Department of Economic Development January 9, 2007

Department of Economic Development The Nebraska Advantage Package is designed to: Create a business climate that makes Nebraska the preferred location for starting and growing business Promote growth of existing companies job retention and expansion Foster growth of existing companies through new investment Encourage new capital investment Increase the number of new successful startup business ventures Further refine Nebraska’s raw materials Foster the commercialization of new products and ideas in Nebraska Recognize unique differences in the State’s diverse economic engines

Department of Economic Development 1. Expanded Incentives for 5 “Tiers” of investment and/or job creation 2. Rural Development Advantage 3. Research and Development Advantage 4. State and local sales tax exemptions of manufacturing machinery, equipment, and related services 5. Agriculture Innovation Advantage 6. Microenterprise Tax Credit Advantage

Department of Economic Development MinimumMinimum New Tiers New JobsInvestment Tier 1 10 $ 1 Million Tier 2 30 $ 3 Million Tier 3 30 $ 0 Million Tier $ 10 Million Tier 5Maintain$ 30 Million 5 “Tiers” of Investment and/or Job Creation

Department of Economic Development 5 “Tiers” Key Features  Job tax credits may be applied against state withholding of new employees  New small business tier  New jobs only tier  Refunds of 50% (Tier 1) to 100% (Tiers 2, 4 & 5) of all sales tax paid for capital expenditures at the project for tiers  Adds exportable services to all tiers

Department of Economic Development Eligible Businesses

Department of Economic Development Rural Development Advantage Investment Credits: $2,750 (refundable) per $50,000 Wage Credits : $3,000 (refundable) per FTE, includes teleworkers Rural Level One County Population: Less than 15,000 New Investment: $125,000 New Jobs Created: 2 Rural Level Two County Population: Less than 25,000 New Investment: $250,000 New Jobs Created: 5

Department of Economic Development

Department of Economic Development Rural Development Advantage Livestock Modernization/Expansion Now Eligible A Livestock Production project may be applied for as of July 14, Livestock Production involves the operation of real and personal property for the production of livestock useful to man, including breeding and grazing livestock. The project must meet the Level 1 or Level 2 requirements for investment and employment growth at a location in one county meeting the population requirement. Investment may include any improvements to real property and tangible personal property that are depreciable under the Internal Revenue Code except for vehicles, planes, or railroad rolling stock.

Department of Economic Development Livestock Modernization Project application may be filed on or after January 1, Livestock modernization is defined as the construction, improvement or acquisition of depreciable buildings, facilities or equipment for livestock housing, confinement, feeding, production and waste management. The project must have a net investment increase of at least $50,000. There is no employment increase required. Equipment does not include breeding stock, motor vehicles, planes, or railroad rolling stock.  A livestock modernization project may be located in any county in Nebraska.

Department of Economic Development click: Tax Incentives click: Rural Development

Department of Economic Development Research and Development Advantage  No Application required File a schedule with income tax returns  Any business firm subject to sales tax Not a political subdivision or exempt organization  Credit may be claimed in tax years beginning on or after 1/1/06  Credit based on expenditures for research and development activities under section 174 of IRC

Department of Economic Development State and local sales tax exemptions of manufacturing machinery, equipment, and related services Definition – Manufacturing A series of actions performed upon tangible personal property either by hand or machine, which results in that tangible personal property being reduced or transformed into a different state, quality, form, property or thing. (cont.)

Department of Economic Development Definition – Manufacturing (cont.) Manufacturing machinery and equipment does not include: vehicles required to be registered for operation on the roads, hand tools, office equipment and computers, software and related peripheral equipment not used in the manufacturing process.

Department of Economic Development Definition – Manufacturing (cont.) Manufacturing does not include retail, generation or transmission of electricity, the production or transmission of information, programming, or the preparation of food for immediate consumption or purification or transportation of water.

Department of Economic Development Microenterprise Tax Credit

Department of Economic Development What is a Microenterprise? In a designated distressed area. Any Business with 5 or fewer FTEs. –FTE-Full time equivelent=2080 hours per year –5 FTEs = 10,400 hours paid per year to employees. Applicant is: Actively, Personally, Continually engaged in operations of the business. –Explain management and decision making. –Explain daily time spent in the business.

Department of Economic Development Two Qualifying Examples: 5 employees work 40 hours/week 5 X 40 = 200 hours X 52 weeks = 10,400 3 employees work 30 hours/week 3 X 30 = 90 X 52 weeks= 4680 PLUS 3 employees work 20 hours/week 3 X 20 = 60 hours X 52 weeks = 3120 PLUS 1 employee works 40 hours/week 1 X 40 = 40 X 52 = 2080 TOTAL: = 9,880

Department of Economic Development Distressed Areas

Department of Economic Development Application Rules Application is required No Fee to apply Dates beginning 1/1/2006 ending 12/31/2010 May not participate in other Nebraska Advantage Programs Lifetime limit of $10,000 for application and related parties.

Department of Economic Development How credits are calculated Refundable Tax Credits 20% of new investment –New investment: increase in buildings and depreciable personal property other than vehicles. Increase in leased property valued at annual rent increase multiplied by years of lease not to exceed 10 years. 20% of employee compensation increase –New employment: increase in compensation over compensation in tax year prior to application based on W-4 reporting

Department of Economic Development Application Process Three Sections –Part 1 Information about the business Estimates for expenditures/credits –Part 2 Dept. of Revenue Authorization –Part 3 Actual Expenditures Documentation

Department of Economic Development Part 1 1A-Describe your business –Activities, products, markets 1B-Narrative explaining expansion plans-timelines 1C-Addressing market needs

Department of Economic Development Part 2 Completed by Department of Revenue. –This will confirm your authorized amount approved by Revenue. –A copy will be sent to you.

Department of Economic Development Part 3 1. Enter the amount authorized 2. Enter your prior credits 3. Enter your remaining credits

Department of Economic Development Part 3-continued 4.Calculating your actual credits Chart 3A You will need : –Depreciation schedule –Invoices for purchases –Lease agreements –Total income for your business –Total payroll for your business –Tax forms

Department of Economic Development Part 3-continued 5. Calculate the lesser of lines 3 and 4 – (This is the credit you will receive) 6. Attach documentation Be Sure that ALL tax records and the Microenterprise Application are signed by the Authorized Person(s)

Department of Economic Development Tax Forms Needed Federal income tax return (at least first four pages) for applicant and microbusiness. –Profit and Loss/Schedule C for Sole Proprietors Nebraska Reconciliation of Income Tax Withheld Form W-3N (including wage and tax stmt.) Form W-2 If Applicable: Affiliations Schedule (Form 851) Copy of each Shareholder’s Share of Income, Credits, Deductions, etc (Schedule K-1)

Department of Economic Development

Department of Economic Development

Department of Economic Development

Department of Economic Development Mail Completed Application to: Mary Hugo Nebraska Dept. of Revenue 301 Centennial Mall South P.O. Box Lincoln, NE

Department of Economic Development Lincoln Office