Application Guide: Nebraska Advantage Microenterprise Tax Credit Act

Revised November 19, 2007

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The application date will determine the base year used for employment and investment calculations. The application date will also determine the application’s priority for authorization of expected benefits. To file an application for the Nebraska Advantage Microenterprise Tax Credit Act, complete Part 1 of the Application and provide the required attachments.

An individual may file another Nebraska Advantage Microenterprise Tax Credit Application after the first two year application period has ended. The individual may claim no more than the difference between the $10,000 lifetime limit and the pending amount previously requested.

Establishment of an Application Date

Each item in Part 1 must be properly completed to establish an application date. If any of these items are omitted or are incomplete, then the application date will be determined by the date the last of these items is submitted.

The certified mailing receipt stamped by the United States Postal Service or a U.S. Postal Service postmark will serve as the verification of the date mailed, and thus the application date. If an application is mailed other than by certified mail or does not have a USPS postmark, then the date received will serve as the application date. 

The date of a completed Microenterprise Tax Credit Application will be used to determine the priority for the authorization of the project’s expected benefits. There is a total of $2,000,000 for each calendar year through 2010.

If more than one complete application is filed on the day in which the cumulative expected benefits for the year reach the $2,000,000 in available funds, the remaining funds available will be prorated among the applicants on that day.

If the $2,000,000 in available funds has already been authorized for a calendar year, any applications filed after November 1 will be treated as applications filed on the first business day of the following calendar year. The application shall clearly indicate that it is intended to be an application for the following year and the appropriate base year must be used for question 3A.

To avoid delays in Nebraska Department of Revenue’s initial review of your application, all questions in Part 1 of the application must be fully completed. 

PART 1

Questions 1A, B, C, and D

In questions 1A, B, C, and D, the written responses must fully address each question. Your response to question 1B should explain the figures you will enter in question 3A.

Questions 2 and 2A

In question 2 and 2A, the applicant must provide information on any related person who has applied under the Microenterprise Tax Credit Act. The Microenterprise credits are subject to a lifetime limit of $10,000 for an applicant and a related person(s).  Related persons are defined in Nebraska statute section 77-5903(6) to include:

• entities that would be part of the same unitary group if incorporated; or
• a person considered to be related under either section 267(b) and (c) or section 707(b) of the Internal Revenue Code; or
• any individual who is a spouse, parent, son, daughter, brother, or sister of the applicant.   

Question 3A

In question 3A, the application requires an estimate of the increase in annual gross income, new investment and employee compensation.   The response to this question must be reflected in question 1B’s written response.

If a related person (see question 2 response) has applied, the base year figures and the estimated growth of the microbusiness must be shared and reflected in Question 3A response. 

Example: Two equal partners apply for Microenterprise Tax Credits.  The microbusiness, in the base year, had $10,000 in New Investment.  On each partner’s Microenterprise application, in Column A, $5,000 would be used as the base year New Investment figure. 

The business anticipates purchases of $50,000 in New Investment in Year 1. Each partner would place $25,000 in Column B reflecting their share of the Microenterprise’s growth estimate.

This same process would continue for Year 2 and for the other categories reflecting the growth of the Microenterprise.

The employee compensation is taxable wages paid to resident employees.

New investment will include repairs and maintenance costs incurred by the microbusiness and the cost to purchase or lease of buildings or depreciable property, other than the expenditures related to vehicles that are required to be licensed by the Nebraska Department of Motor Vehicles.

1. There is an increase in new investment when the amount of qualifying asset purchases, new leases and repairs and maintenance costs in the current year exceeds those of the base year.

2. The value of leased property should be calculated as shown in the table below.  In question 3A, the application requires a comparison of a base year lease of buildings and/or depreciable personal property to a new lease of buildings and/or depreciable personal property.  There is an increase in leased property if the taxpayer has a new lease and there is an increase in the annual lease payment, even if it is not the first time the property has been leased.  The increased investment is equal to the change in the annual lease costs times the term of the lease, not to exceed ten years. 

Example: My old lease was an annual lease with $750/mo lease payments. My new lease has a 60-month (5 year) term at $1,000/mo lease payments. Using the Lease Calculation Worksheet, my lease increase over the life of the new lease is $15,000.

Question 4

     Question 4 requires copies of the most recent federal income tax return filed for the individual applicant and the microbusiness.   At a minimum, the returns should include copies of:

• First four pages of the individual and business returns
• Consolidating schedules supporting the first four pages,
• Affiliations Schedule (Form 851)
• A copy of each Shareholder’s Share of Income, Credits, Deductions, etc.  (Schedule K-1)
• Profit or Loss from Business, Schedule C or
• Profit or Loss from Farming, Schedule F
• Depreciation and Amortization, Form 4562  

If the microbusiness is new in the year of application, indicate the business type.  If the microbusiness is a flow through entity; list the owners, their ownership percentage and their social security number.

Question 5

A microbusiness is any business with five or fewer full-time equivalent employees. One full-time equivalent employee is equal to 40 hours paid times the number of weeks in the tax year, usually 2,080 hours (40 hours per week times 52 weeks).  A part-time or a seasonal employee is considered an employee for determining whether the business has five or fewer employees and their hours paid are included in the full-time equivalent calculation. A business may employ more than five individuals at some time during the year, as long as the calculated full-time equivalents is not greater than 5.0.  The applicant will not be eligible for the tax credit if the 5.0 full-time equivalent employee level is exceeded in any of the years covered by the application.

Enclose a copy of your business’s most recent Nebraska Reconciliation of Income Tax Withheld, Form W-3N.

 Question 6

Question 6 requires each business to be fully licensed according to the Nebraska Licensing Requirements listed on the Nebraska Tax Application, Form 20. 

The Form 20 can be completed, signed and submitted with your Microenterprise Tax Credit Application.

 Signature

Part 1 of the Microenterprise Tax Credit Act Application must be signed by the owner/taxpayer, partner, member, corporate officer or other individual authorized to sign for the applicant by a power of attorney on file with the department.  Attach a copy of a completed power of attorney.

Part 2

The Department of Revenue will confirm the total credits approved for an application by completing Part 2.  A copy will be returned to the applicant.

Part 3

To claim the credits on your Nebraska Individual Income Tax returns, Form 1040N, file a completed Nebraska Incentives Credit Computation, Form 3800N.  Also, complete Part 3 of this application and attach it to your tax return for the year of application and the year following application.   Part 3 is calculated with the actual increased investment and compensation.  You must provide a copy of the documents listed in item 6 of Part 3 to support your credit calculation.

If a related person (see question 2 response) has applied, the actual growth of the microbusiness must be shared and reflected in Part 3.

Example: Two equal partners apply for Microenterprise Tax Credits.  The microbusiness, in Year 1, had $50,000 in actual purchases of fixed asset additions.  On each partner’s Microenterprise application, in Part 3, Column B, $25,000 would be used as the Year 1 fixed asset additions figure.

This same pro rating process would be used for the other categories in Part 3 to properly reflect the actual growth of the microbusiness.

A Nebraska Individual Income Tax Return, Form 1040N, claiming Microenterprise credit cannot be filed electronically due to the additional schedules and documentation requirements.

Should you have any questions regarding the preparation of this application, please contact Bill Weekly at (402) 471-5862. The Microenterprise Tax Credit Application should be sent to the following address:

Nebraska Department of Revenue
301 Centennial Mall South
PO Box 98903
Lincoln, NE 68509-8903



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