholding to the extent that withholding is attributable to the number of new employees. The investment credit can be received through a reduction of NE Income Tax.
Carryover Period – 3 years
If the business was unable to use any of the credits received during the Performance Period, the business has 3 years to use the credits before they expire.
Other Items to Note
There are a handful of other items that businesses applying for these credits should be aware of:
- A $5,000 non-refundable application fee is due upon the business submitting its application.
- The business will be required to offer health insurance for wages to receive tax credits.
- The employer must also abide by an anti-discrimination clause under the program.
HBE Is Here to Help
While these state tax incentives can be extremely beneficial to the growth of a business, the application process and information required each year may deter some businesses from pursuing the credits they are entitled to receive. At HBE, our team of trusted advisors are dedicated to helping your business maximize all applicable tax credits. Contact us today to learn how we can support your businesses’s growth and expansion.
