Incentives Update 08-19-20

Nebraska Legislative Update………..

  • The 106th Nebraska Legislature’s 2nd Session convened (January 8, 2020), adjourned due to COVID-19 (March 25, 2020), reconvened (July 20, 2020), and adjourned, for the year, on Thursday, August 13, 2020.   
  • The Nebraska Legislature passed the ImagiNE Nebraska/business incentive legislation.  The bill, which began as LB720, became part of a compromise bill (LB 1107), that included property tax relief, business incentives and a transformational jobs project at UNMC (NEXT – Nebraska Transformational Projects Act). The bill passed on a 41-4 vote. 
  • Governor Pete Ricketts signed into law Legislative Bill 1107 on August 17, 2020.
  • For purposes of business incentives, the Nebraska Advantage Act will sunset at 12/31/20 and ImagiNE Nebraska applications may be filed on/after 1/1/21.  Any applications filed and approved, via a ‘complete application’ date, under Nebraska Advantage, on/prior to 12/31/20, will be ‘grandfathered’ in under the NAA program.

For additional information about the legislative session, please go to the Nebraska Legislature link at http://www.nebraskalegislature.gov/.


ImagiNE Nebraska (LB 1107) – Cursory High Points

  • Fiscal cap is in place at $25M (2021 & 2022), 100M (2023 & 2024), $150 million (2025) and after Year 5, cap is equal to 3% of actual General Fund net receipts. 
  • A requirement that the Taxpayer not violate any state or federal law against discrimination.
  • Applications will be filed to the Nebraska Department of Economic Development, and compliance/audits will be completed by the Nebraska Department of Revenue.
  • Application fees, due to the State of Nebraska, have increased to $5,000, for all tier levels, and a .05 fee is assessed on benefits realized.  A credit is allowed against the .05 fee, specific to the first $5,000 (i.e. application fee). 
  • Qualified activity designations have changed, involving designated activities and/or NAICS codes. Furthermore, locations will be designated as either qualified or non-qualified locations, as a result of meeting a majority activity designation.
  • A tier designation, at application, exists, but the Applicant may move to another tier, via a State-provided form, ‘until the first December 31 following the end of the ramp-up period’.
  • Attainment period (aka ramp-up period) is 5 years, Entitlement period is 7 years, and Carryforward period is 3 years.
  • Base year (employment) for 2021 applications, will be the higher FTE computation of 2019 or 2020, whereas applications filed in 2022 or later, will utilize ‘the year immediately preceding the year of application’.
  • Qualified employees must be Nebraska residents (out-of-state employees working at the NE site no longer qualify), full-time employees (part time employees no longer qualify), offered a sufficient package of health/benefit coverage, and meet minimum wage requirements (required of the applicable tier).  Each tier has a documented minimum wage requirement at either 70% of the statewide average (rural manufacturing), 75% of the statewide average, 90% of statewide average, 100% of the statewide average, or 150% of statewide average.  Using current wages (this will change for 2021 applications), 100% of the statewide average is currently estimated/calculated at $44,824 annually/$21.55 per hour.
  • Qualified investment continues to have a project location bias and allow for assets placed in service at the project site, assets transferred into NE (and utilized at the project site) and assets leased (at the project site). 
  • Benefits may be claimed/filed ‘when’ the business reaches the required levels (at the end of the calendar year), rather than ‘post’ audit.  As a result of this change, yearly filing requirements and correlating documentation/support, required by NDR, will be expanded and scrutinized yearly, in order to ensure compliance.  The Department of Revenue has the authority to conduct audits, of any filer.   
  • Updated language on job training and talent recruitment, including additional use of credits.

Economic Development around the Country……….

Amazon.com is expanding its physical offices in six US cities, estimating that it will add 3,500 corporate jobs and 900,000 sq. ft. of office space across its hubs in New York, Phoenix, San Diego, Denver, Detroit and Dallas. 

BAE Systems, one of the world’s leading aerospace and defense technology companies, is expanding its operations in Austin, Texas, via the construction of a new 390,000 sq. ft. facility, at its campus development in Parmer Austin Business Park.  The site, which is anticipated to be completed in 2022, and valued at approximately $150M, will increase capacity by more than 1,400 employees and include business activities including, but not limited to, engineering, manufacturing, laboratory, and administrative.

Online pet retailer Chewy, Inc., is opening an eCommerce fulfillment center in Belton, Missouri, at the NorthPoint Development’s Southview Commerce Center.  The Company estimates that the new 800,000 sq. ft. facility will require approximately 1,200 employees, whom will help ship pet food and pet-related products representing over 2,000 brands.

Commercial Metals Company, a Texas-based steel and metal manufacturer, plans to construct a $300 million rebar micro mill adjacent to its current operation center and campus in Mesa, Arizona. The expansion in Mesa represents CMC’s third micro mill, since 2009, and is expected to produce an estimated nominal annual capacity of 500,000 tons, including 150,000 tons of merchant product, The Company plans to hire 185 additional employees. 

