When computing your Nebraska Advantage Act investment, do you count the sales or use tax you paid on qualified property that is eligible for a refund?

Plain-English summary

The Nebraska Advantage Act gave qualifying businesses two kinds of benefits: a refund of the sales and use tax they paid on qualified property, and credits based on the size of their investment. This ruling answers a natural question that follows: when you tally up your investment to see whether you've hit your required level (and to figure your credits), do you include the sales/use tax you paid on that property?

The answer is no. Under Neb. Rev. Stat. § 77-5710, "investment" is the value of the qualified property incorporated into or used at the project. Because that same property qualifies for a refund of all (or one-half) of the sales and use tax under Neb. Rev. Stat. § 77-5725(2), the refundable tax is not part of the property's value for investment purposes. Specifically, the sales/use tax is left out of:

• the original cost of property you own, and
• the net annual rental of property you rent or lease.

This holds even if you haven't yet requested or received the refund — the tax is excluded the moment it is eligible for refund, not when the refund actually arrives.

One exception. Sales or use tax that you properly paid to another state and that cannot be refunded to you is included in the amount of your investment, because it isn't recoverable through the Nebraska refund.

What this means for you

Businesses computing their Nebraska Advantage Act investment

Don't inflate your qualified investment by the Nebraska sales/use tax you paid — that tax comes back to you as a refund, so it doesn't count toward your investment threshold or your investment-based credits. Strip it out of both purchased-property cost and leased-property rental figures, regardless of whether you've filed for the refund yet.

Businesses that paid tax to another state

If you paid another state's sales or use tax on the property and that tax is genuinely not refundable to you, you may include it in your investment amount — it's a real, unrecovered cost of the property.

Common questions

Q: Does it matter that I haven't received my sales-tax refund yet?
A: No. The refundable tax is excluded from investment as soon as the property is eligible for the refund, whether or not the refund has been requested or paid.

Q: Where exactly is the tax excluded?
A: From the original cost of property you own and from the net annual rental of property you rent or lease.

Q: I paid sales tax to another state that Nebraska won't refund. Is that in my investment?
A: Yes. Sales or use tax properly paid to another state that cannot be refunded to you is included in the amount of the investment.

Citations and references

• Neb. Rev. Stat. § 77-5725(2) -- provides a refund of all sales and use taxes (or one-half for a tier 1 project) on qualified property once the required employment and investment levels are met.
• Neb. Rev. Stat. § 77-5710 -- defines "investment" as the value of qualified property incorporated into or used at the project.

Source

• Landing page: https://revenue.nebraska.gov/about/legal-information/revenue-rulings-issued-tax-commissioner
• Original PDF: https://revenue.nebraska.gov/sites/revenue.nebraska.gov/files/doc/legal/rulings/rr290501_slstx_not_part_of_invest.pdf

Original ruling text

Revenue Ruling 29-05-1
Economic Development Tax Incentives
December 20, 2005
Economic Development Tax Incentives -- Sales or Use Tax Paid Is Not Part of Investment . THE
AMOUNT OF SALES OR USE TAX PAID ON THE QUALIFIED INVESTMENT THAT IS
ELIGIBLE FOR REFUND SHALL NOT BE CONSIDERED A PART OF THE AMOUNT OF
THE INVESTMENT EVEN WHEN THE REFUND HAS NOT YET BEEN RECEIVED.
Advice has been requested as to whether or not the amount paid for sales or use tax is included in
the value of qualified property when investment has to be computed before the refund of the sales
and use tax has been received under the Nebraska Advantage Act.
Section 77-5725(2), R.S.Supp. 2005, provides in part that:
When the taxpayer has met the required levels of employment and investment contained in the
agreement, . . .
(a) A refund of all sales and use taxes for a tier 2, tier 4, or tier 5 project or a refund of one-half
of all sales and use taxes for a tier 1 project paid under . . . the Nebraska Revenue Act of 1967
. . . for all purchases, including rentals, of:
(i) Qualified property used as a part of the project; . . .
Section 77-5710, R.S.Supp. 2005, provides in part that:
Investment shall mean the value of qualified property incorporated into or used at the project.
Since all of the property that qualifies as investment also qualifies for a refund of all or one­half
of sales or use tax paid on such property, the value of the qualified property will not include the
amount of sales or use tax subject to refund, even when the sales or use tax refund has not been
requested or received. The amount of sales and use tax will not be included in the original cost
of property owned by the taxpayer or in the net annual rental of property rented or leased by
the taxpayer. Sales or use taxes that have been properly paid to another state, and that cannot be
refunded to the taxpayer, will be included in the amount of the investment.
APPROVED:

Mary Jane Egr
State Tax Commissioner
December 20, 2005

Nebraska Department of Revenue, PO Box 94818, Lincoln, Nebraska 68509-4818