Bill Summary – FastDemocracy

LB40                                                                                      LB40
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                                LEGISLATURE OF NEBRASKA
                             ONE HUNDRED EIGHTH LEGISLATURE
                                 FIRST SPECIAL SESSION
                         LEGISLATIVE BILL 40
       Introduced by Hughes, 24.
       Read first time July 29, 2024
       Committee: Revenue
  A BILL FOR AN ACT relating to revenue and taxation; to amend sections
       77-2734.04,       77-2734.05,     77-2734.06,      77-2734.07,      77-2734.08,
      77-2734.09, 77-2734.10, and 77-2734.15, Reissue Revised Statutes of
      Nebraska,     sections   77-2734.01     and   77-2734.02,     Revised Statutes
      Supplement, 2023, and section 77-2701, Revised Statutes Supplement,
      2023, as amended by Laws 2024, LB937, section 67, Laws 2024, LB1023,
      section 8, and Laws 2024, LB1317, section 80; to provide, change,
      and eliminate definitions;   to change provisions relating to   the
      determination, apportionment, adjustment, and reporting of taxable
       income for corporations and other unitary businesses; to harmonize
      provisions; to provide an operative date; and to repeal the original
      sections.
  Be it enacted by the people of the State of Nebraska,
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         Section 1. Section 77-2701, Revised Statutes Supplement, 2023, as
  amended by Laws 2024, LB937, section 67, Laws 2024, LB1023, section 8,
  and Laws 2024, LB1317, section 80, is amended to read:
         77-2701    Sections       77-2701     to       77-27,135.01,       77-27,222,     77-27,235,
   77-27,236, and 77-27,238 to 77-27,241, section 71 of this act, section 11
  of this act, and section 84 of this act and sections 12 to 17 of this act
  shall be known and may be cited as the Nebraska Revenue Act of 1967.
         Sec. 2. Section 77-2734.01, Revised Statutes Supplement, 2023, is
  amended to read:
         77-2734.01 (1) Residents of Nebraska who are shareholders of a small
  business corporation having an election in effect under subchapter S of
   the Internal Revenue Code or who are members of a limited liability
  company organized pursuant to the Nebraska Uniform Limited Liability
  Company Act shall include in their Nebraska taxable income, to the extent
  includable in federal gross income, their proportionate share of such
   corporation's or       limited liability company's federal income adjusted
  pursuant to this section. Income or loss from such corporation or limited
  liability company conducting a business, trade, profession, or occupation
   shall be included in the Nebraska taxable income of a shareholder or
  member who is    a resident of     this state to   the extent of   such
  shareholder's or member's proportionate share of the net income or loss
  from the conduct of   such business,       trade,   profession,     or occupation
   within this state, determined under subsection (2) of this section. A
  resident of   Nebraska shall include in   Nebraska taxable income fair
  compensation for services rendered to   such corporation or    limited
  liability company. Compensation actually paid shall be presumed to be
  fair unless it is apparent to the Tax Commissioner that such compensation
  is materially different from fair value for the services rendered or has
  been manipulated for tax avoidance purposes.
         (2) The income of any small business corporation having an election
   in effect under subchapter S of the Internal Revenue Code or limited
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  liability company organized pursuant to the Nebraska Uniform Limited
   Liability Company Act that is derived from or connected with Nebraska
   sources shall be determined in the following manner:
          (a) If the small business corporation is a member of a unitary
  group,       the small business corporation shall be   deemed to    be doing
   business within this state if any part of its income is derived from
   transactions with other members of   the unitary group doing business
  within this state, and such corporation shall apportion its income by
  using the apportionment factor determined for the entire unitary group,
   including the small business corporation, under sections 77-2734.05 to
   77-2734.15 and sections 12 to 17 of this act;
          (b) If the small business corporation or limited liability company
   is not a member of a unitary group and is subject to tax in another
   state,       it shall apportion its income under sections      77-2734.05     to
   77-2734.15 and sections 12 to 17 of this act; and
          (c) If the small business corporation or limited liability company
   is not subject to tax in another state, all of its income is derived from
   or connected with Nebraska sources.
