Nebraska Business Tax Breakdown

Businesses operating in Nebraska are subject to various taxes, such as payroll tax, sales tax, and corporate income tax. We’ll explore these different types of tax along with opportunities to reduce your liability with credits and incentives specific to the state of Nebraska.

Sales Tax

Sales tax is a crucial source of revenue for the state of Nebraska. Businesses must collect and remit sales tax on taxable goods and services sold to customers. The current state sales tax rate in Nebraska is 5.5% (.055). However, it's important to note that local sales taxes imposed by cities and counties may also apply, resulting in varying total tax rates.

Businesses must consider the location of the sale and any applicable local sales taxes to determine the correct sales tax rate for a transaction. The Nebraska Department of Revenue provides resources, such as the Sales and Use Tax Rate Finder, to assist businesses in determining the appropriate tax rates.

Payroll Tax

Payroll tax, also known as employment tax, encompasses various taxes paid by employers, employees, and self-employed individuals. In Nebraska, businesses are responsible for withholding and remitting payroll taxes on behalf of their employees. The key components of Nebraska's payroll tax system include:

Federal Income Tax Withholding

Employers must withhold federal income tax from employees' wages based on their income and withholding allowances. The IRS provides withholding tables and formulas to assist employers in calculating the correct amount of tax to withhold.

Social Security and Medicare Taxes

Employers and employees contribute to Social Security and Medicare through payroll taxes. The current Social Security tax rate is 6.2% for both employers and employees, while the Medicare tax rate is 1.45% for both parties. Additional Medicare tax may apply to high-income individuals.

State Income Tax Withholding

Nebraska employers must also withhold state income tax from employees' wages. The amount withheld depends on the employee's income level and filing status. Employers can refer to the Nebraska Department of Revenue's withholding tables and guidelines for accurate calculations.

Unemployment Taxes

Employers in Nebraska are responsible for paying state unemployment taxes (SUTA), which fund unemployment benefits for eligible workers. The amount of unemployment tax owed is based on the employer's payroll and the unemployment rate. It’s important to note that if you have employees working in different states, you must pay SUTA tax to each state an employee works in.

Business Personal Property Tax

Just like individuals, businesses in Nebraska are subject to property taxes on their real estate and business personal property. Business personal property tax applies to tangible assets used in business operations, such as machinery, equipment, furniture, and inventory. The tax rate and assessment method for business personal property may vary by county. Nebraska provides certain exemptions and incentives for business personal property tax, such as the Nebraska Advantage Act, which offers tax incentives to qualifying businesses.

Corporate Income Tax

Corporate income tax is imposed on corporations operating in Nebraska. Corporations must file an annual corporate income tax return (see below) and pay the appropriate tax based on their taxable income.

Multistate Business and Apportionment

For businesses operating in multiple states, determining the portion of income subject to Nebraska taxation can be complex. Nebraska follows a formula known as apportionment to allocate income among different states. The apportionment formula considers factors such as sales, property, and payroll to determine the portion of income attributable to Nebraska. Multistate businesses need to understand and comply with Nebraska's apportionment rules.

Nebraska follows a market-based sourcing method, meaning sales should be sourced to the state in which the services or benefits of the services are received or delivered or where the marketplace or customer is located. For example, if a chair is manufactured in Nebraska but sold at a store in South Dakota, that revenue would be assigned to South Dakota, not Nebraska.

NOL and Capital Losses

Nebraska allows businesses to carry forward net operating losses (NOLs) and capital losses to offset future taxable income. NOLs and capital losses can provide tax relief for businesses during periods of financial difficulty or when significant losses occur. To report your NOL, complete this worksheet and attach it to your Nebraska tax return.

Credits and Incentives

Nebraska offers various tax credits and incentives to encourage business growth, investment, and job creation. These incentives aim to attract new businesses, retain existing businesses, and stimulate economic development. Some notable credits and incentives include the following:

• ImagiNE Nebraska Act
• Nebraska Advantage Act
• Nebraska Research and Development Tax Credit
• Nebraska New Markets Tax Credit

How Lutz’s State and Local Tax Services Can Help

Staying on top of the different regulations in each state can be overwhelming. When you start adding complications to the mix, like state-level credits, employees in multiple states, and apportionment, it can get quite complex. Lutz’s State and Local Tax Department is one of the largest and most experienced groups of dedicated SALT professionals in the region. If you have questions, please contact us, and we would be happy to guide you through your specific tax requirements and ensure you are taking advantage of all available credits and incentives.