The developer of Fortnite, Unreal, and Gears of War (Epic Games) is planning to start construction, during 2020, to expand its current headquarters in Cary, NC.  The plans, which are expected to accommodate up to 2,000 employees, and include an additional 450,000- to 500,000-sq. ft. will occur at an adjacent property, next to the current property that Epic has owned since 2015.  Epic’s new facility will include a range of amenities, outdoor features, and additional parking.

Kubota continues to invest in Kansas, with its most recent decision to invest $43M and create net-new 130 full-time positions, at a Great Plains Manufacturing site in Salina, Kansas.  Through Kobata and its Subsidiaries, the Company currently employs over 1,600 people in Kansas.  

Austin also announced, during July-2020, that it will become home to a new Tesla assembly plant, which will produce the Tesla Cybertruck and Model Y (SUV).  The plant will cost in excess of $1.1B and employ 5,000 people, and vehicle production is anticipated to begin late 2021. 

Over 100 million pizzas a year.  That’s how many pizzas the Schwan’s Company will produce in Salina Kansas, after the upcoming expansion.  During August 2020, the Company made public its plans to build/expand, by 400,000 sq. ft., its current pizza manufacturing plant in Salina, KS.  The Company already employs 1,125, at the plant, and anticipates hiring an additional 225 net new full-time jobs (by 2023).

Walmart is building a new direct-import distribution center, at an estimated cost of $220M, at/near Ridgeville, South Carolina, and the Port of Charleston.  The new distribution center will support approximately 850 Walmart Stores and Sam’s Clubs in the Southeast Region. 

This newsletter is provided for information purposes only and should not be used by itself as legal, tax or business advice.

Ways to use IRS Statistics on the R&D Credit, December 2020

Subject:                 Ways to use IRS Statistics on the R&D Credit

Newsletter Date:   December, 2020


IRS Circular 230 Required Notice‐‐IRS regulations require that we inform you that to the extent this communication contains any statement regarding federal taxes, that statement was not written or intended to be used, and it cannot be used, by any person (i) for the purpose of avoiding federal tax penalties that may be imposed on that person, or (ii) to promote, market or recommend to another party any transaction or matter addressed herein.

IRS STATS TO CATEGORIZE R&D CREDIT METRICS:

When performing compliance on for the tax return, it is helpful and useful to have a reference point as to the reasonableness of certain deductions and credits.  With the R&D credit (Section 41), even more so, because it is one of the most highly visible credits to the IRS on tax returns.  One of the ways clients can determine if their R&D credit is reasonable is to use the statistics published by the IRS. 

Each year, the IRS release statistics across numerous areas of different tax returns (individual, flow-through, corporation, etc.)[1]. These can be organized by income levels, deduction types, and organized by the area of compliance.  Within this data the IRS provides statistics to corporations claiming the R&D credit. 

[1] IRS.GOV/Statistics

R&D Credit Statistics

The statistics tracked for the R&D credit only tracks C-corporation type entity information and does not include flow-through type entities (partnerships, S-corporations, etc.).  In addition, it is only current through 2014, but does breakout the base period methodology selected for the calculation.  Lastly, it does provide data as to the R&D credit attributes by industry.  The following table are the industries, as indicated on the tax returns, that are broken out in the currently available statistics. 

Table 1.1: Industries tracked for the R&D credit

Agriculture, forestry, fishing, and huntingFinance and insurance
MiningReal estate, rental, and leasing
ManufacturingProfessional, scientific, and technical services
Wholesale and retail tradeManagement of companies (holding companies)
Transportation and warehousingAdministrative and support and waste management and remediation services
InformationVarious services

In addition, since manufacturing is the largest industry claiming the R&D credit, it is further broken into subcategories to provide detailed visibility. 

Table 1.2:  Manufacturing sub-industries for the R&D credit

Food manufacturingPetroleum and coal products manufacturing
Beverage and tobacco product manufacturingChemical manufacturing
Textile mills and textile product millsPlastics and rubber products manufacturing
Apparel manufacturingNonmetallic mineral product manufacturing
Leather and allied product manufacturingPrimary metal manufacturing
Wood product manufacturingFabricated metal product manufacturing
Paper manufacturingMachinery manufacturing
Printing and related support activitiesComputer and electronic product manufacturing
Electrical equipment, appliance, and component manufacturingFurniture and related product manufacturing
Transportation equipment manufacturingMiscellaneous manufacturing

Utilizing this information

This information can be useful for clients to compare or understand how their R&D credit fits within their industry.  The R&D credit can be compared against the average credit for the industry or also the size of sales versus credit.  In addition, the statistics can provide visibility to compare the credit against other corporations using the similar base period method. 

CFO Services finds that these statistics provide a “ballpark” figure to compare against.  It is also important to remember that the IRS also use these statistics as a reference point when reviewing claims during exam.  These statistics should be used only as an informational guidepost, with the specific facts and circumstance of the company being the most important in determining the R&D credit.