Income tax credit for passthroughs modified, advanced

Lawmakers gave first-round approval April 12 to a bill that would change the way in which passthrough entities claim a refundable income tax credit under the Property Tax Incentive Act.

The act, passed last year, requires passthrough entities, trusts and estates to allocate the credit — which is based on school property taxes paid — in the same proportion that income is distributed to shareholders, partners, members or beneficiaries.

As introduced by Elkhorn Sen. Lou Ann Linehan, LB181 would have allowed parking facilities near convention centers to qualify for the use of a state sales tax turnback.

However, she said, the way the new tax credit is calculated has created an administrative problem that needs to be solved this year.

A Revenue Committee amendment, adopted 45-0, replaced the bill. It would allow passthrough entities, trusts and estates to distribute the credit in the current manner for taxable years beginning or deemed to begin before Jan. 1, 2021.

For taxable years beginning or deemed to begin on or after that date, the credit would be claimed at the entity level.

“It’s a technical change to ease the administrative burden,” Linehan said. “It makes no changes to the tax credit amount — it simply allows for a more simplified calculation.”

Sen. Mike Groene of North Platte supported the amendment, saying it would end an “accounting nightmare” for Nebraska tax preparers. In situations involving passthrough entities with many members, he said, it can cost more for an accountant to calculate the amount of credit due to each member than the credit is worth.

For that reason, Groene said, some accountants discouraged passthroughs from claiming the credit when filing their taxes this year. To address that issue, the amendment contains a provision that would allow those entities to claim the credit on school property taxes paid in 2020, he said.

Senators voted 45-0 to advance the bill to select file.