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STARTING AND OPERATING A BUSINESS IN NEBRASKA Copyright © 2008, Michael D. Jenkins CHAPTER 18
CONTENTS OF THIS CHAPTER:
I. INTRODUCTION Nebraska has a fairly typical tax and legal structure under which businesses must operate, although it does have an unique form of state government, as it is the only state in the union that has a one-house (unicameral) legislature, rather than a senate and a lower house. Like most states, Nebraska imposes an income tax, a franchise (occupation) tax on corporations, a sales and use tax, various excise taxes, with property taxes imposed at the local level. The state has also adopted a limited liability company (LLC) law, and a limited liability partnership (LLP) law, so that businesses operating in Nebraska in LLC or LLP form may obtain the advantages of limited liability, without incorporating or becoming subject to corporate taxation, generally. Nebraska is a very business-friendly state, and with its exceptional environmental air and water quality, low crime rates, thriving economy, and low taxes, it is an excellent place to do business or to recruit employees. In fact, Forbes rated Nebraska seventh-best in the nation in its 2006 ranking of "The Best States for Business." At present, the state's economy is very robust, in terms of the level of unemployment and other economic measures. For example, in May, 2008, the state's unemployment rate was a very low 3.2%, up only slightly from 3.1% a year earlier. This compares very favorably to a national unemployment rate of 5.5% in May, 2008. To view the latest federal Bureau of Labor Statistics unemployment rate data for Nebraska or any other state, visit the BLS website. II. LEGAL ENTITIES -- FILING FEES AND REPORTING REQUIREMENTS (a) In General. A business that operates in Nebraska can do so as a sole proprietorship, a general or limited partnership, a corporation, or a limited liability company. In addition, like the federal tax law, the state income tax law also recognizes S corporations, for income tax purposes, and generally allows the income or losses of an S corporation to "flow through" and be taxed or deducted at the shareholder level, rather than taxing the corporation itself as an entity. Nebraska also provides for limited liability partnerships, in which no partner is liable for certain debts of the partnership, somewhat like a corporation or LLC, but with fewer legal formalities than are required for either a corporation or an LLC. Each of the above entities is discussed below, along with the basic requirements for forming such an entity and any general ongoing (non-tax) reporting requirements that are applicable to it. The tax treatment of each form of legal entity is discussed in Section IV below. (b) Sole Proprietorships. In general, sole proprietorships in Nebraska can be established with no formalities. However, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, as well. In addition, if you sell any kind of tangible personal property at retail or provide certain types of services, you may be required to obtain a sales tax license and collect sales tax, as discussed in Section IV(d). No separate tax form filing is required, generally, for a sole proprietorship, under the Nebraska income tax law. Instead, as with the Schedule C on your federal Form 1040, you simply report the net income or loss from your sole proprietorship on your state personal income tax return. See Section IV(c) for information on the Nebraska income tax and filing requirements for individuals. Doing business as a sole proprietor in Nebraska is generally much simpler than operating as any other kind of business legal entity. As a sole proprietor, if you have no employees, you are not required to pay any unemployment taxes, withhold any federal or state income tax from wages, nor obtain workers' compensation coverage for yourself. However, if your sole proprietorship operates under an assumed or fictitious business name (trade name), it will be required to register the name with the secretary of state and publish and file a notice regarding your assumed name in the county where you do business, as discussed in Section IV(g). (c) Partnerships. Nebraska's partnership laws allow creation of either a general partnership, in which all partners are liable for the debts of the business, or a limited partnership, in which only the general partners are liable for debts, while the liability of limited partners is limited to the amount they have invested, usually. State law also allows for the creation of a limited liability partnership, in which no partner has personal liability (subject to certain exceptions). As discussed in Section IV(b), it will usually be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, for any type of partnership, including general or limited partnerships, or limited liability partnerships (LLP's). Partnerships, as entities, are not subject to state income tax in Nebraska. Instead, the income or losses of the partnership, as allocated among the partners, must be reported on the personal income tax returns of the individual partners (or on the corporate tax returns of any corporate partners). Partnerships may be required to file an annual tax information return with the state, although no return is required if all partners are residents of the state and all income of the business is from Nebraska sources. For details on Nebraska partnership tax return filing requirements, see Section IV(c). A partnership agreement, for any type of partnership, should spell out in considerable detail such matters as the following:
As a rule, general partnerships in Nebraska can be formed with no formalities, although it is highly advisable to have a written partnership agreement. However, as discussed in Section IV(b), it will typically be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, as well. A general partnership may, if desired, file a Statement of Partnership Authority with the secretary of state, together with payment of a $200 fee. The Statement of Partnership Authority may list the names of the partners authorized to execute an instrument transferring real property held in the name of the partnership. It may also state the authority, or limitations on the authority, of some or all of the partners to enter into other transactions on behalf of the partnership and any other specified matters. There is is also a recording fee of $5 per page. For forms or more information on filing a Statement of Partnership Authority, see the contact information for the offices of the Nebraska Secretary of State, listed in Section VI(a). A limited partnership, in which there is at least one general partner (who is liable for partnership debts) and at least one limited partner (who is not liable for partnership debts), may also be formed under Nebraska law. Unlike a general partnership, a limited partnership must have a written partnership agreement, and must file a certificate of limited partnership with the secretary of state, together with a filing fee of $200 and $5 