          (3)        Nonresidents of   Nebraska who are shareholders of    such
   corporations or members of such limited liability companies shall file a
   Nebraska income tax return and shall include in Nebraska adjusted gross
   income their proportionate share of    the corporation's or    limited
   liability company's Nebraska income as determined under subsection (2) of
   this section.
          (4) The nonresident shareholder or member shall execute and forward
   to the corporation or limited liability company before the filing of the
   corporation's or limited liability company's return an agreement which
   states he or she will file a Nebraska income tax return and pay the tax
   on the income derived from or connected with sources in this state, and
   such agreement shall be     attached to    the corporation's or    limited
   liability company's Nebraska return for such taxable year.
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        (5) For taxable years beginning or deemed to begin before January 1,
   2013,      in the absence of    the nonresident shareholder's or    member's
   executed agreement being attached to the Nebraska return, the corporation
   or limited liability company shall remit with the return an amount equal
   to the highest individual income tax rate determined under section
  77-2715.02 multiplied by the nonresident shareholder's or member's share
   of the corporation's or limited liability company's income which was
   derived from or attributable to this state. For taxable years beginning
  or deemed to begin on or after January 1, 2013, in the absence of the
  nonresident shareholder's or member's executed agreement being attached
   to the Nebraska return, the corporation or limited liability company
   shall remit with the return an amount equal to the highest individual
   income tax rate determined under section 77-2715.03 multiplied by the
   nonresident shareholder's or   member's share of    the corporation's or
   limited liability company's income which was derived from or attributable
   to this state. The amount remitted shall be allowed as a credit against
   the Nebraska income tax liability of the shareholder or member.
         (6)       The Tax Commissioner may allow      a nonresident individual
   shareholder or member to not file a Nebraska income tax return if the
   nonresident individual shareholder's or member's only source of Nebraska
   income was his or her share of the small business corporation's or
   limited liability company's income which was derived from or attributable
   to sources within this state, the nonresident did not file an agreement
   to file a Nebraska income tax return, and the small business corporation
  or limited liability company has remitted the amount required by
  subsection (5) of this section on behalf of such nonresident individual
  shareholder or     member.    The amount remitted shall be     retained in
   satisfaction of the Nebraska income tax liability of the nonresident
   individual shareholder or member.
         (7) A small business corporation or limited liability company return
  shall be filed if the small business corporation or limited liability
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   company has income derived from Nebraska sources.
       (8) Notwithstanding any provision of this section to the contrary:
       (a) For tax years beginning or deemed to begin on or after January
   1, 2018, a small business corporation may annually make an irrevocable
   election to pay the taxes, interest, or penalties levied by the Nebraska
   Revenue Act of 1967 at the entity level for the taxable period covered by
   such return. For tax years beginning on or after January 1, 2023, such
   election must be made on or before the due date for filing the applicable
   income tax return, including any extensions that have been granted;
       (b) An electing small business corporation with respect to a taxable
   period shall pay an income tax equivalent to the highest individual
   income tax rate provided in section 77-2715.03 multiplied by the electing
   small business corporation's net income as apportioned or allocated to
   this state in accordance with the Nebraska Revenue Act of 1967, for such
   taxable period;
       (c) An electing small business corporation shall be treated as a
   corporation with respect to    the requirements of   section   77-2769   for
   payments of estimated tax. The requirement for payment of estimated tax
   under section 77-2769 shall not apply for tax years beginning prior to
   January 1, 2024. Payments of estimated tax made by an eligible small
   business corporation that does not make an election under this subsection
   shall be treated as income tax withholding on behalf of the shareholders;
       (d) Except as provided in subdivision (e) of this subsection, the
   shareholders of    an electing small business corporation must file   a
   Nebraska return to report their pro rata or distributive share of the
   income of the electing small business corporation in accordance with the
   Nebraska Revenue Act of 1967, as applicable. In determining the sum of
   its pro rata or distributive share and computing the tax under this
   subsection, an electing small business corporation shall add back any
   amount of Nebraska tax imposed under the Nebraska Revenue Act of 1967 and
   deducted by the electing small business corporation for federal income
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   tax purposes under section 164 of the Internal Revenue Code;
