If a financial institution in a Nebraska unitary group earns LB 775 credits but files no income tax return, can the group still use those credits to cut its corporate income tax and get sales/use tax refunds?

Plain-English summary

Nebraska taxes financial institutions differently from ordinary corporations: a bank pays a franchise tax and does not file a corporate income tax return, and it is excluded from the "corporate taxpayer" for income tax purposes. That creates a puzzle under the Employment and Investment Growth Act (LB 775): if a bank in a corporate family earns the Act's credits but files no income tax return, can the family actually use them? This ruling says yes.

The core holding: the credits earned under the Act by a financial institution that is a member of a unitary group may be used to reduce the corporate income tax liability of the unitary group that includes the financial institution, or to obtain a refund of sales or use tax paid on purchases by any member of the unitary group for use at the project.

The facts: a financial institution (as defined in Section 77-3801) is a wholly-owned subsidiary of a holding company that also owns non-financial subsidiaries. Together they are a unitary group. The project expands the financial institution and a computer center that serves the whole group. The financial institution is a member of the group even though it is not part of the corporate income tax taxpayer.

The Department connects the statutes:

• Section 77-2734.04(3) -- the "corporate taxpayer" for income tax does not include a financial institution (defined in Section 77-3801).
• Sections 77-2734.04(13) and (14) -- define "unitary business" and "unitary group."
• Section 77-4103(12) -- "taxpayer" under the Act reaches every person subject to the sales/use tax and either the financial institution franchise tax or the corporate income tax.
• Section 77-4106(1)(a) -- the credits may be used to reduce the taxpayer's income tax liability or to obtain a refund of sales and use taxes on purchases (including rentals) for use at the project.

Because each member of the unitary group is subject to the sales and use tax and to either the financial institution franchise tax or the corporate income tax, all members are included in the Act's term "taxpayer." So even though the financial institution files no income tax return and is excluded from the group's income tax return, the credits its activities created are available to reduce the tax shown on the group's income tax return. And the Act's sales/use tax refund is allowed regardless of which member of the unitary group actually made the purchase.

What this means for you

A bank-led (or bank-containing) corporate group doing an LB 775 project

Your financial institution's credits are not stranded just because it files no income tax return. The group can apply them against the corporate income tax of its non-financial members, and can claim sales/use tax refunds on qualifying project purchases made by any member.

Advisers mapping credits across a mixed franchise/income-tax group

Treat the whole unitary group as one "taxpayer" for the Act even though the financial institution sits outside the income tax return. Track which member made each project purchase for documentation, but the refund does not depend on the purchaser being any particular member.

Common questions

Q: Can credits earned by a financial institution be used if it files no income tax return?
A: Yes. The credits its activities created can reduce the corporate income tax liability shown on the unitary group's income tax return.

Q: Does it matter which member of the group bought the project property?
A: No. The sales/use tax refund is allowed regardless of which member of the unitary group actually made the purchase.

Q: Why is the financial institution treated as part of the "taxpayer"?
A: Each member of the group is subject to the sales/use tax and to either the financial institution franchise tax or the corporate income tax, so all members fall within the Act's definition of "taxpayer," even though the bank is outside the income tax "corporate taxpayer."

Q: Can I rely on this ruling today?
A: It is the Department's general policy and is "binding on the Nebraska Department of Revenue until amended," but the LB 775 program and the bank-tax rules have evolved since 1987. Confirm current law and consult a Nebraska tax professional.

Citations and references

• Nebraska Revenue Ruling 29-87-10, "Economic Development Tax Incentives -- Use of Credits by a Unitary Group Including a Financial Institution" (Nebraska Department of Revenue, issued October 5, 1987; approved by State Tax Commissioner Donald S. Leuenberger).
• Neb. Rev. Stat. § 77-2734.04(3) (corporate taxpayer excludes financial institution); § 77-2734.04(13)-(14) (unitary business/group); § 77-4103(12) (definition of "taxpayer"); § 77-4106(1)(a) (use of credits) (R.S.Supp., 1987).
• Neb. Rev. Stat. § 77-3801 (definition of "financial institution"), as referenced by the ruling.