per page. Foreign limited partnerships must also register before being allowed to do business in Nebraska, and must pay a registration fee of $200 plus $10 for a certificate, plus $5 per page. For information on limited partnership filing requirements, see the contact information for the offices of the Nebraska Secretary of State, listed in Section VI(a). LIMITED LIABILITY PARTNERSHIPS Limited liability partnerships (LLP's) are a relatively new form of partnership permitted under the laws of Nebraska. Like an LLC, an LLP provides limited liability for its owners, while retaining the tax advantages of a partnership for federal and Nebraska state income tax purposes. However, unlike an LLC, an LLP typically operates like a regular partnership and is not required to file articles of organization. Partners in a general partnership can achieve some degree of limited liability by simply registering the partnership with the state as an LLP. To form an LLP in Nebraska, you must register with, and pay a filing fee of $200 to the secretary of state, plus $5 per page (minimum $205). Foreign LLP's, those created under the laws of another state, must register with the secretary of state and pay the same fees as a Nebraska LLP. Every LLP operating in Nebraska must also file an annual report with the secretary of state, paying a $10 fee plus $5 per page. Note that operating as an LLP may give somewhat less protection to partners in an LLP than state law grants to stockholders of a corporation, so you should not ordinarily consider an LLP as the complete equivalent of a corporation, with regard to limitation of your liability as an owner. Under Nebraska law, an LLP only protects a partner from liabilities arising from the misconduct, negligence, or other actions of another partner or employee of the LLP. Thus, LLP's are mainly utilized by professional partnerships, as Nebraska's LLP law provides somewhat less liability protection than the LLP laws in most other states. However, an LLP will provide greater liability protection than a regular general partnership in many instances, particularly in the case of professional service partnerships. Any LLP engaged in law practice must also annually submit with its Statement of Qualification a Certificate of Authority from the Nebraska Supreme Court. For more information on LLP registration and reporting requirements, see the contact information for the offices of the secretary of state, listed in Section VI(a). Note that one potential drawback of LLP's, if you will do business in other states besides Nebraska, is that you may not enjoy limited liability with regard to creditors of the LLP if you do business in some such states. Some states, like California and New York, only recognize certain types of professional partnerships as LLP's. Such other states may simply treat your LLP like an ordinary general partnership, with no limitation of liability. (d) Corporations. To form a corporation in Nebraska, you must file articles of incorporation with the Nebraska Secretary of State and pay a fee based on the par value of the corporation's capital stock. The range of fees is as follows:
In addition, the secretary of state will charge a filing fee of $5 per page. A foreign corporation (one formed under the laws of another state or a foreign country), must obtain a certificate of authority before it may legally conduct business in Nebraska, by filing an application for a certificate of authority and paying a filing fee of $130, plus $5 per page. For more information on filing articles of incorporation or applying for a certificate of authority to do business in Nebraska, see the contact information for the offices of the secretary of state, listed in Section VI(a). Once your corporation is formed or a foreign corporation is registered, it will be required to file biennial reports with the secretary of state and pay a filing fee (the Corporate Occupation Tax) based on capital stock (or assets in the state, in the case of a foreign corporation) in each even-numbered year. This tax, discussed in more detail in Section IV(c), can be as much as $23,990 for a domestic corporation or $30,000 for a foreign corporation, payable in each even-numbered year. Failure to file this report on a timely basis could result in suspension or revocation of your corporation's charter. In addition to paying federal income taxes on its income and the Corporate Occupation Tax on its capital stock or assets, a corporation that does business in Nebraska must also file annual corporate income tax returns with the state Department of Revenue. See Section IV(c) for a discussion of state corporate income tax rates and tax return filing requirements. For tax forms and more information on corporate income taxes in Nebraska, see the contact information for the offices of the Department of Revenue, listed in Section VI(a). (e) S Corporations. An S corporation is simply a regular corporation that has elected, for federal or state income tax purposes, or for both, to be taxed somewhat like a partnership, with its income, losses and tax credits flowing through to its owners, who report such income, losses, or credits on their individual tax returns. Nebraska recognizes S corporations for income tax purposes, and treats them in a manner similar to the federal tax treatment. Out-of-state shareholders must sign an agreement to file Nebraska income tax returns or else the S corporation will be required to withhold tax on their share of Nebraska-source income at the highest Nebraska tax rate. While S corporations are generally not taxed on their income by Nebraska, they are fully subject to the Corporate Occupation Tax (franchise tax) on capital. (f) Limited Liability Companies. Nebraska, like every other state in the U.S., has adopted a limited liability company (LLC) law. Thus, in addition to the traditional choices of a sole proprietorship, partnership, or corporation, a business that operates in Nebraska may also choose to do so in the form of an LLC. In most states, including Nebraska, LLC's are very attractive entities for many small businesses, in that they offer the same protection as a corporation from creditors for debts of the business, while offering much of the flexibility plus the flow-through tax treatment of a partnership for federal and state income tax purposes. See Section IV(c) for a discussion of the income tax treatment of LLC's under Nebraska tax laws. To form an LLC under the laws of Nebraska, one or more persons must file articles of organization with the secretary of state, which must be accompanied by filing fees of $100 plus $10 for a certificate, and a recording fee of $5 per page. Nebraska state law allows formation of one-owner LLC's, which now qualify for treatment as sole proprietorships for federal and state tax purposes. Foreign LLC's, those formed under the laws of another state, must obtain a certificate of authority to do business in Nebraska, by filing an application for a certificate of authority with the secretary of state and paying a filing fee that is the same as for