          (e) A nonresident individual who is a shareholder of an electing
   small business corporation shall not be required to file a Nebraska tax
   return for a taxable year if, for such taxable year, the only source of
   income derived from or connected with sources within this state for such
   shareholder, or for the shareholder and the shareholder's spouse if a
  joint federal income tax return is filed, is from one or more electing
   small business corporations or    electing partnerships as    defined in
  subdivision (7)(a) of section 77-2727 for such taxable year and such
  nonresident individual shareholder's tax under the Nebraska Revenue Act
  of     1967    would be     fully satisfied by    the credit allowed to   such
  shareholder under subdivision (g) of this subsection;
          (f)     If the amount calculated under subdivision        (a)     of this
   subsection results in a net operating loss, such net operating loss may
   not be carried forward to succeeding taxable years;
          (g) A refundable credit shall be available to the shareholders in an
   amount equal to their pro rata or distributive share of the Nebraska
   income tax paid by the electing small business corporation; and
          (h)(i)       For tax years beginning or    deemed to   begin on   or after
   January       1,    2018,       but prior to    January    1,    2023,      the electing small
   business corporation must make the election under this subsection on or
   after January 1, 2023, but before December 31, 2025, in the form and
   manner prescribed by the Tax Commissioner for all years for which the
   election under this subsection is made on behalf of the electing small
   business corporation. The Tax Commissioner shall establish the form and
  manner, which shall not include any changes to the past returns other
   than those that are directly related to    the election under this
   subsection.
          (ii) Notwithstanding any other provision of law, if an electing
   small business corporation files in the form and manner as specified in
   subdivision (h)(i) of this subsection, the deadline for filing a claim
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   for credit or refund prescribed in section 77-2793 shall be extended for
   affected shareholders of the electing small business corporation until
   the timeframe specified in section 77-2793 or January 31, 2026, whichever
   is later. The resulting claim of refund for tax years beginning prior to
   January 1, 2023, shall be submitted in the form and manner as prescribed
   by the Tax Commissioner. Neither the electing small business corporation
   nor its shareholders shall incur any penalties for late filing nor owe
  interest on such amounts. The Tax Commissioner shall not be required to
   pay interest on any amounts owed to the shareholders resulting from such
   refund claims.
       (iii) Notwithstanding the dates provided in subdivision (h)(i) of
   this subsection, the Tax Commissioner shall have one year from the date
   an electing small business corporation files in the form and manner as
   specified in subdivision (h)(i) of this subsection to review and make a
   written proposed deficiency determination in     accordance with section
   77-2786. Any notice of deficiency determination made as specified in this
  subdivision may be enforced at any time within six years from the date of
  the notice of deficiency determination.
      (9) For purposes of this section:
       (a) Electing small business corporation means, with respect to a
   taxable period, an eligible small business corporation having an election
   in effect under subchapter S of the Internal Revenue Code that has made
   an election pursuant to subsection (8) of this section with respect to
   such taxable period; and
       (b) Eligible small business corporation means an entity subject to
   taxation under subchapter    S    of the Internal Revenue Code and the
   regulations thereunder.
       (10) For purposes of this section, any shareholder or member of the
   corporation or limited liability company that is a grantor trust of a
  nonresident shall be disregarded and this section shall apply as though
  the nonresident grantor was the shareholder or member.
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LB40                                                                        LB40
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       Sec. 3. Section 77-2734.02, Revised Statutes Supplement, 2023, is
   amended to read:
       77-2734.02 (1) Except as provided in subsection (2) of this section,
   a tax is hereby imposed on the taxable income of every corporate taxpayer
   that is doing business in this state:
       (a) For taxable years beginning or deemed to begin before January 1,
  2013, at a rate equal to one hundred fifty and eight-tenths percent of
  the primary rate imposed on individuals under section 77-2701.01 on the
  first one hundred thousand dollars of taxable income and at the rate of
  two hundred eleven percent of such rate on all taxable income in excess
  of one hundred thousand dollars. The resultant rates shall be rounded to
  the nearest one hundredth of one percent;
      (b) For taxable years beginning or deemed to begin on or after
   January 1, 2013, and before January 1, 2022, at a rate equal to 5.58
   percent on the first one hundred thousand dollars of taxable income and
  at the rate of 7.81 percent on all taxable income in excess of one
  hundred thousand dollars;
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