The content of these pages is developed and maintained by, and is the sole responsibility of, the individual senator's office and may not reflect the views of the Nebraska Legislature. Questions and comments about the content should be directed to the senator's office at email@example.com
Each year the Nebraska Department of Revenue submits a report of the financial details of Nebraska’s tax incentive programs. Although the Nebraska Advantage Act is the largest, the report provides the benefits paid to companies participating in seven distinct programs. This year’s report identifies the fiscal impact to Nebraska taxpayers of 132 qualifying projects that have received benefits under one or more of the seven programs.
The Annual Report contains specific, detailed information about the benefits participant companies have received and will continue to receive from the program. To date, a total of $905 million in tax credits and $187 million in sales tax refunds have been given, with another $37 million in sales tax refunds pending approval. While sales tax refunds are paid to the company when earned, the tax credits represent a cumulative liability to Nebraska taxpayers.
Of the nearly $1 billion in tax credits earned, less than half of them have been used. When a company qualifies for the tax credits, they can apply the credit in a number of ways. They may use the credits instead of paying state income taxes, apply the credits as a refund for sales taxes, use the credits to pay the employer’s share of tax withholding on employee salaries, or obtain a state refund for their real estate property taxes paid. In some cases, companies can continue to collect on incentives as long as 16 years after they were attained.
A common misconception among taxpayers is that if the current tax incentive programs ended, so would the payouts. That is not correct. If no further applications were accepted or corporate benefits approved, Nebraskans are still on the hook for $484 million of tax credits earned that still remain to be paid.
In addition to the tax credits and refunds that reduce current and future state taxes paid by participating companies, certain projects are granted exemption from personal property taxes. To date, over $6 billion in personal property has been removed from local tax rolls, meaning no property taxes are paid to local governments. To put that in perspective, that is the equivalent of 40,000 homes valued at $150,000 each, or alternatively, 7,500 quarter sections of $5,000 per acre farm ground not paying property taxes. In comparison, the total taxable value of all ag machinery and equipment statewide was $4.1 billion in 2017, while the total taxable value of commercial and industrial equipment was only slightly higher than the cumulative exemption for incentivized companies at $6.5 billion.
While the costs to Nebraska’s taxpayers are known to the dollar, information about the benefits and economic activity created by the credits are estimates at best. For example, the report estimates a cumulative number of new jobs, although that number does not represent a new position created and filled by a previously unemployed Nebraska worker. In fact, the estimated number does not even reflect jobs, but rather “full time equivalents”. Any accumulated increase of 40 work hours per week is counted as an “FTE”. So 10 employees getting 30 hours of work per week instead of 20 would be counted as 2.5 new “jobs”, even though not a single full time job was created.
Additionally, we have no means by which to accurately evaluate the wage levels of the expanded employment. Estimated annual wages are calculated for the report, but they represent only an average wage that FTE’s created. For example, if a company created one $100,000 management position, two $75,000 supervisor positions, and 10 $30,000 laborer positions, the average salary would be reported as $42,000. The few high wage jobs skew the average, even though almost all of the jobs created were relatively low wage positions.
The report includes a fiscal analysis that uses economic modeling to project the net benefit to Nebraska tax revenue through taxpayer subsidy of participating companies. According to Department of Revenue calculations, the total tax revenue gained by the economic activity created statewide by the incentives programs will be 25% less than the amount of state taxes not paid by participating companies. That is a net annual loss to taxpayers of $32 million in 2018. The Department of Revenue projects that annual loss to grow to $87 million by 2022 and peak at $93 million by 2025. Property taxes not paid are not included in that total loss.
The tax advantages to a handful of companies in Nebraska are clear to see. As a state senator and taxpayer, I have difficulty seeing the public benefit of the current programs, even when those benefits are calculated using optimistic estimates. That lack of measured data on outcomes is troubling. Despite my personal efforts to advance legislation that would provide information for taxpayers, companies receiving the public benefits resolutely opposed greater transparency. A public hearing on the Tax Incentive Report will take place on Wednesday, August 15.