a domestic LLC plus a $10 fee for a certificate. Both domestic and foreign LLC's are now required to file biennial reports every other year with the Nebraska Secretary of State in odd-numbered years, between January 1 and April 1. For more information on filing articles of organization for an LLC, see the contact information for the offices of the secretary of state, listed in Section VI(a). (a) In General. When acquiring an existing business, there are a number of state legal and tax issues you or, preferably, your business attorney, should attend to before closing the purchase. These include matters such as doing a title search for any real property that is being acquired, checking for any recorded security interests on personal property items, and thoroughly researching county, state, and federal records for any judgment liens, tax liens, or other liens, before property is acquired. You will also benefit from consulting a tax advisor before the agreement of sale is negotiated, in order to seek a structuring of the agreement so that the purchase price is allocated among the assets in a way that favors you. You may be able to obtain considerable tax savings if the purchase price is allocated in a way that gives you the best possible tax results under federal and state income tax laws, and other state tax laws, such as sales/use tax or property tax laws. Depending upon the state (or states) in which the seller's assets are located, you may also have to comply with state bulk sale or bulk transfer laws. You should also obtain tax releases from various state taxing agencies, as discussed below. (b) Bulk Sale Laws. Typical bulk sale laws require either publication of legal notices to all creditors in advance of the sale and recording of such notices in some cases, or maintenance of detailed lists of the property to be transferred, for inspection by the public. Nebraska is one of the many states that has repealed its bulk sale laws, so you no longer have to be concerned with this requirement when buying a business in Nebraska. (c) Tax Releases. When you acquire an existing business, you will want to make sure that you do not unwittingly become liable for any unpaid taxes owed by the seller. Typically, to protect yourself, you will need to receive a tax release or releases from various state taxing agencies, for such taxes as sales and use tax, income tax withholding, and state unemployment taxes, in each state in which the seller does business. If you fail to obtain such a release or written statement from the tax agency that the seller is not delinquent on any tax payments, you will be held responsible for such tax if it is not withheld from the purchase price proceeds and paid to the state at the time the sale of the business occurs. In Nebraska, you should obtain tax releases for unemployment taxes from Nebraska Workforce Development, Nebraska Department of Labor, and for sales and use taxes (a tax clearance certificate) and other state taxes, including withheld income taxes, from the Nebraska Department of Revenue. Within 60 days after a purchaser requests a tax clearance certificate (or, if later, 60 days after the seller makes its records available for audit by the Department of Revenue), the Department of Revenue must issue the purchaser a certificate indicating that no sales tax is due, or how much sales tax is to be withheld. If it fails to issue the certificate within that time span, the purchaser may go ahead with closing the transaction and will not be required to withhold any sales tax from the sales price. (d) Unemployment Tax Rating of Seller. In addition to obtaining tax releases, you may find it advantageous to succeed to the seller's unemployment tax experience rating, if the seller has a tax rate lower than you would otherwise obtain as a new business. A transfer of experience rating is generally possible where an entire business is purchased, and a partial transfer of a business may also qualify. To obtain the seller's favorable experience rating as a successor employer, you will need to apply on a timely basis to Nebraska Workforce Development, Nebraska Department of Labor, requesting that you be treated as a successor employer. The seller should complete Form UI 37, Employer's Report on Change of Ownership, designating you as successor, if applicable. Note that a transfer of experience rating is mandatory, if both the acquired and acquiring businesses are under common management or control, or have common ownership. Also, the Nebraska Department of Labor can deny a transfer of experience rating if it finds that an acquisition was made for the main purpose of obtaining the seller's lower unemployment tax rate. PLANNING POINT: EXAMPLE: IV. NEBRASKA TAXES AND OTHER GENERAL REQUIREMENTS (a) In General. Nebraska has generally low tax rates and a progressive, business-friendly tax system. There is no property tax on intangibles and business inventories are also exempted from property taxation. The application of the state income and franchise (Corporate Occupation Tax) taxes to the various types of business legal entities is discussed in Section IV(c), sales and use taxes in Section IV(d), and property taxes in Section IV(e). While pass-through entities, such as partnerships, LLC's, and S corporations, are not taxable on their income, any such entity that has nonresident individual shareholders must withhold Nebraska income tax at the highest marginal tax rate on Nebraska-source income that is allocable to the nonresident, unless the nonresident has executed an agreement (on Form 12N) to file Nebraska tax returns. If tax is withheld and the nonresident chooses to file a Nebraska income tax return, the withheld tax is treated as a prepayment of estimated tax, and may in some cases be partly refundable to the nonresident if an overpayment has resulted. For state tax forms and tax information, see the contact information for the Nebraska Department of Revenue in Section VI(a). (b) State and Local Licensing. Nearly any business, operated anywhere in the United States, will have to have at least one government license of some kind. In most cases, this will be a local license, issued by your city or county. Before you open your business, contact your local city or county hall and find out if your particular business needs one or more local licenses. Most kinds of local business licenses are granted upon payment of a fee, with no further requirements, except possibly for annual or other periodic renewal fees. However, if you are engaging in any kind of food business, you will usually need to also obtain a health department permit and show that you are in compliance with health department food-handling requirements. In addition, be sure to check with an attorney or local government zoning or planning department officials to determine if your business will be in compliance with all local zoning and planning restrictions. If you own or rent any type of facility, you will generally need fire department permits, showing that you meet fire safety codes and any construction or improvements