Nebraska Tax Executives Institute

November 13, 2012

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211/13/2012

Today’s Agenda

• 2012 Tax Season

• Individual Income Tax

• 2012 Legislative Changes

• Nebraska Advantage

• 2013 Nebraska Legislature 311/13/2012

2012 Tax Season• Income tax filing statistics as of

October 26, 2012:o 927,460 individual income tax returns filedo 815,826 of these returns were e-filed (88%)

Over 100,000 more returns weree-filed in 2012 than in

2010. Nebraska is in the Top 5 in the U.S.!

411/13/2012

2012 Tax Season (continued)

• Use Tax Filing Statisticso 18,904 returns reported a use tax liability for

a total of $1,030,436 since the use tax line was added to the Form 1040N.

o An estimated $44 million in sales and use tax on remote sales goes uncollected annually: $37 million in state sales tax revenue, $7 million in local sales tax revenue.

511/13/2012

Income Tax – General Information Individual Income Tax Year 2012

Bracket Number

Married, Filing Jointly

Head of Household

Single Individuals

Tax Rate

1 $0 - 4,800 $0 - 4,500 $0 - 2,400 2.56%2 $4,800 - 35,000 $4,500 - 28,000 $2,400 - 17,500 3.57%3 $35,000 - 54,000 $28,000 - 40,000 $17,500 - 27,000 5.12%4 Over $54,000 Over $40,000 Over $27,000 6.84%

Individual Income Tax Year 2013Bracket Number

Married, Filing Jointly

Head of Household

Single Individuals

Tax Rate

1 $0 - 4,800 $0 - 4,500 $0 - 2,400 2.46%2 $4,800 - 35,000 $4,500 - 28,000 $2,400 - 17,500 3.51%3 $35,000 - 54,000 $28,000 - 40,000 $17,500 - 27,000 5.01%4 Over $54,000 Over $40,000 Over $27,000 6.84%

Individual Income Tax Year 2014Bracket Number

Married, Filing Jointly

Head of Household

Single Individuals

Tax Rate

1 $0 – 6,000 $0 – 5,600 $0 – 3,000 2.46%2 $6,000 - 36,000 $5,600 - 28,800 $3,000 - 18,000 3.51%3 $36,000 - 58,000 $28,800 - 43,000 $18,000 - 29,000 5.01%4 Over $58,000 Over $43,000 Over $29,000 6.84%

6

• Individual Income Tax Auditso Economic Substance

Form 4797N – Special Capital Gains Election Preparer responsibilities

o Focus on Nonfilers Professional licenseholders IRS data matches

o Focus on Nonresidents Schedule K-1N – S corporations Partial-year residents Filing an income tax return when residence is in a state that doesn’t have a

state income tax

Income Tax – Audit

More… 711/13/2012

• Individual Income Tax Audits (continued)

o Focus on itemized deductions Schedule A Schedule C

o Alimony Paymentso Fraudulent Returns

Income Tax - Audit (continued)

811/13/2012

• Audit and examination of Nebraska individual income taxes by the Departmento The Department has audited, examined, and made

adjustments since income tax was adopted 40 years ago.

o Nebraska income tax is based upon federal law.o Nebraska Legislature has granted broad statutory

powers and duties to the Department to:

Obtain and examine any financial records of taxpayers; Examine returns; and Determine if amounts are correct.

Income Tax - Audit (continued)

More… 911/13/2012

• Audit and Examination (continued)o Neb. Rev. Stat. § 77-375 provides that any agent of the

Department may require the production of records as may be necessary for the performance of his or her responsibilities under applicable state law. Powers exist without limitations to source or nature of

records or items on the return to which they apply.

o Neb. Rev. Stat. § 77-2783 grants the Department authority to correct mathematical errors.

o Neb. Rev. Stat. § 77-2776 provides that as soon as practical after an income tax return is filed, the Tax Commissioner will examine it to determine the correct amount of tax.

Income Tax - Audit (continued)

More… 1011/13/2012

• Audit and Examination (continued)

o If the Tax Commissioner finds that the amount of tax shown on the return is less than the correct amount, he or she will notify the taxpayer of the amount of the deficiency proposed to be assessed.

o The Department has the authority to examine any item on the federal return and adjust it so that it complies with the Internal Revenue Code, Treasury Regulations, case law, and any other authority governing federal tax law.

Income Tax - Audit (continued)

1111/13/2012

2012 Legislative ChangesSales Tax Exemptions

LB 902, Purchases by nonprofit corporations subject to a lease-purchase agreement which transfers title to a governmental unit......………........................................... April 1, 2012

LB 727, Entry fees or other amounts charged by political subdivisions or IRC § 501(c)(3) organizations to participate in sports events, sports leagues, or competitive educational activities…………………………………………………..… July 1, 2012

LB 830, Biochips for genotyping of plants, animals, or nonhuman research model organisms..…………………….…… July 1, 2012

1211/13/2012

Sales Tax ExemptionsLB 727, Admissions charged by IRC § 501(c)(3) organizations that are conducting statewide sports events, or are dedicated to youth development and healthy living ……………………………………………..……..…..

October 1, 2012LB 1080, Tangible personal property acquired and assembled for subsequent use outside the state by a person operating a data center.……………………...

January 1, 2013

Local Option Sales Tax LB 357, Local option sales tax increase………………….…….

July 19, 2012

2012 Legislative Changes (continued)

More… 1311/13/2012

• Nebraska Advantage Research and Development Tax Credito A taxpayer may claim an income tax credit or sales

tax refund for qualified research and development for 21 years.

o Previously, the credit could only be claimed for 5 years.

2012 Legislative Changes (continued)

LB 983, Operative Date: January 1,2012

1411/13/2012

• Nebraska Advantage Large Data Center Projectso A taxpayer who invests at least $200 million and

creates 30 new jobs at a data center project is eligible for a 10-year personal property tax exemption for the project, in addition to the benefits currently available for other Tier 2 projects.

o A taxpayer may also sign a single agreement for a Tier 2 large data center project and sequential Tier 5 project. Previously, a taxpayer could not sign an agreement for a sequential project.

2012 Legislative Changes (continued)

LB 1118, Operative Date: March 7, 2012 1511/13/2012

Nebraska Advantage

Since 2006: • 293 Applications• Potential News Jobs

o 19,554• Potential Investment

o $7.77 Billion

2008 2009 2010 2011 2012*0

10

20

30

40

50

60

70

Applications

*Partial Year1611/13/2012

2008 2009 2010 2011 2012*0

500

1000

1500

2000

2500

3000

Potential Jobs

2008 2009 2010 2011 2012*0

500

1000

1500

2000

2500

Potential Investment (in Millions)

* Partial Year

Nebraska Advantage (continued)

1711/13/2012

49%

18%

33%

Location of Project

Omaha MSALincoln MSAGreater Nebraska

12%22%

54%

13%

Project by Industry

Bio/ Renewable EnergyTelecomm/ Other ServicesManufacturingFinancial

Nebraska Advantage (continued)

1811/13/2012

103rd Nebraska Legislature (2013) • Convenes January 9, 2013 (90 days)

o New Speaker of the Legislature o At least 5 new committee chairs o At least 9 new senators

• FY2013/14 – FY14/15 Biennial Budgeto October 2012 Nebraska Forecasting Board

FY12/13 - $57.8 Million add’l revenue FY13/14 – FY14/15 – est. 4.5% growth

• Tax Reform1911/13/2012

Doug Ewald, Tax Commissioner301 Centennial Mall South

Lincoln, NE 68509402-471-5605

doug.ewald@nebraska.gov www.revenue.ne.gov