Nebraska Tax Incentives in Political Ads

Governor Pillen is accusing Candidate Walz of supporting giving data centers millions of tax dollars in handouts. The ad references LB 1107 from 2020. LB 1107, also called the ImagiNE Act, was the major statute authorizing Nebraska tax incentives after the previous statute expired.

There are several tax incentives programs in Nebraska. The largest are the Nebraska Advantage Act (NAA) and ImagiNE (a relatively new program). There are a also smaller programs like Microenterprise (for businesses with five or fewer full-time equivalent employees) and Nebraska Historic Tax Credits (NHTC),for rehabilitating and renovating buildings on the National Register of Historic Places, but the bulk of tax incentives go to companies participating in NAA and ImagiNE. Before I retired from the Department of Revenue in 2025 I worked with tax incentives. From 2016-2022 I was an initial reviewer on NAA tax refund claims as well as doing preliminary audit work for new applicants. From 2023-2025 I also reviewed the work of the initial examiners and approved claims for payment. I had little to with ImagiNE, since claims were just starting to come in a few months before I retired, but I was familiar with the basics of the program. 

The goal of NAA is to reward companies who do two things: (1) Increase employment compensation in Nebraska and (2) Increase investment in Nebraska. There are multiple tiers within the program — each tier has a different benchmark for how much additional employment (measured by total compensation) and investment is required. For example, Tier 1 projects require $1 million in additional investment and 10 additional Full Time Equivalents (FTE's); Tier 2 requires $3 million in additional investment and 30 additional FTE's. The requirements increase with each tier. There are sub-tiers for large data centers and a tier for investment only. 

The year that a company applies is called "the base year". The applicant must show increases in compensation and investment compared to the base year. In order to determine what is an the increase a "qualification audit" is done to determine what the increase in compensation and investment actually is. A preliminary review of the applicant's calculations is done by an examiner. The applicant provides a list of employees and investment in the base year as well as the years that they believe they have met the requirements of the tier in which they are applying. The examiner is basically checking the math. If it adds up, an auditor takes over and examines the applicant's books to determine whether they have met the requirements for an incentive project. Once the auditor approves the project, the applicant can now begin earning credits.

For most tiers, the entitlement period (the number of years in which the project owner can earn and use tax credits) is seven years. The amount of the tax credits available for use is calculated using a standard formula. The incentives company can then use the tax credits earned to receive a tax refund. The refund is most commonly used for a refund of sales and use taxes, but also can be used to refund payroll taxes or corporate income taxes. For sales and use taxes, the refund can only be for tax paid at the location listed in their incentives application (for example sales tax paid for a corporate retreat at a hotel, or tax paid at an out-of-state location are not eligible). Once the seven-year entitlement period ends the incentives company no longer earns credits, but there is a "carryover period" of varying length when they can continue to use credits. 

The incentives company is required to meet the benchmarks for their tier every year within the entitlement period. If they do not meet the requirements in any of the seven years they will be charged back 1/7 of the refunds previously received; future refund claims will be reduced by 1/7 for each year the benchmarks are not achieved. 

For example: Company XYZ has an incentive project with an entitlement period of 2012-2018. They have a carryover period from 2019-2023. This means that they are earning credits from 2012-2018. They can use the credits if the tax was accrued any time from 2012-2023, even if they submit their claim after December 31, 2023. (There is a three-year statute of limitations for filing sales tax refunds, unless a request for extension is filed — these extensions are routinely granted)

A common criticism of tax incentives is that we're simply giving away money. I personally worked many claims for several million dollars each in sales tax refunds. The Tyson plant in Lexington received close to $16 million in benefits over the life of their project. (this is publicly available information). The goal, however, is to attract businesses to the state, and to encourage businesses already here to expand their operations. In many cases, if we didn't have a generous incentive program, these corporations would locate elsewhere. The tax refunds are viewed as taxes that the state wouldn't have collected anyway if there had been no incentive program. Of course it's not perfect. It's no secret that companies which benefitted from years of huge tax refunds left the state after their ability to claim refunds ended. (Tyson again) A certain amount of gaming the system occurred as well. Since credits were calculated based on an increase in compensation and investment from a base year, sometimes the base year that was chosen was an unusually slow year where the "increase" was just a return to normal. 

When the Nebraska Advantage Act expired there was no doubt that something was going to take its place. At the time the Unicameral was debating what would go into the bill, the public resistance to large data centers had not yet surfaced. The Nebraska Advantage Act had a tier for large data centers, and there were already several that were receiving credits. Millions of dollars in credits. The new incentives bill, LB 1107, would continue the ability of large data centers to receive tax refunds as part of incentives programs. Unlike the culture war issues that so often distract our elected officials, this was a largely bipartisan bill. It passed with 41 votes and with Governor Ricketts' signature. Then Senator Lynne Walz was one of the "yes" votes. *

While it's true that Lynne Walz supported a bill that could result in millions of dollars in tax dollars to be refunded to large data centers, this was merely a continuation of the status quo. It had broad support. It's reasonable to assume that had Pillen been governor at the time, and not Ricketts, he would have signed the bill as well. Pillen is attempting to project current outrage against data centers six years into the past, when such outrage had not reached a boiling point. His ad his dishonest. No surprise there.

* One of the biggest changes in 2020 LB 1107 was that it was jointly administered by the Department of Revenue (DOR) and the Department of Economic Development (DED) instead of wholly by DOR as with previous incentives programs. This change meant that initial approval of a company to participate in an incentives program bypassed DOR's rigorous preliminary audit process. Applicants were able to begin receiving benefits before an initial full audit was completed.