to an existing structure will usually require a building permit. If you intend to simply operate your business from your home, you may be in violation of local zoning requirements, but this is less likely to be a concern if you don't have clients, customers, suppliers, or employees coming to your house on business, on a regular basis. State governments have traditionally required special licenses for many kinds of professionals, such as physicians, dentists, lawyers, and accountants. To further protect consumers, Nebraska has expanded the list of occupations that must be licensed by the state to include many other occupations. Most state licenses not only require payment of fees, but are only issued for a given profession or occupation upon showing that you have completed certain educational or experience requirements, or passed certain tests, or some combination of the foregoing. Most businesses that operate in Nebraska will need to register with the Department of Revenue on Form 20, which is a combined registration for sales and use tax, lodgings tax, corporate taxes, employee income tax withholding, and various other state taxes, such as tobacco and cigarette taxes. Contact the Department of Revenue at the address listed for that taxing agency in Section VI(a). Businesses with employees will usually need to also separately register for state unemployment tax with Nebraska Workforce Development, as discussed in Section V(b). For assistance with state licensing and business registration requirements in Nebraska, see the contact information for the offices of the Nebraska Department of Economic Development, listed in Section VI(a). (c) Income and Franchise Taxes. Nebraska has both an individual income tax and a corporate income tax, as well as a franchise tax (the biennial Corporate Occupation Tax) on corporations. The application of these taxes to each of the major types of business legal entities is discussed in the following paragraphs of this subsection. While Nebraska, like nearly all other states, did not allow taxpayers to take the federal bonus depreciation or enhanced IRC Section 179 (expensing) deductions for depreciable assets for the years 2000 through 2005, in 2006 the legislature changed the law to allow the enhanced Section 179 deduction currently (the federal bonus depreciation deduction had expired after 2005) and to also take an additional deduction each year, beginning in 2006, of 20% for any bonus depreciation that had been disallowed on 2000-2002 Nebraska tax returns and 20% of any bonus depreciation or enhanced Section 179 expensing deduction that had been disallowed on Nebraska tax returns in 2003-2005. TAXATION OF SOLE PROPRIETORS AND PARTNERSHIPS The Nebraska individual income tax is imposed at a maximum tax rate of 6.84% in 2008. Individual taxpayers generally pay state income tax on their business earnings from a sole proprietorship or on their share of the earnings of a pass-through entity, such as a partnership, S corporation, or LLC. Marginal tax rates are actually somewhat higher, since taxpayers with state adjusted gross incomes of over $156,400 ($78,200 if married, filing separate) must pay an additional tax rate of as much as 0.428%, recapturing some or all of the benefits of the lower tax brackets. The Nebraska personal income tax return is Form 1040N, which must be filed with the Department of Revenue, by April 15th of the following calendar year. Almost none of the Nebraska individual income tax rules, such as tax rates, underpayment penalties, and the like, appear in the state's tax law, unlike in most other states. Instead, the individual income tax is in some cases based on the (adjusted ) federal tax liability, and the Nebraska Department of Revenue is given wide discretion and authority to determine almost all requirements. Most Nebraska income tax rules simply adopt the federal tax provisions, such as for payments of estimated taxes. Partnerships, or entities taxable as partnerships, such as LLC's, are not subject to state income taxation in Nebraska, but must generally file an information return with the Department of Revenue each year, showing each partner's share of taxable income, losses, and credits, on Form 1065N. The partnership information return is due by April 15th of the following year, in the case of a calendar year partnership. No return need be filed if all the partners are residents of Nebraska and all of the income of the partnership is derived from Nebraska sources. If a partnership has nonresident individual partners, it is required to withhold state income tax at the rate of 6.84% on that partner's share of the Nebraska-source income of the partnership, unless the nonresident has executed an agreement to file a Nebraska tax return and pay Nebraska taxes, if any are owed (Form 12N). Where tax is withheld for a nonresident partner, the partner does not have to file a Nebraska income tax return if the partnership is his or her only source of income from Nebraska, but the nonresident may, if desired, file a return and possibly obtain a refund, claiming the withheld tax as a tax prepayment against his or her tax liability. Individual taxpayers doing business as sole proprietors (or who are partners in partnerships, members of LLC's, or shareholders in S corporations), who have taxable income from the business, will generally be required to make advance payments of estimated Nebraska individual income taxes, if their net tax liability (not covered by withholding) exceeds $500 ($300 prior to 2008), on Form 1040N-ES. Estimated tax payments are due in four installments, on the same due dates as federal estimated tax payments -- the 15th day of the 4th, 6th, and 9th months of the taxable year, and on the 15th day of the first month of the following year. UPDATE NOTE: The Nebraska corporate income tax rate, on corporations other than S corporations, is 5.58% on the first $100,000 of taxable income, and 7.81% on income over $100,000 (in 2008). (In 2007, only the first $50,000 of income was taxable at the 5.58% rate.) The state corporation income tax return is Form 1120N, which must be filed with the Department of Revenue by the 15th day of the third month following the end of the taxable year, or by March 15th in the case of a corporation whose taxable year is the calendar year. Corporations are required to make estimated tax payments of their state corporate income tax in advance, if their tax liability for the year equals or exceeds $400. Estimated tax payments are due in advance in four equal installments, on the 15th day of the 4th, 6th, 9th, and 12th months of the taxable year. Penalties will be imposed for failure to make the required estimated tax payments on a timely basis. No penalty is imposed if the corporation pays in estimated tax in the current year equal to 100% of its tax for the previous year, if the previous taxable year was a full 12 months and a Nebraska tax return was filed that showed a tax liability. As under federal tax law, certain large corporations with taxable income of $1 million or more (computed