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Nebraska Advantage Microenterprise Tax Credit Act
Application Guide

Revised March 2013


CAUTION

An applicant is required to use E-Verify, the federal electronic verification program, to ensure that new employees are legally able to work in the United States. An application will not be accepted from a taxpayer unless the taxpayer is registered for E-Verify. Nebraska tax incentives will not be granted unless the applicant proves that it has electronically verified the work eligibility status of all newly-hired employees employed in Nebraska in a timely manner. See Revenue Ruling 29-13-3.

E-Verify is a free and simple to use web-based system that electronically verifies the employment eligibility of newly hired employees. E-Verify allows participating employers to electronically compare employee information taken from the Form I-9, Employment Eligibility Verification, against databases of the Social Security Administration and the Department of Homeland Security. For additional information, go to the U.S. Citizenship and Immigration Service's website and click the "E-Verify" button.

INTRODUCTION

The Microenterprise Act provides persons actively involved in microbusinesses a refundable individual income tax credit based on demonstrated growth of their business over two tax years. The Microenterprise Act has $2 million available for each calendar year through December 31, 2015 to provide tax credits to applicants for creating or expanding microbusinesses. The applicant earns a credit equal to 20% of the increase in new investment and new employment at the microbusiness in the year of application and the year after application. The total lifetime tax credits claimed by any single taxpayer and any related persons are limited to $10,000.

An individual may file another Nebraska Advantage Microenterprise Tax Credit Act Application (application) after the first two-year application period has ended. The individual may claim no more than the difference between the $10,000 lifetime limit and the pending amount previously requested.

ELIGIBILITY REQUIREMENTS

The Microenterprise Act requires that the following eligibility requirements be met at the time of application:

  • The individual applying must be actively engaged in the operation of a microbusiness with personal involvement on a continuous basis in the daily management and operation of the microbusiness. Any person for whom the microbusiness is considered a passive activity for federal income tax purposes is not actively engaged in the operation of the microbusiness.

  • QUALIFIED LOCATIONS - For applications filed on or after January 1, 2013, all Nebraska counties are eligible areas
    EXCEPT Cheyenne County and Washington County.

    • In Cheyenne County, Census Tract 9548 is an eligible area, but Census Tracts 9549 and 9550 are not eligible.

    • In Washington County, Census Tracts 501.01, 501.02, and 503 are eligible areas, but Census Tracts 502.01 and 502.02 are not eligible, with two exceptions:

      • In Census Tract 502.01, any area within the village of Kennard is eligible.

      • In Census Tract 502.02, any area within the city of Fort Calhoun is eligible.

  • To find the census tract for a location, go to the U.S. Census Bureau website and enter the address.

  • The microbusiness must employ five or fewer full-time equivalent Nebraska residents on the date of application. Documentation will be required showing total hours paid during the pay period including the date of application. If an application is filed between November 1, 2012 and December 31, 2012, it is deemed to be filed on January 2, 2013 and the employment documentation must be provided for the pay period including January 2, 2013.

  • FARMERS AND LIVESTOCK OPERATORS - An application will not be accepted from a person actively engaged in the operation of a farm or livestock operation with a net worth of more than $350,000, including any holdings by a spouse or dependent, based on fair market value. A microbusiness involved in the following activities is not subject to the $350,000 limitation for farm and livestock operations: processing or marketing of agricultural products raised by another party; aquaculture; agricultural tourism; or the production of fruits, herbs, tree products, vegetables, tree nuts, dried fruits, organic crops, or nursery crops.

    Farmers and livestock operators must provide a current net worth statement, including any holdings by a spouse or dependent, based on fair market value. The net worth statement must be signed and dated by the applicant AND a lawyer, banker, loan officer, financial counselor, or an accountant, who gives his/her title and states in writing that the information provided on the statement appears to be accurate. The net worth statement must reflect the value of the applicant’s holdings as of the date of application.

  • An applicant under the Microenterprise Act must use E-Verify, a federal electronic verification program, to ensure that Nebraska employees hired after the date of application are legally able to work in Nebraska. An applicant must provide proof of registration with E-Verify at the time of application.

    Prior to approval of Microenterprise Act tax incentive benefits, and during subsequent reviews of benefits claimed, the taxpayer must provide proof of employment confirmation. Examples of documents for the taxpayer to retain include, but are not limited to, the following: 

      • Case Verification Number;
      • Copies of the Case Details page which includes the Case Verification Number; and
      • The User Audit Report which provides general data on cases.

Benefits will not be granted unless the applicant can prove that it has electronically verified the work eligibility status of all newly hired employees employed in Nebraska in a timely manner. All hours worked by, and compensation paid to, any employee who is not eligible to work in Nebraska will be excluded from the calculation of any tax incentive. Please see Revenue Ruling 29-11-1 for additional information.

Establishment of an Application Date

The application date will determine the base year used for employment and investment calculations. The date of a completed application will be used to determine the priority for the authorization of the project’s expected benefits. There is a total of $2 million available for each calendar year through 2015.

Each question in Part 1 must be properly completed to establish an application date. If any of these items are omitted or are incomplete, then the application date will be determined by the date the last of these items is received.

