For Nebraska Advantage incentives, when must a taxpayer use E-Verify for new employees, and can employees be verified after the fact or counted if transferred in?

Plain-English summary

To earn Nebraska Advantage incentives, a business has to hit employment levels -- and to count a new employee toward those levels, it generally must run that employee through E-Verify, the free federal system that checks work-eligibility against Social Security Administration and Department of Homeland Security records. This ruling nails down the timing and edge cases, and it's blunt: if you don't E-Verify at the right time, those employees don't count -- and you can't fix it later.

Who this applies to: taxpayers with an incentive-act application filed on or after October 1, 2009, or an increase in research expenditures in a tax year beginning on or after January 1, 2009. The requirement flows from Neb. Rev. Stat. § 77-5722.01 (Nebraska Advantage Act) and § 77-5808 (R&D Act), and it covers the Nebraska Advantage Act, the Rural Development Act, the R&D Act, and the Microenterprise Tax Credit Act.

Three scenarios, three answers:

1. Forgot to E-Verify at hire? You can't back-fill. Once you've filed an application, you may not later run E-Verify on employees hired in earlier months/years and count them. Only employees hired after you begin using E-Verify count. You must confirm you're registered for E-Verify to establish your application date. Temporary short-term lapses (e.g., the personnel director is on vacation and a few hires are verified a bit late) are forgiven -- those employees still count.

2. Out-of-state transfers in: they count, no E-Verify needed. Employees hired in another state, continuously employed, and merely transferred into the Nebraska project are not "newly hired employees employed in Nebraska," so the E-Verify requirement doesn't apply and they can be counted.

3. In-state new hires not verified at hire: they don't count. Employees hired in Nebraska after the application date and not E-Verified at the time of hire are not eligible to be counted -- even if they're later moved to the project location.

Business acquisitions: if you acquire an existing Nebraska business, its existing employees don't need to be verified; but new employees hired after the acquisition must be E-Verified to count.

Why "at hire"? The E-Verify Memorandum of Understanding with the federal government requires employers to start verification within 3 employer business days after hire, and bars using E-Verify for unauthorized purposes -- so after-the-fact verification would violate both the incentive acts and the MOU.

R&D Act wrinkle: because the R&D Act has no employment threshold, its language differs slightly, but the analysis is the same. If newly hired employees during the tax year of the qualifying Nebraska research expenditures weren't E-Verified, the credit is denied for that year. (The taxpayer may still earn it in a later year if that year's new hires are verified; denial of the first year shifts the start of the 21-year credit window but doesn't necessarily shorten the total earning period.)

What this means for you

Businesses pursuing Nebraska Advantage incentives

Register for and start using E-Verify at the moment you file your application -- not later. Verify every newly hired Nebraska employee within three business days of hire. Employees you fail to verify at hire are lost for incentive-counting purposes and can't be rescued by verifying them during the qualification audit. Don't panic over a brief, genuine lapse (vacation coverage) -- those hires still count once verified shortly after.

R&D credit claimants

Watch the annual link: if you didn't E-Verify all newly hired employees in the year you made qualifying Nebraska research expenditures, you lose the credit for that year. Keep verification current every year you intend to claim.

Companies transferring or acquiring workforce

• Transferring in continuously-employed out-of-state staff? They can be counted without E-Verify.
• Hiring new Nebraska workers (or new hires after acquiring a Nebraska business)? They must be E-Verified at hire to count.

Common questions

Q: I filed my application but forgot to E-Verify some earlier hires. Can I verify them now and count them?
A: No. Once you've filed, you can't retroactively E-Verify earlier hires and count them. Only employees hired after you begin using E-Verify count.

Q: Does a brief lapse in verification disqualify those employees?
A: No. Temporary short-term lapses (such as the personnel director being on vacation) won't prevent employees hired during that time from being counted, once verified.

Q: We transferred employees from another state into the Nebraska project. Do they need E-Verify?
A: No, provided they were hired out of state, continuously employed by you, and merely transferred in. They aren't "newly hired employees employed in Nebraska," so they can be counted without E-Verify.

Q: What about Nebraska employees hired after the application date but not verified at hire?
A: They cannot be counted toward qualifying for incentives, even if later transferred to the project location.

Q: We acquired a Nebraska business. Must we E-Verify the existing employees?
A: No. Existing employees of the acquired business don't need verification, but any new employees hired after the acquisition must be E-Verified to count.