without net operating loss carryovers or capital loss carrybacks) in any of the three preceding tax years may only base estimates on the prior year's tax for the first quarter installment. The current year installments may also be made based on the prior year's laws and facts, using the current year's tax rates. Nebraska recognizes S corporations for income tax purposes, and treats them in a manner similar to the federal tax treatment. Out-of-state shareholders must either sign an agreement to file Nebraska income tax returns, or else the S corporation is required to withhold tax on their share of Nebraska-source income at the highest Nebraska tax rate, as discussed in Section IV(a). S corporations must file annual tax information returns on Form 1120-SN. Nebraska imposes a state franchise tax (Corporate Occupation Tax), based on capital, that is payable to the secretary of state with each corporate biennial report (filed in even-numbered years). Domestic (Nebraska) corporations pay a filing fee based on their capital stock. The biennial fee ranges from $26 (for par value of stock of $10,000 or less) to $23,990 (par value over $100 million) for domestic corporations. The biennial fee/tax is doubled for foreign corporations, but with a maximum annual fee of $30,000. For foreign corporations, the tax is based on the value of its real and personal property employed in Nebraska, rather than its capital stock. See Section II(d) for the initial filing fees, also based on capital stock, for businesses that incorporate in Nebraska. While S corporations are generally not subject to the Nebraska corporate income tax, the Corporate Occupation Tax applies equally to all for-profit corporations, including S corporations. UPDATE NOTE: TAXATION OF LIMITED LIABILITY COMPANIES In Nebraska, a limited liability company (LLC) will be taxed in the same manner as a partnership, thus avoiding the possible double taxation of income that can occur with a corporation. Note that under IRS regulations, effective since 1997, an LLC is able to elect to be treated as a partnership if it has more than one owner, or as a sole proprietorship if it does not, for federal tax purposes. Nebraska law now recognizes the validity of a one-owner LLC and follows the federal tax treatment of LLC's. Note that it is not always entirely clear whether an LLC is a "single-member LLC" or not, where the "single owner" is a married couple who hold the entire ownership of the LLC in some form of co-tenancy, such as joint tenants with right of survivorship, tenants by the entirety, or as tenants in common. The federal Internal Revenue Service (IRS) has taken a very lenient position in Rev. Proc. 2002-69, where a couple hold the LLC interest as community property, ruling that the IRS will accept whatever choice the couple make, either to disregard the LLC as an entity (treating it as a "single-member LLC") or to treat it as a partnership between the husband and wife. However, Nebraska is not a community property state, so where the LLC is owned by a husband and wife in some form of co-tenancy, it is unclear whether the IRS treatment would be as lenient as for community property owners, since the IRS has not issued any published rulings on whether an LLC can be a disregarded entity if held in one of the various forms of co-tenancy by a married couple, rather than being held as community property. Thus, it is also unclear, where an LLC is owned by a husband and wife as co-tenants, whether Nebraska would treat the LLC as a single-member LLC or as a partnership. While LLC's are generally not taxable entities under Nebraska's tax laws, an LLC with nonresident shareholders may be required in some cases to withhold state income tax on behalf of the nonresident shareholders, as discussed in Section IV(a). (d) Sales and Use Tax. Nebraska imposes a general sales tax on retail sales of tangible personal property and certain types of services at the statewide rate of 5.5%. An additional 1% tax applies to transient lodgings, and an additional 4.5% rate applies to short-term auto rentals of up to 31 days. The auto rentals tax may be retained by the rental company (lessor), and is used to reimburse the lessor for the property taxes on the rental vehicles. If the amount of such rental tax collected exceeds the property tax paid, the lessor must pay over the difference to the county treasurer. The Nebraska sales and use tax has been expanded in recent years to apply to a number of services, as well as to sales of tangible personal property. Some of the services that are now taxable include:
UPDATE NOTE: While only one county has adopted a sales tax in Nebraska (Dakota County, 0.5%, effective since January 1, 2005), a number of cities have adopted local sales taxes, at varying tax rates. City sales tax rates are generally 0.5%, 1%, or 1.5% in some of the larger cities such as Omaha and Lincoln. County sales tax does not apply in any city that has a local sales tax in the county; thus the Dakota County sales tax applies in most parts of the county, but not in South Sioux City, which has a city sales tax. A considerable number of Nebraska cities have either adopted a local sales tax for the first time or have increased their local sales tax rate, on different dates in 2006 and 2007. Effective July 1, 2008, three cities and one county have a 0.5% sales and use tax rate; 101 cities have a 1.0% rate; and 64 cities have a 1.5% rate. Sellers are required to obtain a seller's permit and to collect and pay over the state and local sales and use taxes to the Nebraska Department of Revenue. There is no fee to register. Sales and use tax returns, Form 10, are generally required to be filed on a monthly basis, but small retailers with $18,000 to $60,000 of annual sales may file quarterly and those with less than $18,000 of annual sales may file on annual basis. There are numerous exemptions from the sales tax, the most important of which is the resale exemption. If you are a wholesaler or retailer who purchases goods that you will resell, your purchase of such goods may qualify as an exempt sale for resale. Similarly, if you sell goods to wholesalers or retailers for resale by them, your sale may also qualify as an exempt sale for resale. In any such transaction, the exemption is ordinarily available only if the purchaser gives the seller a valid resale certificate, certifying that the items are being purchased for resale, and not for use or consumption by the buyer. A shadow tax, the use tax, is also imposed at the same rate as the sales tax. It is primarily intended to tax property that is acquired from sources outside of the state, in transactions not subject to sales tax, when such property is used or consumed within Nebraska. Use tax may also apply to items purchased on an exempt basis, such as for resale, if such items end up being used or consumed, instead of being resold. Before making any taxable sales, you will need to register with the Department of Revenue on Form 20, which can also be used to register for other state taxes. Generally, there are no fees for