NE 29-05-5 Tax Incentives 2005-12-20

For the Nebraska Advantage Act, on what date is property counted as an investment -- when placed in service, when built into real estate, or when leased?

Short answer: Investment under the Nebraska Advantage Act occurs when tangible personal property is placed in service or incorporated into improvements to real estate. Revenue Ruling 29-05-5 explains that property must be 'used at the project' before it counts as investment (Neb. Rev. Stat. § 77-5710). For tangible personal property the taxpayer owns, 'used at the project' has the same meaning as 'placed in service' under Internal Revenue Code section 167, which always happens on or after the date of delivery. For improvements to real estate the taxpayer owns, the investment date is the date the property is incorporated into the real estate -- and it counts even if the whole improvement isn't finished or ready for use, with an engineer's or architect's certification of percentage of completion determining how much investment has occurred (valued by amounts capitalized as original cost when placed in service). For property the taxpayer leases, it is 'placed in service' when control transfers to the taxpayer, whether or not lease payments are yet due.

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This page answers the general question as of 2005. Ezel answers yours, under current Nebraska tax law, with citations.

Disclaimer: This is an official Revenue Ruling of the Nebraska Department of Revenue, a guidance document stating the Department's interpretation of how Nebraska tax law applies. Each Nebraska guidance document carries the notice that it 'is advisory in nature but is binding on the Nebraska Department of Revenue until amended.' Unlike a private letter ruling, a Revenue Ruling is a general statement of Department policy rather than advice to a single taxpayer, but it can be amended, superseded, or made obsolete by a later ruling or a change in statute or regulation, many rulings in this series have been rescinded or superseded, so confirm it is still in effect before relying on it. Nebraska's local option sales and use taxes are administered by the Department, not self-collected by home-rule cities. This summary is informational only and is not legal or tax advice. Consult a licensed Nebraska tax professional about your situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

Under the Nebraska Advantage Act, a business's benefits depend on how much it invests in qualified property at its project — and when the investment counts can matter for meeting required levels and computing the investment credit. This ruling pins down the timing for three kinds of property.

The gating rule: property must be "used at the project" before it counts as investment (Neb. Rev. Stat. § 77-5710).

1. Tangible personal property you own — "placed in service." For owned equipment, "used at the project" means the same thing as "placed in service" under Internal Revenue Code section 167 (the depreciation standard). Placed in service always occurs on or after the date of delivery.

2. Improvements to real estate you own — date incorporated. For owned real-estate improvements, the investment date is the date the property is incorporated into the real estate. Importantly, the investment counts even though the entire improvement is not finished and may not yet be usable. An engineer's or architect's certification of the percentage of completion determines the portion of investment that has occurred, and the amount is the value capitalized as original cost when the improvement is actually placed in service.

3. Leased property — when control transfers. For property the taxpayer leases, it is "placed in service" when control of the property is transferred to the taxpayer, whether or not lease payments are yet due for that period.

What this means for you

Businesses timing their qualified investment

Match the investment date to the property type: delivery-then-service for owned equipment (IRC §167), incorporation-into-real-estate for construction (which lets in-progress work count via a certified completion percentage), and transfer-of-control for leased assets. This determines which tax year the investment lands in for meeting your required levels.

Businesses with construction in progress at year-end

You don't have to wait for a building or improvement to be finished. Get an engineer's or architect's certification of percentage of completion; the corresponding portion of original cost counts as investment as it's incorporated into the real estate.

Common questions

Q: When is owned equipment counted as investment?
A: When it is placed in service, using the IRC section 167 meaning — always on or after the date of delivery.

Q: Does an unfinished building improvement count?
A: Yes. The investment occurs as the property is incorporated into the real estate, even before completion; an engineer's or architect's percentage-of-completion certification sets the amount.

Q: When does leased property count?
A: When control of the property is transferred to the taxpayer, whether or not lease payments are yet due.

Citations and references

Neb. Rev. Stat. § 77-5710 -- "investment" means the value of qualified property incorporated into or used at the project.
Internal Revenue Code § 167 -- supplies the "placed in service" meaning adopted for owned tangible personal property.

Source

Original ruling text

Revenue Ruling 29-05-5
Economic Development Tax Incentives
December 20, 2005
Economic Development Tax Incentives -- Time of Investment. INVESTMENT HAS OCCURRED
WHEN TANGIBLE PERSONAL PROPERTY HAS BEEN INCORPORATED INTO
IMPROVEMENTS TO REAL ESTATE OR PLACED INTO SERVICE.
Advice has been requested as to the date tangible personal property will be considered as an
investment for purposes of the Advantage Nebraska Act.
Section 77-5710, R.S.Supp. 2005, provides in part that:
Investment shall mean the value of qualified property incorporated into or used at the project.
...
Tangible personal property must be “used at the project” before it will be considered an investment.
For tangible personal property owned by the taxpayer, this term has the same meaning as “placed in
service” in section 167 of the Internal Revenue Code for depreciation purposes. Placed in service
will always occur on or after the date of delivery.
For improvements to real estate that are owned by the taxpayer, the date of the investment will be
the date the property is incorporated into the real estate. The investment in an improvement will
have occurred even though the entire improvement is not finished, and may not be ready for use.
An engineer’s or architect’s certification of the percentage of completion of the improvement will
determine the portion of the investment that has occurred. The amount of the investment will be
determined by the amounts capitalized as original cost when the improvement to real property is
actually placed in service.
For property leased by the taxpayer, the property will be “placed in service” when control of the
property is transferred to the taxpayer, whether or not lease payments are due for the period during
which control is transferred.
APPROVED:

Mary Jane Egr
State Tax Commissioner
December 20, 2005

Nebraska Department of Revenue, PO Box 94818, Lincoln, Nebraska 68509-4818

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