Q: How does this hit the R&D credit?
A: If newly hired employees during the tax year of the qualifying Nebraska research expenditures weren't E-Verified, the credit is denied for that year (Neb. Rev. Stat. § 77-5808).

Citations and references

• Neb. Rev. Stat. § 77-5722.01 -- Nebraska Advantage Act: the Tax Commissioner may not grant incentives unless the taxpayer electronically verified the work-eligibility of all newly hired Nebraska employees; hours/compensation of ineligible workers are excluded; the section does not apply to applications filed before October 1, 2009.
• Neb. Rev. Stat. § 77-5808 -- Nebraska Advantage Research and Development Act: same E-Verify requirement; does not apply to credits claimed for tax years beginning before January 1, 2009.
• E-Verify Memorandum of Understanding -- requires initiating verification within 3 employer business days of hire and bars unauthorized use.
• Supersedes Revenue Ruling 29-13-2 (issued July 24, 2013), which had superseded Revenue Ruling 29-11-1 (issued October 24, 2011).

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/rr291303_e-verify.pdf

Original ruling text

Revenue Ruling 29-13-3

Nebraska Advantage Tax Incentives

Supersedes Revenue Ruling 29-13-2, issued July 24, 2013
(which superseded Revenue Ruling 29-11-1, issued October 24, 2011)

August 16, 2013

Electronic Verification of Employees’ Eligibility Status
Issues and Conclusions

1. A taxpayer has either an approved incentive act application filed on or after October 1, 2009,
   or an increase in research expenditures during a tax year beginning on or after January 1, 2009,
   but did not electronically verify (using E-Verify) the work eligibility status of new employees
   at the time the employees were hired.
   Can the taxpayer electronically verify the employees at a later date, and count those
   employees for purposes of qualifying for tax incentives under the incentive acts?
   No. Once a taxpayer has filed an incentive act application, it may not subsequently use
   E-Verify for employees hired in earlier months or years and count those employees toward
   qualifying for tax incentives under any of these incentive act programs.
   All incentive act applicants must confirm that they are registered for E-Verify to establish
   a date of application. If the taxpayer does not begin using E-Verify as of the date of
   application, only the new employees hired after the taxpayer begins to use E-Verify qualify
   as new employees for purposes of qualifying for the incentive acts. Temporary short-term
   lapses, such as the personnel director being on vacation, will not prevent the employees
   hired during that time from being counted as new employees.
   Once the taxpayer begins using E-Verify, the taxpayer may qualify for tax incentives for
   new employees whose work eligibility is electronically verified from that point forward,
   even if there are temporary short-term lapses in verification.
   For the Nebraska Advantage Research and Development Act, if electronic verification
   was not performed for all newly hired employees hired during the tax year in which the
   qualifying research expenditures in Nebraska were made, the tax credit will not be allowed
   for that year.
2. A taxpayer has either an approved incentive act application filed on or after October 1, 2009, or
   an increase in research expenditures during a tax year beginning on or after January 1, 2009.
   Subsequent to the application date, the taxpayer transferred out-of-state employees to the
   project location. These employees were hired after October 1, 2009, but were not electronically
   verified at the time they were hired.
   Can the taxpayer count the transferred employees for purposes of qualifying for tax incentives
   under the incentive acts?

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

Revenue Ruling 29-13-3

August 16, 2013

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Yes. If the transferred employees were hired in another state, have been continuously
employed by the taxpayer, and were merely transferred into the Nebraska project location,
they are not subject to the E-Verify requirement at the time they were hired. These employees
are eligible to be counted as new employees for purposes of the incentive acts.

3. A taxpayer has either an approved incentive act application filed on or after October 1, 2009, or
   an increase in research expenditures during a tax year beginning on or after January 1, 2009.
   Subsequent to the application date, the taxpayer transferred in-state employees to the project
   location. These employees were hired after October 1, 2009, and after the date of application,
   but were not electronically verified at the time they were hired.
   Can the taxpayer count these transferred employees for purposes of qualifying for tax incentives
   under the incentive acts?
   No. If the transferred employees were newly hired employees working in Nebraska,
   and were not electronically verified at the time they were hired, they are not eligible to be
   counted as new employees for purposes of the incentive acts.

