Defense industry tax incentive considered

The Revenue Committee heard testimony March 26 on a measure intended to encourage defense contractors to locate their highly skilled workers in Nebraska.

The committee introduced LB649 as a shell bill. Bellevue Sen. Rita Sanders brought an amendment to the bill’s hearing that would replace the original measure with a proposal to create a wage credit for companies that employ full-time workers “exclusively dedicated to supporting military defense efforts” in Nebraska.

Sanders said the proposed incentive would help support current and future national security operations at Offutt Air Force Base and other military installations around the state.

“As the military increasingly relies on states’ civilian workforce to execute critical missions,” she said, “attracting and retaining skilled talent is essential for maintaining and expanding these operations.”

To qualify for the program, which would begin in 2027, a company would have to employ at least 10 qualified workers in Nebraska during the year immediately preceding the year of application. For the rest of the 10-year performance period, a company would have to employ at least the same number as were employed in the prior year.

The employer would have to pay qualified employees wages at a rate equal to at least 150% of the statewide average hourly wage in the base year and then increase their wages by at least 2% per year after that. The proposal also would require companies to electronically verify the work eligibility status of all new qualified employees before hiring them.

Employers would apply to the state tax commissioner to receive the credit. If approved, the company would receive an annual wage credit equal to 5% of the total compensation paid to all qualified employees during the year. The credit could be used to reduce income tax withholding or payor tax liability. Total credits for all employers would be limited to $4 million per year, with a $40 million cap over 10 years.

If an employer fails to maintain the required employment or wage levels, all or a portion of the credits would be recaptured or disallowed.

Heath Mello testified in support of the proposal on behalf of the Omaha and Lincoln chambers of commerce. He said it would help Nebraska compete with Colorado, Texas, Virginia and other states that are trying to attract defense contractors and their workers, particularly those in highly technical fields such as cybersecurity.

“By incentivizing companies to recruit and retain top-tier talent here in Nebraska,” Mello said, “we’re future-proofing our economy and ensuring a stable talent pipeline to support national security.”

No one testified in opposition to the measure and the committee took no immediate action on it.