Defense contractor tax incentive clears first round

A measure intended to encourage certain defense contractors to locate their highly skilled workers in Nebraska advanced from general file April 16.

The Revenue Committee introduced LB649 as a shell bill. A committee amendment, adopted 34-0, replaced 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. The incentive would be available beginning July 1, 2027.

Bellevue Sen. Rita Sanders, the proposal’s sponsor, said the incentive would benefit Nebraska’s economy by helping to attract highly skilled and educated civilian workers to support operations at Offutt Air Force Base.

To qualify, a company would have to employ at least 10 qualified workers in Nebraska during the year immediately before the year of application. For the rest of the 10-year performance period, a company would have to employ at least the same number of workers as in the prior year.

A company would have to pay wages at a rate equal to at least 150% of the statewide average hourly wage in the base year and then increase wages by at least 2% per year after that.

If its application is approved by the state tax commissioner, a company would receive a 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. The benefit would be in addition to any that the company may qualify for under the ImagiNE Nebraska Act or may have qualified for under other state tax incentive programs.

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

The proposal would require the state Department of Revenue to submit an annual report on the program to the Legislature.

Sen. R. Brad von Gillern of Elkhorn supported the measure. He said the proposed wage credit is a “rifle shot” aimed at convincing certain companies in the Washington, D.C., area to move to Bellevue and Sarpy County.

He said those companies are seeking to relocate to a state where it is more economical to do business and their employees have a lower cost of living.

“Every state in the nation is competing for these people,” von Gillern said. “Let’s roll out the welcome mat and do what we need to get them here.”

Lincoln Sen. Danielle Conrad questioned whether the incentive is needed when Nebraska is lowering its corporate income tax rate and has other attributes, such as high quality of life and good public schools, that make it attractive to new companies.

Sen. Machaela Cavanaugh of Omaha opposed LB649 as amended. Although the measure would not affect the current biennial budget deficit, she said, the state cannot afford to forgo revenue in future years.

“I’m sure it’s a great project,” Cavanaugh said. “We don’t have the money.”

Senators voted 36-2 to advance the bill to select file.