The certified mailing receipt stamped by the United States Postal Service (USPS) or a USPS postmark will serve as the verification of the date mailed, and becomes the application date. If an application is mailed other than by certified mail, or does not have a USPS postmark, then the date received will serve as the application date. 

If more than one complete application is filed on the day in which the cumulative expected benefits for the year exceed $2 million, the remaining available funds will be prorated among the applicants on that day.

Any applications filed after November 1 will be treated as applications filed on the first business day of the following calendar year. The application must clearly indicate that it is intended to be an application for the following year and the appropriate base year must be used in table 3A.

To avoid delays in the Department’s initial review of your application, all questions in Part 1 of the application must be properly completed. 

PART 1

Questions 1A, 1B, and 1C

In question 1A, check the boxes that apply and include the required attachment. In questions 1B and 1C, the written responses must fully address each question. Your response to question 1B should explain the figures you will enter in table 3A.

Example of Company Information to provide for question 1A (e):

Example of Company Information

Questions 2 and 2A

In questions 2 and 2A, the applicant must provide information on any related person who has applied under the Microenterprise Act. The Microenterprise tax credits are subject to a lifetime limit of $10,000 for an applicant and any related persons. "Related persons" is defined in Neb. Rev. Stat. § 77-5903(6) to include:

  • Entities that would be part of the same unitary group if incorporated;
  • A person considered to be related under either Internal Revenue Code § 267(b) and (c) or § 707(b); or
  • Any individual who is a spouse, parent, son, daughter, brother, or sister of the applicant.   

Table 3A

In table 3A, the application requires an estimate of the increase in new investment and compensation. The amounts in this table must be reflected in question 1C’s written response.

If a related person (see question 2 response) has applied, the base year figures and the estimated growth of the microbusiness must be shared and reflected in table 3A's response. 

Example 1: Two equal partners apply and intend to equally share the Microenterprise Act tax credits. In the base year, the microbusiness had $10,000 in new investment. On each partner’s application, in Column A, $5,000 would be used as the base year's new investment figure. 

Example 2: The microbusiness anticipates purchases of $50,000 in new investment in Year 1. Each partner would place $25,000 in Column B reflecting their share of the microbusiness growth estimate. This same process would continue for Year 2 and for the other categories reflecting the growth of the microbusiness.

New investment means the following costs incurred by the microbusiness: depreciable asset purchases; repairs and maintenance; advertising; legal professional fees; and the cost to purchase or lease buildings or depreciable property. Legal/professional fees are fees paid to individuals required to be licensed to perform the service. Examples include certified public accountants, professional engineers, and attorneys. Expenditures related to vehicles that are required to be licensed by the Nebraska Department of Motor Vehicles cannot be used for new investment calculations. There is an increase in new investment when the costs in the current year exceeds those of the base year.
 

Net Lease Increase

The value of leased property must be calculated as shown in the table below. In table 3A, the application requires a comparison of a base year lease of buildings and/or depreciable personal property to a NEW lease of buildings and/or depreciable personal property in either Year 1 or Year 2 of your application. There is an increase in leased property if the taxpayer has a new lease and there is an increase in the annual lease payment, even if it is not the first time the property has been leased. The increased investment is equal to the change in the annual lease costs multiplied by the term of the lease, not to exceed ten years.

Please use the following Lease Calculation Worksheet and example to determine your lease increase.  Include the lease increase figure from the Lease Calculation Worksheet in either the Year 1 or Year 2 box for new investment, Columns B or D, in table 3A of the application.

LEASE CALCULATION WORKSHEET
A
B
C
D
E
F

Description of
Leased Property*

Annual Lease
Costs
(Old Lease)
Annual Lease
Costs
(New Lease)
Increase
(Col. C - Col. B)
Term of
New Lease
Net Lease
Increase
(Col. D X Col. E)
           
           
Total Net Lease Increase  
*The value for a lease with increasing annual rental payments is the average annual payments.
Example 3: My old lease for office space was an annual lease with $750/mo lease payments. My new lease for office space has a 60-month (5 year) term at $1,000/mo. Using the Lease Calculation Worksheet, my lease increase over the life of the new lease is $15,000 (see below).
LEASE CALCULATION WORKSHEET (Example 3)
A
B
C
D
E
F
Description of
Leased Property*
Annual Lease
Costs
(Old Lease)
Annual Lease
Costs
(New Lease)
Increase
(Col. C - Col. B)
Term of
New Lease
Net Lease
Increase
(Col. D X Col. E)
Office Space
$ 9,000
$12,000
$ 3,000
5 yrs
$ 15,000
 
 
 
 
 
 
Total Net Lease Increase
$ 15,000
*The value for a lease with increasing annual rental payments is the average annual payments.

Compensation and Employer Health Insurance Contribution means the increase in the total compensation subject to withholding for employees and owners, plus the employer cost for health insurance for Nebraska resident employees in the current year as compared to the base year. New employment does not include compensation paid to any employee in excess of 150% of the Nebraska average weekly wage. For applications filed for calendar year 2013, 150% of the Nebraska average weekly wage was $1,104.