Definitions
Base Year.  Except for a Tier 5 Large Data Center (Tier 5LDC) project that is sequential to a Tier 2
Large Data Center (Tier 2LDC) project, base year means the year immediately preceding the year
of application. For a Tier 5LDC project that is sequential to a Tier 2LDC project, the base year
means the last year of the Tier 2LDC project entitlement period relating to direct sales tax refunds.
E-Verify.   E-Verify is a free, Internet-based system, administered by the federal government,
that electronically verifies the employment eligibility of newly hired employees. E-Verify
allows participating employers to electronically compare employee information taken from the
Employment Eligibility Verification, Form I-9, against databases maintained by the Social Security
Administration and the Department of Homeland Security.
Incentive Acts. The incentive acts addressed by this revenue ruling are the Nebraska Advantage
Act, the Nebraska Advantage Rural Development Act, the Nebraska Advantage Research and
Development Act, and the Nebraska Advantage Microenterprise Tax Credit Act.
Taxpayer. Taxpayer means any business or individual business owner that can qualify for tax
incentives under one of the incentive acts.

Analysis
The Nebraska Advantage Act, the Nebraska Advantage Rural Development Act, and the
Nebraska Advantage Microenterprise Tax Credit Act. In the Nebraska Advantage Act,
Neb. Rev. Stat. § 77-5722.01 states:
77-5722.01. Employees; verification of status required; exclusion.
(1) The Tax Commissioner shall not approve or grant to any person any tax
incentive under the Nebraska Advantage Act unless the taxpayer provides evidence

Revenue Ruling 29-13-3

August 16, 2013

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satisfactory to the Tax Commissioner that the taxpayer electronically verified the
work eligibility status of all newly hired employees employed in Nebraska.
(2) For purposes of calculating any tax incentive under the act, the Tax
Commissioner shall exclude hours worked and compensation paid to an employee
that is not eligible to work in Nebraska as verified under subsection (1) of this
section.
(3) This section does not apply to any application filed under the Nebraska
Advantage Act prior to October 1, 2009.
E-Verify is currently the only electronic verification system for work eligibility status that meets
the requirements of the various incentive acts. The Social Security Administration’s website may
be used to verify a Social Security number, but it is not a verification of work eligibility status.
When a taxpayer applies for tax incentives under these incentive acts, the taxpayer must provide
information showing it has registered to use E-Verify. If the application is approved, the taxpayer
must sign an agreement with the state promising to increase employment, investment, or
both, by certain levels. All incentive act agreements that relate to applications filed on or after
October 1, 2009, require a taxpayer to use E-Verify when new employees are hired.
The term “newly hired employees” is not defined in any of the incentive acts. The use of this term
in § 77‑5722.01 implies that the electronic verification must be conducted shortly after the new
employee is hired. Employers who wish to use E-Verify must sign a Memorandum of Understanding
(MOU) with the federal government which includes a provision stating that the “employer agrees
to initiate E-Verify verification procedures for new employees within 3 employer business days
after each employee has been hired . . . .” The MOU also states that employers may not use
E-Verify procedures for “any other use not authorized.”
The Nebraska Department of Revenue (Department) has determined that taxpayers cannot begin
using E-Verify after filing the application (for example, the following month or year, or during the
qualification audit) and either count those employees toward achieving the applicable employment
levels or receive any tax incentives for these employees. Allowing after-the-fact electronic
verifications would violate the language and intent of the incentive acts, the requirements of the
agreements with the Department, and the express requirements of the taxpayer’s MOU with the
federal government authorizing use of E-Verify.
The obligation to register for and use E-Verify begins at the time the incentive act application is
filed. New employees that were hired before the application date do not have to be checked with
E-Verify to count toward achieving the applicable employment levels even if they are hired after
the end of the base year.
Once the taxpayer begins using E-Verify to “verify the work eligibility status of all newly
hired employees employed in Nebraska,” the new employees whose work eligibility status was
electronically verified will count toward determining eligibility of the taxpayer for the incentive
acts. This is true even if there are temporary short-term lapses in the use of E-Verify. For example,
if the personnel director is on vacation and a few new employees are hired and not verified until

