When is tangible personal property treated as 'invested' for Nebraska's LB 775 incentives -- at order, delivery, or when it is actually put to use?

Plain-English summary

Nebraska's Employment and Investment Growth Act (LB 775) turned on when a company had made its qualifying investment. Timing mattered a lot: the same date drives whether you hit the required investment level, when credits are allowed, and when you can get a sales/use tax refund on purchases. This ruling fixes when tangible personal property counts as invested.

The core holding: investment "has occurred when tangible personal property has been incorporated into improvements to real estate or placed into service." Ordering or even taking delivery is not enough by itself -- the property has to be put to use or built into the project.

The Department anchors the rule to two statutes and to federal tax concepts:

• Section 77-4103(6) defines "investment" as the value of qualified property incorporated into or used at the project.
• Section 77-4105(3) grants the incentives -- including a refund of all sales and use taxes paid on qualified purchases and rentals -- once the required employment and investment levels are met.

For equipment ("used at the project"). Tangible personal property must be "used at the project" to be an investment, and that phrase carries the same meaning as "placed in service" in Internal Revenue Code section 168 (depreciation and investment-tax-credit purposes). Placing in service "will always occur on or after the date of delivery" -- so delivery is the earliest possible date, but actual in-service use is the trigger.

For real-estate improvements. The property must be incorporated into the real estate for the investment to have occurred. Importantly, investment in an improvement can be counted even though the entire improvement is not finished and may not yet be ready for use. In that case, an engineer's or architect's certification of the percentage of completion determines how much investment has occurred.

One date, all purposes. The determined investment date "will be used for all purposes under the Act" -- meeting the required levels, the allowance of credits, and the refund of sales or use tax on purchases.

What this means for you

A company timing its LB 775 investment

Your qualifying investment date is when equipment is placed in service (never before delivery) or when materials are built into your real-estate improvements -- not when you order or pay. Plan project milestones around that in-service/incorporation date, because it governs your level tests, credits, and refunds all at once.

A project with partially-completed construction

You don't have to wait for a finished building. Investment in an improvement counts as it is incorporated, and a licensed engineer's or architect's percentage-of-completion certification sets the amount. Keep those certifications to support the investment claimed for each period.

Common questions

Q: When does property count as invested -- at order, delivery, or use?
A: When it is placed in service (for equipment) or incorporated into real-estate improvements. Placing in service always occurs on or after delivery, so ordering and paying alone do not trigger it.

Q: What does "placed in service" mean here?
A: The same thing as under Internal Revenue Code section 168 for depreciation and the investment tax credit.

Q: Can I count investment in a building that isn't finished?
A: Yes. Investment in an improvement is counted as property is incorporated, even before completion, with the amount set by an engineer's or architect's percentage-of-completion certification.

Q: Does the same date apply to my sales/use tax refund?
A: Yes. The determined investment date is used for all purposes under the Act -- meeting the required levels, allowing credits, and refunding sales or use tax on purchases.

Citations and references

• Nebraska Revenue Ruling 29-87-2, "Economic Development Tax Incentives -- Time of Investment" (Nebraska Department of Revenue, issued September 4, 1987; approved by State Tax Commissioner Donald S. Leuenberger).
• Neb. Rev. Stat. § 77-4103(6) (definition of "investment"); § 77-4105(3) (incentives once required levels are met, including sales/use tax refund) (R.S.Supp., 1987).
• Internal Revenue Code § 168 ("placed in service"), as incorporated by the ruling.
• Related ruling: Revenue Ruling 29-87-8 (Equipment Moved Into the State) applies this "placed in service" rule to property first used elsewhere and then moved into Nebraska.

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/rr298702_time_of_investment.pdf

Original ruling text

This guidance document is advisory in nature but is binding on the Nebraska Department
of Revenue (Department) until amended. A guidance document does not include internal
procedural documents that only affect the internal operations of the Department and does
not impose additional requirements or penalties on regulated parties or include
confidential information or rules and regulations made in accordance with the
Administrative Procedure Act. If you believe that this guidance document imposes
additional requirements or penalties on regulated parties, you may request a review of the
document.
This guidance document may change with updated information or added examples. The
Department recommends you do not print this document. Instead, sign up for the
subscription service at revenue.nebraska.gov to get updates on your topics of interest.
Economic Development Tax Incentives -- Time of Investment. INVESTMENT HAS OCCURRED WHEN TANGIBLE
PERSONAL PROPERTY HAS BEEN INCORPORATED INTO IMPROVEMENTS TO REAL ESTATE OR PLACED INTO
SERVICE.
Advice has been requested as to the date tangible personal property will be considered as an investment for the
purposes of the Employment and Investment Growth Act.
Section 77-4103(6), R.S.Supp. 1987, provides in part that:
Investment shall mean the value of qualified property incorporated into or used at the project. . . .
Section 77-4105(3), R.S.Supp. 1987, provides in part that:
When the taxpayer has met the required levels of employment and investment contained in the
agreement, the taxpayer shall also be entitled to the following incentives:
(a) A refund of all sales and use taxes paid . . . for all purchases, including rentals, of:
(i) Qualified property used as a part of the project;
(ii) Property . . . used in . . . this state . . .;
(iii) Tangible personal property . . . that is incorporated into real estate as a part of the
project; . . .
The determination of the date on which an investment is made in the following paragraphs will be used for all
purposes under the Act. The same date of investment will be used for determining the meeting of the required levels,
the allowance of credits, and the refund of sales or use tax on purchases.
Tangible personal property must be "used at the project" before it will be considered an investment. This term will
have the same meaning as "placed in service" in section 168 of the Internal Revenue Code for depreciation or
investment tax credit purposes. Place in service will always occur on or after the date of delivery.
For improvements to real estate, the property must be incorporated into the real estate for the investment to have
occurred. Investment in an improvement will have been made even thought the entire improvement is not finished,

and may not be ready for use. An engineer's or architect's certification of the percentage of completion of the
improvement will determine the amount of the investment that has occurred.
APPROVED:
Donald S. Leuenberger
State Tax Commissioner
September 4, 1987