Question 4

The individual applying must be actively engaged in the operation of a microbusiness with personal involvement on a continuous basis in the daily management and operation of the business. Please explain your involvement in the microbusiness, the frequency of your involvement, and your significance to the business operation.

Question 5

Question 5 requires copies of the most recent federal income tax return filed for the individual applicant and the microbusiness. At a minimum, the federal income tax returns should include copies of:

  • First four pages of the individual and business returns;
  • Consolidating schedules supporting the first four pages;
  • Affiliations Schedule, Form 851;
  • A copy of each Shareholder’s Share of Income, Credits, Deductions, etc., Schedule K-1;
  • Profit or Loss from Business, Schedule C;
  • Profit or Loss from Farming, Schedule F; and
  • Depreciation and Amortization, Form 4562.  

If the microbusiness is new in the year of application, indicate the business entity type. If the microbusiness is a flow-through entity, list the owners, their ownership percentage, and their Social Security numbers. If an existing business is purchased, the existing business's activities must be reflected in the base year figures.

Question 6

A microbusiness is a business with five or fewer full-time equivalent employees at the time of application or January 2, 2013, whichever is later.

Example 4: An applicant applies on January 2, 2013 and has a weekly payroll schedule. The payroll period, including January 2, 2013, cannot exceed 200 hours paid to employees (5 full-time equivalent employees x 40 hrs per week) in order to meet eligibility requirements for the Microenterprise Act.

  • A part-time or a seasonal employee is considered an employee for determining whether the business has five or fewer employees and their hours paid are included in the full-time equivalent calculation.
     
  • Enclose a copy of your business's most recent Nebraska Reconciliation of Income Tax Withheld, Form W-3N.
     
  • Submit a copy of the payroll register showing total hours paid to all hourly and salaried employees for the period that includes the date of application. The payroll register must be submitted within ten days of the close of the pay period.

Question 7

Question 7 requires each microbusiness to be fully licensed according to the Nebraska licensing requirements listed on the Nebraska Tax Application, Form 20. If the microbusiness is not required to be licensed for sales tax, it must be licensed for use tax. Line 13 of the Form 20 deals with use tax.

The Form 20 can be completed, signed, and submitted with your application.

Question 8

A net worth statement must be provided by any applicant involved in farming or livestock operations.

The net worth statement must include holdings of the applicant, spouse, and dependents. The statement must be based on the fair market value of assets net of any related debt. Types of assets to report on the net worth statement include, but are not limited to: land; equipment; livestock; grain; cash; investments; homes; and motor vehicles.

The net worth statement must be signed and dated by the applicant AND a lawyer, banker, loan officer, financial counselor, or an accountant, who gives his/her title and states in writing that the information provided on the statement appears to be accurate. The net worth statement must reflect the value of the applicant’s holdings as of the date of application. The net worth statement must be provided within 30 days of the date of application.

Signature

Part 1 of the application must be signed by the individual actively involved in the microbusiness or other individual authorized to sign for the applicant by a power of attorney on file with the Department. Attach a copy of a completed power of attorney.

Part 2

The Department of Revenue will confirm the total credits reserved for an applicant by completing Part 2.  A copy will be returned to the applicant.

Part 3

To claim the credits on your Nebraska Individual Income Tax Return, Form 1040N, file a completed Nebraska Incentives Credit Computation, Form 3800N. Also, complete Part 3 of this application and attach it to your tax return for the year of application and the year following application. Part 3 is calculated with the actual increased investment and compensation. You must provide a copy of the documents listed in question 6 of Part 3 to support your credit calculation. Nebraska tax incentives will not be granted unless the applicant provides a copy of the E-Verify employment confirmation page for each newly hired employee employed in Nebraska, confirming that employment is authorized.

If a related person (see question 2 response) has applied, the actual growth of the microbusiness must be shared and reflected in Part 3.

Example 5: Two equal partners apply for Microenterprise tax credits. In Year 1, the microbusiness had $50,000 in actual purchases of depreciable asset purchases. On each partner’s application, in Part 3, Table 4, Column B, $25,000 should be used as the Year 1 depreciable asset purchases figure.

This same pro rata process should be used for the other categories in Part 3 to properly reflect the actual growth of the microbusiness.

If you plan to electronically file your Nebraska Individual Income Tax Returns, all substantiating documentation listed in item 6 of Part 3 of your application may be filed as a PDF with your electronically filed return.  If your software does not support filing PDFs with your return, you can still E-File the return then attach the 3800N and all substantiating documentation to Form 8453N and mail to the address at the bottom of the Form 8453N.  Your other option would be to paper file your Nebraska Individual Income Tax Returns, Form 1040N, and attach all substantiating documentation listed in item 6 of Part 3 of your application to your return.

If you have any questions regarding the preparation of this application, please contact Julie Burcham at 402-471-5827 or by email at julie.burcham@nebraska.gov. The Microenterprise Application should be sent to:

Nebraska Department of Revenue
301 Centennial Mall South
PO Box 98944
Lincoln, NE 68509-8944


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