Defense contractor tax incentive created

Lawmakers approved a measure May 30 intended to encourage certain defense contractors to locate their highly skilled workers in Nebraska.

The Revenue Committee introduced LB649 as a shell bill. It was amended to include a proposal sponsored by Bellevue Sen. Rita Sanders that creates a wage credit for companies that employ qualifying workers “exclusively dedicated to supporting military defense efforts” in Nebraska.

To qualify, a company must 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 must employ at least the same number of workers as in the prior year.

A company is required 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 will receive a wage credit equal to 5% of the total compensation paid to all qualified employees during the year. The credit may be used to reduce income tax withholding or payor tax liability.

The incentive is available beginning July 1, 2027. Total credits are capped at $40 million over 10 years.

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

The measure requires the state Department of Revenue to submit an annual report on the program to the Legislature.

LB649 passed on a vote of 44-4.