registration, except for certain tobacco-related taxes, some of which also require the filing of a $1,000 bond. Businesses that are required to collect sales taxes may retain 2.5% of the first $3,000 of tax collected each month (a maximum of $75), which is an allowance to help the vendor defray some of its costs of compliance with the sales tax law. For more information on Nebraska sales and use tax registration and compliance, see contact information for the offices of the Nebraska Department of Revenue in Section VI(a). (e) Real and Personal Property Taxes. In Nebraska, as in every other state, any business real estate you own will be subject to real property taxes. In general, there is little that you must do, unless you wish to challenge your assessed valuation, since the assessor will bill you for each year's property taxes as they come due. All property taxes are levied by local governments, since a voter initiative passed in 1966 prohibits the state government from imposing any property taxes at the state level. UPDATE NOTE: Nebraska also imposes personal property taxes on tangible personal property -- which is any kind of tangible property other than real estate. However, certain types of business personal property, such as inventories, are exempt from personal property tax in Nebraska. Businesses must file personal property tax returns with the county assessor, based on property owned at 12:01 a.m. on January 1, by the following May 1 (or first business day in May, if later). The tax is due in two installments: The first half on May 1, and the remainder on September 1 (except in Douglas, Lancaster, and Sarpy counties, where the due dates are April 1 and August 1). While Nebraska generally taxes tangible personal property, it does not impose a property tax on intangible personal property, such as stocks, bonds, promissory notes, and other such paper assets. For more information, contact the Property Assessment Division of the Department of Revenue, at the address listed in Section VI(a). (f) Other Business Taxes. Nebraska imposes a number of excise and other taxes on businesses, some of which may affect you. These include:
(g) Trade Names. A trade name, also known as a fictitious or assumed name, is any name used in the course of business that does not include the actual legal names of all the owners of the business. Thus, if your business goes by any name other than your own real name, it is operating under a trade name. The same is true of a corporation or other entity, if it operates under a name other than its legal name. A trade name might also be one that suggests the existence of additional owners, by using such words as "company," "associates," or "group." In most states where you do business, it will be necessary to register a trade, fictitious, or assumed name, so that people who do business with you can find out who the actual owners of your business are. You may also want to register any such trade name, as a means of protecting against other companies usurping that particular trade name. In Nebraska, businesses that use a trade name must register the name with the secretary of state, and a duplicate of the trade name registration must be published in a newspaper of general circulation in the town or city where the business is located (or in the county, if not located in a town or city). Proof of publication must be filed with both the secretary of state and in the office of the county clerk of the county where the business or its principal office is located, within 30 days after registration with the secretary of state. Trade name registration with the secretary of state requires a $100 filing fee, and is good for ten years. Under legislation enacted in 2005, it is no longer necessary for the Application for Registration of Trade Name to be notarized. V. EMPLOYER REQUIREMENTS IF YOU HAVE EMPLOYEES (a) Employer Registration and Withholding. If you have any employees, you will already be withholding federal income tax and FICA taxes from their wages. Since Nebraska imposes a state income tax on the income of individuals, you will need to also withhold Nebraska income tax from the wages of your employees. Before you begin to pay wages, you must register as an employer with the Nebraska Department of Revenue, of Form 20. Employers must also register with the Nebraska Workforce Development, part of the Nebraska Department of Labor, for unemployment tax purposes, as discussed in Section V(b). For more information on Nebraska income tax withholding and registration requirements for employers, see the contact information for the offices of the Department of Revenue, listed in Section VI(a). UPDATE NOTE: (b) Unemployment and Other State Payroll Taxes. If your business employs one or more individuals in each of 20 weeks during any calendar year or if your payroll amounts to $1,500 in any calendar quarter, you, as an employer, will thereafter be required to pay state unemployment tax based on the amount of wages paid. Employers subject to the Nebraska unemployment tax are required to register with Nebraska Workforce Development, on Form UI-1, Application for an Unemployment Insurance Account Number, to obtain an employer identification number for unemployment tax purposes. New non-construction employers are required to pay tax at a rate of 1.29% in 2008 on the first $9,000 of wages paid to each employee. Legislation adopted in 2005 increased the taxable wage base from $7,000 in previous years to $8,000 in 2006 and to $9,000 in 2007 and later years and also provided for an emergency surcharge of up to 1% of taxable wages in 2006-2009 if the state's reserves for unemployment benefits fall below a specified level as of September 30th of any of those years. The legislation also lowered the general new employer tax rate from 3.5% to the lower of 2.5% or the state's average unemployment tax rate, and raised the new employer rate for construction employers to the highest rate applicable for that year (category 20). For 2008, the general new employer rate was reduced to 1.29% and the new construction employer tax rate is 5.4%. After you have had employees for two to three years, you will develop an unemployment tax experience rating. This rating is based on the number of employees you terminate who then claim unemployment benefits and the amount of such benefits paid to those former employees, under complex formulas. The state will inform you when they have assigned you an individual tax rate based on your firm's experience rating. That rate may be higher or, if you have had relatively few benefit claims charged to your account, lower than the standard new employer tax rate you initially were paying. Under the recently enacted system of setting rates for experience-rated employers, tax rate notices will be mailed to employers in December. Employers will have until January 10 to make a voluntary contribution to lower their tax rate if they so desire. Voluntary contributions are limited to the amount necessary to reduce the tax rate one category. All state unemployment taxes are imposed