Revenue Ruling 29-13-3

August 16, 2013

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shortly after the otherwise required three-day period, those employees can be counted as new
employees, and any wages earned after they have been verified for work eligibility using E-Verify
will qualify for tax incentives.
When employees are hired in, and their duty location is located in, another state, they are not
employed in Nebraska. If, subsequent to the application date for the incentive acts, these employees
are transferred to the project location, after having been continuously employed by the taxpayer,
they are not newly hired employees. Because the transferred employees are not newly hired
employees, the statutory requirement that “newly hired employees employed in Nebraska” be
electronically verified does not apply. The date of hire does not make a difference as long as the
above conditions are met.
When employees are hired in, and their duty location is located in, Nebraska on or after
October 1, 2009, they are “newly hired employees employed in Nebraska” and the statutory
requirement that they be electronically verified applies. The statute requires that all “newly hired
employees employed in Nebraska [emphasis added]” be electronically verified, not just those
employees initially placed at the project location. If, after the application date, employees are
hired and the Nebraska employees are transferred to the project location, they do not count for
purposes of qualifying for tax incentives under the incentive acts unless they have been properly
electronically verified.
If a taxpayer acquires an existing Nebraska business, with existing employees in Nebraska, there
is no requirement to electronically verify those existing employees. If the taxpayer hires new
employees after the acquisition of the business, the new employees must be electronically verified
in order to count for purposes of qualifying for tax incentives under the incentive acts.
Example:
ABC Company (ABC) applies for a Nebraska Advantage Act project on May 24, 2010.
ABC’s base year is the year ending December 31, 2009. ABC hires two Nebraska employees,
Employee A on April 1, 2010 and Employee B on October 31, 2010.

1. To count as a new employee, must Employee A be electronically verified?
   No, because Employee A was hired before the date of application, there is no requirement
   for Employee A to be electronically verified, regardless of whether Employee A is hired
   at the project location or another location in Nebraska and later transferred to the project
   location.
2. To count as a new employee, must Employee B be electronically verified?
   Yes, because Employee B was hired after the date of application, ABC is required to
   electronically verify Employee B. This is true even if Employee B was not originally hired
   to work at the project but is later transferred to the project location from another Nebraska
   location.
   The Nebraska Advantage Research and Development Act. Because there is no employment
   threshold to be reached to qualify for benefits under this incentive act, the statutory language is
   slightly different than that found in the other incentive acts, as follows:

Revenue Ruling 29-13-3

August 16, 2013

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77-5808. Employees; verification of status required.
The Tax Commissioner shall not approve or grant to any person any tax incentive
under the Nebraska Advantage Research and Development Act unless the
taxpayer provides evidence satisfactory to the Tax Commissioner that the taxpayer
electronically verified the work eligibility status of all newly hired employees
employed in Nebraska. This section does not apply to any credit claimed in a tax
year beginning or deemed to begin before January 1, 2009, under the Internal
Revenue Code of 1986, as amended.
Taxpayers qualifying for benefits under this incentive act do not sign agreements in advance of
receiving the tax credits. Taxpayers who have earned a federal research tax credit for activity that is
in Nebraska may qualify for the credit and claim it on the Nebraska income tax return filed for that
year. Nevertheless, because this statutory section also uses the term “newly hired employees,” and
because the E-Verify system requires verification within three business days of hire, the analysis
set forth above is essentially the same under this program.
If the electronic verification was not performed for all newly hired employees hired during the tax
year in which the qualifying research expenditures in Nebraska were made, the tax credit will not
be allowed for that year. The taxpayer may earn the tax credit for the following tax year if it made
qualifying research expenditures in Nebraska and electronically verified all newly hired employees
hired during that following tax year. Denial of the credit for the first year would change the start of
the 21-year period that the credit is allowable, but would not necessarily shorten the overall time
period during which the credit may be earned.
The analysis above for transferred employees, both from outside and within the state, also applies
for purposes of the Nebraska Advantage Research and Development Act. The statutory requirement
to use E-Verify for newly hired employees does not apply to out-of-state employees who were
subsequently transferred to the project.
If the taxpayer first qualified for tax credits under the Nebraska Advantage Research and
Development Act for a tax year beginning before January 1, 2009, new employees hired for that year
did not have to be electronically verified to allow the taxpayer to be eligible for credits. However,
new employees hired by that taxpayer during tax years beginning on or after January 1, 2009 must
be electronically verified to allow the taxpayer to continue to qualify for tax credits. If the newly
hired employees were not electronically verified, the taxpayer cannot qualify for tax credits for
any tax year during which the newly hired employees were not electronically verified. Without
proper use of E-Verify, this taxpayer may lose one or more of the 21 years the taxpayer is eligible
to receive tax credits.
APPROVED:

Douglas A. Ewald
Tax Commissioner
August 16, 2013