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/rr298710_use_of_credits.pdf

Original ruling text

Revenue Ruling 29-g7-lO

Economic De vel o ment Tax

I nc en tives--Use of
C red its b
a Unita
rou
lnclu tn a tnancta I n stitu tion .
HE
IT
ED
EAR
DB
FIN NCt L IN
IT
loN
D TO REDUCE THE C QRPORATEA
INCOÑIE TAX LIAB ILIT Y OF THE UUN ITARY
THE FINANCIAL INSTiT UTION OR TO OBTAIN GROUP THAT INCLUDES
A REFUND OF SALES OR
USE TAX PAID ON P URCHASES BY ANY
METVIBER
OF TF{E UN I TARY
GROUP FOR USE AT TH E PROJECT

Advice has Seen requested as to whether- the
Employment and lnvestment G rowth Act ¡cil credits earnec under the
f
6y a f inancral in stitution
that is a member of a unita.y-g;"";
to reduce the co rpo rate
rncome tax riabirity of the otl".'."Àu";;
"""'uJ"se¿
;;
the
group and to obta in
ref unds of saies oi' use tax paid by
of
the unitary grouP on
purchases for use at the projLct.
";t;;rirer
Section 77 -2734.04(3) , p.. S . Supp

1987, provides in part that

Corpor'ate tax payen shall
include
any
financial instit ution as deíineC innot
section 7ì_3g01;

Section 77 -2734.04( t3) , R. S SupP

19A7, provides in part that:

Unitary business shall mean a business that is
con_
ducteC
by one or more corporations. with
common ownersh ip
that contribute to the singie
economic unit.
Section 7'î-2734.04( j4), R. S.Supp., j9g7, provides

that:

Unitary group shail mean the group
that are conducting a unitary buiiness. of corporations
Section 7-i-4j03(,l2), R. S.Supp., jgg7, provicjes

,

in part that:

TaxparTers shall mean ani person subject
to the
saies and use tax
imposeC by the Nebr
franchise tax under
co rpo ration th at

is

group which is subjec
Section T7-4106( j ) (a). F.. S. Supp., lgg7, provides

'

The creiits

ma) be useC

taxoayer s income rax liability

in pari that:

to reduce the
The credits

o. usei to ootain a ref unC of saies ancj use
lî),^raxes
on purchases, inciuciing rentals, for use
at the project.

Revenue Ruling 29-87-10

Page 2

A f inancial institution, âS defined in section 77-3g0,l , has filed an
application for an agreement under the Act. The financial institution
.is the wholly owned subsidiary gf r holding company. The holding comi
Pany has other wholly owned subsid¡aiies that are not financial
institutions. The holding company and its wholty owned
are
a unitary 9roup. The financial institution is a membensubsidiaries
of the unitary
9roup, even though it is not a part of the corporate taxpayer for income
tax PU rposes. The project is an expansion of portions
of the f inancial
institution and the computer center that provides computer services
for
all of the members of the group.

Each member of the unitary group is subject to the sales and use tax
and either the financial institution franchise tax or the corporate
income tax. All of the members of the unitary group are, therefore,
included in the term "taxpayer" under the Act.

The incentives under the Act are available to the taxpayer. The
unitary group is not limited in its use of the incentives'to just the

corporation that is primarily responsible for the project.

Even though the financial institution does not file an income tax
return., and must be excluded from the income tax return fileC for the
rest of the 9roup, the credits received under the Act which
were
created by the activities of the financial institution are available
to
reduce the tax liability shown on the income tax retur-n of the unitary
I roup
The Act also allows a refund of sales and use taxes paid on purchases
by the taxpayer that are for use at the project. The refunds will be
allowed regardless of which member of the unitary group actually made
the purchase.
APP ROVED

Donald S. Le uen berger
State Tax Commissioner

october .*,nu