upon you as the employer, and, under Nebraska law, cannot be charged to your employees or withheld from their wages. For more information on your Nebraska unemployment tax obligations as an employer, see the contact information for the offices of Nebraska Workforce Development, listed in Section VI(a). (c) Workers' Compensation. Workers' compensation insurance is a state-mandated insurance requirement for most employers, in almost every state. In Nebraska, virtually all businesses with one or more employees are required by law to have workers' compensation insurance, except those able to self-insure. Note, however, that a sole proprietor, a partner in a partnership, or a member of an LLC is generally not considered an employee. Similarly, an executive officer of a corporation who owns at least 25% of the common stock of the corporation is not required to be covered for workers' compensation purposes. A sole proprietor, partner, LLC member, or 25% corporate stockholder may, however, elect to be covered under workers' compensation. Workers' compensation provides wage loss and medical benefits to employees injured on the job and it protects you, as an employer, from legal action for damages for injuries or job-related illnesses suffered by your employees. In effect, it is a "no-fault" insurance system for work-related injuries or illnesses. CAUTION: As an employer, you must notify injured employees of their benefits and post a notice in the workplace informing your employees of their workers' compensation coverage. Agricultural employers are generally not required to provide workers' compensation coverage, unless employing ten or more unrelated full-time employees on each working day for at least 13 weeks (not necessarily consecutive) during the year. Such an employer who becomes exempt due to a reduction in the number of such employees to less than ten employees must continue to provide coverage for the rest of that year and the following calendar year, and thereafter is required to post a notice in the workplace for at least 90 days after becoming exempt, notifying the remaining employees that they are no longer covered by workers' compensation insurance. Otherwise, the employer loses its exempt status. For more detailed information regarding your obligations as an employer under the Nebraska workers' compensation laws, contact your insurance carrier or see the contact information for the offices of the Workers' Compensation Court, listed in Section VI(a). (d) State Wage and Hour Laws. Some employees of certain small firms not engaged in interstate commerce are not covered by the federal minimum wage and overtime laws. However, even if few or none of your employees are covered by the federal wage-hour laws, if, for example, because your firm does less than $500,000 a year in gross sales and the employees in question are not deemed to "...engage in (interstate) commerce...," they will still generally be subject to the Nebraska wage-hour laws, which provide for a state minimum hourly wage that is the same as the federal wage. (Note that the federal minimum wage increased from $5.15 to $5.85 an hour on July 24, 2007, and the Nebraska minimum wage also increased to remain the same as the federal. Both increase again to $6.55 on July 24, 2008 and to $7.25 on July 24, 2009.) A sub-minimum or training wage of at least 75% of the federal minimum wage may be paid to a new employee that is under the age of twenty for the first 90 days of employment. Note that, as under federal wage-hour laws, certain classes of executive, administrative, and professional employees are exempted from the Nebraska wage-hour rules. The Nebraska minimum wage law applies to employers of four or more employees, not counting seasonal workers who work for not more than 20 weeks in any calendar year, generally. Besides the federal wage-hour posters that you must display in the workplace, you must also display a state wage-hour poster, which you can obtain from the Nebraska Department of Labor. In addition to wage-hour laws, most businesses are subject to federal child labor laws, which put numerous restrictions on the working hours and kinds of work in which minors under the age of 18 may engage. Your business must also be cognizant of similar state child labor laws in Nebraska. These state laws generally prohibit the employment of children under age 16 as follows:
Children under the age of 16 are not allowed to work as door-to-door solicitors, except for delivery of newspapers or shopping news to existing customers, or working for themselves in their own endeavor. (e) State Occupational Safety and Health Laws. Employers in Nebraska must comply with state and federal job safety laws designed to prevent injuries resulting from unsafe or unhealthy conditions in the workplace. The federal Occupational Safety and Health Administration (OSHA) enforces health and safety standards in Nebraska, since the state government of Nebraska, like a majority of other states, has chosen not to create a state agency to take over that responsibility. Note that while you may obtain a free safety consultation from federal OSHA experts, they must and will cite you for any violations they discover at your workplace. This is not the case with state safety inspections. If you request a safety consultation from the Division of Safety, Labor and Safety Standards, Nebraska Department of Labor, and they detect violations, they will not cite you if you promptly correct the unsafe conditions. For information on your job safety and health obligations as an employer, required posters, and possible on-site safety consultations, see the contact information for the Division of Safety, listed in Section VI(a). (f) Other Miscellaneous State Labor Laws. Other Nebraska labor laws you need to be aware of, as an employer, include the following: (1) Wage payments to terminated employees. Employers are required to designate regular paydays when wages are to be paid. Any employer who is 30 days delinquent in paying wages may be sued by the employee, who is entitled to recover attorneys' fees. When an employee's employment terminates, final wages must be paid by the next regular payday or two weeks after termination, whichever is the earlier. (2) Right-to-work laws. About half the states have enacted "right-to-work" laws, which guarantee that no person may be denied employment for refusing to join a union or for not paying union dues, thus banning either "union shop" or "agency shop" agreements, or both. In a union shop, an employee not belonging to a union may be hired but then must join the union, usually within 30 days. In an agency shop, an employee need not join the union but, to remain employed, must pay union dues. Nebraska has a right-to-work law, which is part of the state constitution. No person may be denied employment on account of membership or non-membership in a labor union. (3) State anti-discrimination laws. In addition to complying with federal anti-discrimination laws, employers must also be aware of and comply with state civil rights laws in Nebraska, and must display a poster informing employees of their rights. Nebraska's fair employment laws prohibit employment discrimination against any person based on race, color, religion, sex, disability, marital status, or national origin and apply to:
