For Nebraska's LB 775 incentives, how are leases between members of the same unitary group treated -- do they create qualifying investment or disqualify rented-out property?

Plain-English summary

Under Nebraska's Employment and Investment Growth Act (LB 775), what counts as qualified property and investment depends on who owns and uses the property. This ruling addresses a corporate family filing as a unitary group that leases property among its own members -- and whether those internal leases create investment or disqualify property.

The core principle: for the Act, "a unitary group of corporations... there is only one taxpayer." All the member corporations "are part of the same taxpayer, and are not treated as separate taxpayers," and are treated "as if they were operated as units of a single corporation." Because they are one taxpayer, transactions between the members must be disregarded -- only transactions involving a non-member are considered to have occurred for purposes of the Act.

Two definitions drive this:

• Section 77-4103(11) -- qualified property does not include property that is rented by the taxpayer to another person.
• Section 77-4103(12) -- "taxpayer" includes any corporation that is a member of the same unitary group.

Applying it to the two leases in the ruling:

1. The office building. One member leases another member an existing building it already owned before the application date. Executing that intra-group lease after the application date does not let the building be treated as an investment. The unitary group owned the building before the application and still owns it -- there has been no additional in-state investment -- so the lease "will not count toward meeting the minimal level of investment required under the Act, nor will it produce any credits for the unitary group."

2. The shared computer. A computer owned by one member and leased to the others would normally be non-qualified property, because Section 77-4103(11) strips out property the taxpayer rents to "another person." But since the members renting the computer are part of the same unitary group -- the same taxpayer -- they are "considered the same taxpayer." The intra-group rental is disregarded, so the computer is not treated as rented to another person and is not knocked out on that basis.

The through-line: intra-group leases neither manufacture new qualifying investment out of already-owned property nor disqualify property that stays inside the single taxpayer.

What this means for you

A unitary group structuring its LB 775 project

Don't expect internal leases to change your incentive math. Leasing property you already owned to a sister company won't create new qualifying investment, and leasing property among members won't disqualify it as "rented out." The group is one taxpayer, so only deals with outsiders register under the Act.

Advisers modeling qualified property inside a corporate family

Test each asset against the group boundary. Rentals to a non-member can disqualify property under Section 77-4103(11); rentals that stay inside the unitary group are disregarded. And pre-application ownership that merely gets re-papered as an internal lease adds no investment.

Common questions

Q: Do leases between members of a unitary group count under LB 775?
A: No. The unitary group is a single taxpayer, so transactions between members are disregarded; only transactions with a non-member are considered.

Q: Can I turn a building I already owned into new investment by leasing it to a related member?
A: No. There is no additional in-state investment, so the lease does not count toward the required investment level or produce credits.

Q: Does leasing a computer to sister companies make it non-qualified property?
A: No. Although property rented to "another person" is normally non-qualified, members of the same unitary group are the same taxpayer, so the internal rental is disregarded.

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 has evolved since 1987. Confirm current law and consult a Nebraska tax professional.

Citations and references

• Nebraska Revenue Ruling 29-87-7, "Economic Development Tax Incentives -- Leases Between Members of a Unitary Group" (Nebraska Department of Revenue, issued October 28, 1987; approved by State Tax Commissioner Donald S. Leuenberger).
• Neb. Rev. Stat. § 77-4103(11) (qualified property excludes property rented to another person); § 77-4103(12) (definition of "taxpayer," including unitary-group members) (R.S.Supp., 1987).

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/rr298707_unitary_group_leases.pdf

Original ruling text

Fevenue Rulino ?9-97-7

Fconomic D
n

rou

INVE-CT¡ENT.

ment Tax lncentives--Leases Fetween ¡l,aembers of a

I'IOT EE CONSIDEP.ED A LFASE FOR DETERITII,I,lJC

Advice has been reouesteC aS to the treatment of leases between
memhers of a unitarv group_ for the purposes of the Ernployment and
lnvestment Growth Act (êct).
Section 77-Lt1C3 ( 1 1) , P..S .Supp. , 1947, provides in part that:
Cuaf iíiecl

property
shall not inclucle
b) property that is rented b), the taxpayer
qualify'ingr under the Employment and lnvestrnent
(

Growth A.ct to another person;

Section 77-4103(12), P..S.Supp., 1gel, provides in part that:

Taxpayer shall nnean ; any corporation that is a
memk'er of the same unitarv oroup

A unitary group of corporatíons, as definecl in the Nebraska corpoÉate
income tax law, l".as appliecj for an agreement under the Act. There vríll
be leases between the nembers of the unitar), group. One lease vrill .be
for office space in an existing brrilc!ing tl-.at is not currently used L'y
any member of the unitary group, and the other will be for the use of
computer facilities that will be shareC by the members of the unitary
group.

The above definition of taxFaver means that for a unitary group of
corporations there is only one taxpayer under the Act. All of the
corporations are part of the same taxpayer, and are not treated as
seParate taxpayers. - They will be treated uncler the Act a's ¡f thev were
operated as units of a single corporation.
Since all of the corporatíons are part of the sarpe taxpaver, the
transactions between the members of the rrnítary grorlF must he
disregarded. Only those tiansactions involving a person who is riot a
member of.the:unitary group 'r.,íll be ccnsidered to have occurrecl t'or the
purFcses of the ê.ct.
The execution of the lease of an ezisting building to another memher of
the unitarrr group after the date of the application will not atlow the
existing builcling to be considerèC as an investment under the êct. The
unítary qroup owned the buildinq before the date of the application ancl
continues to curn ¡t at the p resent time. There has not been any
adCitional investment by the.unitaÉy grou.p v.'ithin the state. The lease

P.evenue Ruling 29-87-7

Pace 2

will . not count toward meetinq the minímal level of investment required
under'the Act, nor witt it proãuce any crecits ior-the
group.

";ü"ry

The tease of the computer owned by one member of the unitary group to
the ' other mernbers would normally mean that the computer was not
qual.ified property. Sínce the other persons renting the.computer are
members of the same unitary group, they are considered the seme
taxpayer

A.

ED:

ald S.
berger
State Tax Connmissioner
octoaer åß

,

1

987