Nebraska Tax Executives Institute November 13, 2012

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Today’s Agenda 2012 Tax Season Individual Income Tax 2012 Legislative Changes Nebraska Advantage 2013 Nebraska Legislature 311/13/2012

2012 Tax Season Income tax filing statistics as of October 26, 2012: o 927,460 individual income tax returns filed o 815,826 of these returns were e-filed (88%)  Over 100,000 more returns were e-filed in 2012 than in  Nebraska is in the Top 5 in the U.S.! 411/13/2012

2012 Tax Season (continued) Use Tax Filing Statistics o 18,904 returns reported a use tax liability for a total of $1,030,436 since the use tax line was added to the Form 1040N. o An estimated $44 million in sales and use tax on remote sales goes uncollected annually:  $37 million in state sales tax revenue,  $7 million in local sales tax revenue. 511/13/2012

Income Tax – General Information Individual Income Tax Year 2012 Bracket Number Married, Filing Jointly Head of Household Single Individuals Tax Rate 1$0 - 4,800$0 - 4,500$0 - 2, % 2$4, ,000$4, ,000$2, , % 3$35, ,000$28, ,000$17, , % 4Over $54,000Over $40,000Over $27, % Individual Income Tax Year 2013 Bracket Number Married, Filing Jointly Head of Household Single Individuals Tax Rate 1$0 - 4,800$0 - 4,500$0 - 2, % 2$4, ,000$4, ,000$2, , % 3$35, ,000$28, ,000$17, , % 4Over $54,000Over $40,000Over $27, % Individual Income Tax Year 2014 Bracket Number Married, Filing Jointly Head of Household Single Individuals Tax Rate 1$0 – 6,000$0 – 5,600$0 – 3, % 2$6, ,000$5, ,800$3, , % 3$36, ,000$28, ,000$18, , % 4Over $58,000Over $43,000Over $29, % 6

Individual Income Tax Audits o Economic Substance  Form 4797N – Special Capital Gains Election  Preparer responsibilities o Focus on Nonfilers  Professional licenseholders  IRS data matches o Focus on Nonresidents  Schedule K-1N – S corporations  Partial-year residents  Filing an income tax return when  residence is in a state that doesn’t have a state income tax Income Tax – Audit More… 711/13/2012

Individual Income Tax Audits (continued) o Focus on itemized deductions  Schedule A  Schedule C o Alimony Payments o Fraudulent Returns Income Tax - Audit (continued) 811/13/2012

Audit and examination of Nebraska individual income taxes by the Department o The Department has audited, examined, and made adjustments since income tax was adopted 40 years ago. o Nebraska income tax is based upon federal law. o Nebraska Legislature has granted broad statutory powers and duties to the Department to:  Obtain and examine any financial records of taxpayers;  Examine returns; and  Determine if amounts are correct. Income Tax - Audit (continued) More… 911/13/2012

Audit and Examination (continued) o Neb. Rev. Stat. § provides that any agent of the Department may require the production of records as may be necessary for the performance of his or her responsibilities under applicable state law. Neb. Rev. Stat. §  Powers exist without limitations to source or nature of records or items on the return to which they apply. o Neb. Rev. Stat. § grants the Department authority to correct mathematical errors. Neb. Rev. Stat. § o Neb. Rev. Stat. § provides that as soon as practical after an income tax return is filed, the Tax Commissioner will examine it to determine the correct amount of tax. Neb. Rev. Stat. § Income Tax - Audit (continued) More… 1011/13/2012

Audit and Examination (continued) o If the Tax Commissioner finds that the amount of tax shown on the return is less than the correct amount, he or she will notify the taxpayer of the amount of the deficiency proposed to be assessed. o The Department has the authority to examine any item on the federal return and adjust it so that it complies with the Internal Revenue Code, Treasury Regulations, case law, and any other authority governing federal tax law. Income Tax - Audit (continued) 1111/13/2012

2012 Legislative Changes Sales Tax Exemptions LB 902LB 902, Purchases by nonprofit corporations subject to a lease-purchase agreement which transfers title to a governmental unit......……… April 1, 2012 LB 727LB 727, Entry fees or other amounts charged by political subdivisions or IRC § 501(c)(3) organizations to participate in sports events, sports leagues, or competitive educational activities…………………………………………………..… July 1, 2012 LB 830LB 830, Biochips for genotyping of plants, animals, or nonhuman research model organisms..…………………….……July 1, /13/2012

Sales Tax Exemptions LB 727LB 727, Admissions charged by IRC § 501(c)(3) organizations that are conducting statewide sports events, or are dedicated to youth development and healthy living ……………………………………………..……..….. October 1, 2012 LB 1080LB 1080, Tangible personal property acquired and assembled for subsequent use outside the state by a person operating a data center.……………………...January 1, 2013 Local Option Sales Tax LB 357LB 357, Local option sales tax increase………………….…….July 19, Legislative Changes (continued) More… 1311/13/2012

Nebraska Advantage Research and Development Tax Credit o A taxpayer may claim an income tax credit or sales tax refund for qualified research and development for 21 years. o Previously, the credit could only be claimed for 5 years Legislative Changes (continued) LB 983LB 983, Operative Date: January 1, /13/2012

Nebraska Advantage Large Data Center Projects o A taxpayer who invests at least $200 million and creates 30 new jobs at a data center project is eligible for a 10-year personal property tax exemption for the project, in addition to the benefits currently available for other Tier 2 projects. o A taxpayer may also sign a single agreement for a Tier 2 large data center project and sequential Tier 5 project. Previously, a taxpayer could not sign an agreement for a sequential project Legislative Changes (continued) LB 1118LB 1118, Operative Date: March 7, /13/2012

Nebraska Advantage Since 2006: 293 Applications Potential News Jobs o 19,554 Potential Investment o $7.77 Billion *Partial Year 1611/13/2012

* Partial Year Nebraska Advantage (continued) 1711/13/2012

Nebraska Advantage (continued) 1811/13/2012

103 rd Nebraska Legislature (2013) Convenes January 9, 2013 (90 days) o New Speaker of the Legislature o At least 5 new committee chairs o At least 9 new senators FY2013/14 – FY14/15 Biennial Budget o October 2012 Nebraska Forecasting Board  FY12/13 - $57.8 Million add’l revenue  FY13/14 – FY14/15 – est. 4.5% growth Tax Reform 1911/13/2012

Doug Ewald, Tax Commissioner 301 Centennial Mall South Lincoln, NE