Did buying an existing business create new investment and employment eligible for Nebraska microenterprise tax credits?

Plain-English summary

Buying an existing business did not, by itself, create eligible new investment or new employment. Although the property and employees were new to the buyer, the business, property, and jobs already existed in the community.

The Department treated the buyer as though it had owned the business in the year before applying for the credit.

Acquisition price and employment base

The purchase price did not count as new investment.

For new-employment calculations, the prior owner's compensation and employer-paid health-insurance costs for Nebraska-resident employees entered the base year. The buyer subtracted that amount from its current-year compensation and health-insurance costs.

Growth after the acquisition

The buyer could still earn credits for purchases that independently met the definition of new investment. It could also earn credits for compensation and employer health-insurance costs exceeding the acquired business's prior-year base.

The Act described the refundable credit as 20% of qualifying new investment or employment in the microbusiness.

Common questions

Q: Did the price paid for the existing business qualify as new investment?

A: No.

Q: Did retained employees automatically count as new employment?

A: No. The prior owner's compensation and health-insurance costs were included in the base-year comparison.

Q: Could the buyer ever earn a microenterprise credit after an acquisition?

A: Yes, for later purchases meeting the new-investment criteria and employment costs above the inherited base.

Q: Why did the Department use the prior business as the base?

A: The Act aimed to create or expand microbusinesses and generate new income or jobs, not merely transfer existing property and employment to a new owner.

Citations and references

• Neb. Rev. Stat. §§ 77-5901 through 77-5908 — Nebraska Advantage Microenterprise Tax Credit Act
• Neb. Rev. Stat. § 77-5902 — purpose of the Act
• Neb. Rev. Stat. § 77-5903(4)-(5) — new employment and new investment
• Neb. Rev. Stat. § 77-5905(1)(c) — creation of new income or jobs
• Neb. Rev. Stat. § 77-5906 — refundable credit amount
• Nebraska GIL 29-17-3 — acquisition of an existing business

Source

• Landing page: https://revenue.nebraska.gov/about/legal-information/general-information-letters-gils
• Original PDF: https://revenue.nebraska.gov/sites/revenue.nebraska.gov/files/doc/legal/gil/GIL29-17-3_Acquisition_of_Micro.pdf

Original ruling text

GIL 29-17-3 Tax Incentives: Treatment of the Acquisition of an Existing Business under
the Nebraska Advantage Microenterprise Tax Credit Act
This guidance document is advisory in nature but is binding on the Nebraska Department of Revenue
(Department) until amended. A guidance document does not include internal procedural documents
that only affect the internal operations of the Department and does not impose additional requirements
or penalties on regulated parties or include confidential information or rules and regulations made in
accordance with the Administrative Procedure Act. If you believe that this guidance document imposes
additional requirements or penalties on regulated parties, you may request a review of the document.
This guidance document may change with updated information or added examples. The Department
recommends you do not print this document. Instead, sign up for the subscription service at
revenue.nebraska.gov to get updates on your topics of interest.

September 19, 2017
Dear XXXX:
You have asked whether the acquisition of an existing business may be treated as new investment and
new employment under the Nebraska Advantage Microenterprise Tax Credit Act (Act), Neb. Rev. Stat.
§§ 77-5901 through 77-5908. Because of the nature of the question asked, we are providing this General
Information Letter (GIL) in response.
GILs address general questions; provide analysis of issues; and direct taxpayers to the Nebraska
statutes, Nebraska Department of Revenue (Department) regulations, revenue rulings, or other sources
of information to help answer a question. A GIL is a statement of current Department policy, and
taxpayers may rely on the Department to follow the principles or procedures described in a GIL until it
is rescinded or superseded. You may also find current regulations, revenue rulings, information guides,
taxpayer rulings, and other GILs that may be helpful to you at revenue.nebraska.gov.
The Act provides refundable “tax credits equal to twenty percent of the taxpayer’s new investment
or employment in the microbusiness” (Neb. Rev. Stat. § 77-5906). Neb. Rev. Stat. § 77-5905(1)(c)
requires that the Department find that the investment and employment in a microbusiness “will create
new income or jobs” in order to approve tax credits under the Act. When a taxpayer purchases an
existing business, he or she acquires property that is new to the taxpayer. The taxpayer may also retain
employees who previously worked for the acquired business. However, because the business, property,
and jobs existed in the community prior to the time the taxpayer acquired the business, the investment
and employment is not new to the community. With this in mind, the question is whether investment
and employment that is not new to the community, but is new to the taxpayer, can generate tax credits
under the Act.
The stated purpose of the Act is to provide tax credits to taxpayers “for creating or expanding
microbusinesses that contribute to the state’s economy through the creation of new or improved income,
self-employment, or other new jobs” (Neb. Rev. Stat. § 77-5902). The Act defines new investment as
“the increase during the tax year over the year prior to the application in the [taxpayer’s] purchases
. . .” (Neb. Rev. Stat. § 77-5903 (5)). New employment is defined as “the amount by which the total
compensation plus the employer cost for health insurance for employees paid during the tax year to or
for employees who are Nebraska residents exceeds the total compensation paid plus the employer cost

GIL 29-17-3

September 19, 2017

Page 2 of 2

for health insurance for employees to or for employees who are Nebraska residents in the tax year prior
to application” (Neb. Rev. Stat. § 77-5903(4)).
After reviewing these statutory provisions in conjunction with the stated purpose of the Act, the
Department has determined that the acquisition of an existing business cannot, by itself, generate tax
credits under the Act. While the investment and employment of the acquired business may be new to
the taxpayer, the transaction does not create or expand a microbusiness, as contemplated by the Act.
For this reason, the acquisition of a business that existed in the year prior to the year of application will
be treated as though the taxpayer had owned the business in the year prior to the year of application for
purposes of calculating tax credits under the Act. In practice, this means that:

1. The purchase price of acquiring an existing business will not be counted as new investment; and
2. The compensation and employer cost of health insurance paid by the previous owner of the
   acquired business in the year prior to application is included in the base year, and will be
   subtracted from the compensation and employer cost of health insurance in the tax year for the
   calculation of new employment.
   A taxpayer who acquires an existing business may earn tax credits on all purchases that otherwise meet
   the criteria for new investment identified in Neb. Rev. Stat. § 77-5903(5). In addition, the taxpayer may
   earn tax credits on the compensation and employer cost of health insurance exceeding the amount paid
   to employees of the acquired business during the year prior to application.
   For the Tax Commissioner

Liz Gau, Attorney
Policy Section
Nebraska Department of Revenue