Nebraska also has its own age discrimination law, similar to the federal law, which prohibits unjust discrimination in employment against persons age 40 or older (formerly 40 to 70). The age discrimination law applies to employers of 20 (formerly 25) or more employees or any employer whose business is financed in whole or in part under the Nebraska Finance Authority Act. The changes noted above in the application of the Nebraska age discrimination law were enacted in LB 265, which was signed into law by the governor on May 31, 2007. You can obtain the state equal employment opportunity poster from the Lincoln office of the Nebraska Equal Opportunity Commission, at the address listed for that agency in Section VI(a). (4) Reporting new hires. Under the federal welfare reform laws, employers in all states are now required to report newly-hired (or rehired) employees to a designated state agency (the Nebraska State Directory of New Hires for Nebraska employers) within 20 days after the date of hire. Employers may report new hires or rehires via the Internet, as well as on paper forms or data tapes. Employers who submit reports magnetically or electronically must submit the reports in two monthly transmissions not more than sixteen days apart. For more information on how and where to file, see the contact information in Section VI(a) or the link to the online reporting site for new hires in Section VI(c). VI. STATE SOURCES OF HELP AND INFORMATION (a) Key State Agencies Contact Information. This section provides contact information for most of the major state agencies with which a typical small business may have to make contact or which may regulate the business. For information on starting or moving an existing business to Nebraska, the best place to start is to contact: Department of Economic Development You can register your business with the state for Nebraska income tax, sales and use tax, employer withholding, and various other state taxes on a single state application form, Department of Revenue Form 20. To obtain business registration forms and information on starting or relocating your business in Nebraska, contact the Department of Revenue at the address listed below for that agency. For information on doing business in the Lincoln area, contact: Lincoln Partnership for Economic Development Addresses and other contact information for other key state and federal government agencies in Nebraska, mentioned in preceding sections of this book, are listed below for your convenience. SECRETARY OF STATE. Contact the office of the secretary of state for information on:
Contact the Secretary of State, Corporate Division, at: Secretary of State TAXES. Obtain state income, sales and use tax, lodgings tax, and other miscellaneous business tax forms, instructions and information from the Nebraska Department of Revenue, which is the main tax collection agency in Nebraska. Also register with this agency as an employer, for state income tax withholding purposes, on Form 20. Nebraska Department of Revenue STATE LABOR LAWS. Contact the following agency about your obligations as an employer under various state labor laws, including:
The address of the Nebraska Department of Labor is: Nebraska Workforce Development STATE SALES TAX. Obtain your sales and use tax license or permit and information on the Nebraska sales and use tax law, from the Department of Revenue, at the address listed above for that agency. STATE UNEMPLOYMENT TAX. Contact the following state agency to determine whether you are an employer subject to payment of state unemployment taxes, and for registration as an employer and to obtain an employer account number if you are subject. Nebraska Workforce Development WORKERS' COMPENSATION INSURANCE. If you employ workers for whom you must supply workers' compensation coverage, contact the following agency for further information: Workers' Compensation Court STATE OSHA PROGRAM. For information on state occupational safety and health laws and free safety consultations in Nebraska, contact: Office of Safety NEW HIRES REPORTING. Nebraska law now requires employers to report all newly hired employees within 20 days or less to the following address (or report new hires on the Internet at the URL listed in Section VI(c)): Nebraska State Directory of New Hires STATE ANTI-DISCRIMINATION LAWS. Contact the following state agency for more detailed information on Nebraska fair employment practices laws that may apply to your business, and to obtain anti-discrimination notices you are required to post in the workplace: Nebraska Equal Opportunity Commission (b) Small Business Development Centers. A number of Small Business Development Centers (SBDCs) are located throughout Nebraska to assist you. These centers, usually located on college campuses, provide a wealth of start-up information and sponsor frequent business-oriented seminars. Contact the lead office below for information, or for the location of other SBDCs nearer to you. Nebraska SBDC (c) Internet Sites. For anyone with access to the Internet, there is a wealth of state and even local business information provided by state and local governments. All states now have a state government Web page, and most major state agencies also have sites on the Internet where you can obtain useful small business information on matters such as state taxes, financing sources, or the addresses and phone numbers (or e-mail addresses) of various state and federal agencies' offices in Nebraska. Since new sites are appearing frequently, you might also want to search for other Nebraska government Web sites by using one of the popular Internet search engines, such as Google, AskJeeves, Altavista, or Yahoo. To start your Internet search for Nebraska government information, you may want to begin with the following Internet sites: State of Nebraska Home Page: Department of Economic Development (business assistance): Nebraska listing of state agencies, with Web links: Nebraska Workers' Compensation Court: Nebraska Department of Revenue (including downloadable state tax forms): Nebraska Secretary of State's office: Nebraska Department of Labor (Workforce Development): Lincoln Partnership for Economic Development: Nebraska New Hire Reporting Directory (information on new hire reporting requirements, or submit new hire data directly on-line through this web site): (d) Financing Sources. For information and help on locating financing for your small business, contact the Nebraska Department of Economic Development, at the address listed for that state agency in Section VI(a) or else contact the nearest U.S. Small Business Administration office in Nebraska: The address of the main SBA Office in Nebraska is: U.S. Small Business Administration |
Copyright © 2008 Michael D. Jenkins
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