Nebraska Tax Executives Institute November 13, 2012

1. Nebraska Tax Executives Institute November 13, 2012

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3. Today’s Agenda • 2012 Tax Season • Individual Income Tax • 2012 Legislative Changes • Nebraska Advantage • 2013 Nebraska Legislature

4. 2012 Tax Season • Income tax filing statistics as of October 26, 2012: • 927,460 individual income tax returns filed • 815,826 of these returns were e-filed (88%) • Over 100,000 more returns were • e-filed in 2012 than in 2010. • Nebraska is in the Top 5 in the U.S.!

5. 2012 Tax Season (continued) • Use Tax Filing Statistics • 18,904 returns reported a use tax liability for a total of $1,030,436 since the use tax line was added to the Form 1040N. • An estimated $44 million in sales and use tax on remote sales goes uncollected annually: • $37 million in state sales tax revenue, • $7 million in local sales tax revenue.

6. Income Tax – General Information

7. Income Tax – Audit • Individual Income Tax Audits • Economic Substance • Form 4797N – Special Capital Gains Election • Preparer responsibilities • Focus on Nonfilers • Professional licenseholders • IRS data matches • Focus on Nonresidents • Schedule K-1N – S corporations • Partial-year residents • Filing an income tax return when • residence is in a state that doesn’t have a state income tax More…

8. Income Tax - Audit (continued) • Individual Income Tax Audits (continued) • Focus on itemized deductions • Schedule A • Schedule C • Alimony Payments • Fraudulent Returns

9. Income Tax - Audit (continued) • Audit and examination of Nebraska individual income taxes by the Department • The Department has audited, examined, and made adjustments since income tax was adopted 40 years ago. • Nebraska income tax is based upon federal law. • Nebraska Legislature has granted broad statutory powers and duties to the Department to: • Obtain and examine any financial records of taxpayers; • Examine returns; and • Determine if amounts are correct. More…

10. Income Tax - Audit (continued) • Audit and Examination (continued) • Neb. Rev. Stat. § 77-375 provides that any agent of the Department may require the production of records as may be necessary for the performance of his or her responsibilities under applicable state law. • Powers exist without limitations to source or nature of records or items on the return to which they apply. • Neb. Rev. Stat. § 77-2783 grants the Department authority to correct mathematical errors. • Neb. Rev. Stat. § 77-2776 provides that as soon as practical after an income tax return is filed, the Tax Commissioner will examine it to determine the correct amount of tax. More…

11. Income Tax - Audit (continued) • Audit and Examination (continued) • If the Tax Commissioner finds that the amount of tax shown on the return is less than the correct amount, he or she will notify the taxpayer of the amount of the deficiency proposed to be assessed. • The Department has the authority to examine any item on the federal return and adjust it so that it complies with the Internal Revenue Code, Treasury Regulations, case law, and any other authority governing federal tax law.

12. 2012 Legislative Changes Sales Tax Exemptions LB 902, Purchases by nonprofit corporations subject to a lease-purchase agreement which transfers title to a governmental unit......………...........................................April 1, 2012 LB 727, Entry fees or other amounts charged by political subdivisions or IRC § 501(c)(3) organizations to participate in sports events, sports leagues, or competitive educational activities…………………………………………………..… July 1, 2012 LB 830, Biochips for genotyping of plants, animals, or nonhuman research model organisms..…………………….…… July 1, 2012

13. 2012 Legislative Changes (continued) • Sales Tax Exemptions • LB 727, Admissions charged by IRC § 501(c)(3) • organizations that are conducting statewide sports • events, or are dedicated to youth development and • healthy living ……………………………………………..……..….. October 1, 2012 • LB 1080, Tangible personal property acquired and • assembled for subsequent use outside the state • by a person operating a data center.……………………...January 1, 2013 • Local Option Sales Tax • LB 357, Local option sales tax increase………………….……. July 19, 2012 More…

14. 2012 Legislative Changes (continued) • Nebraska Advantage Research and Development Tax Credit • A taxpayer may claim an income tax credit or sales tax refund for qualified research and development for 21 years. • Previously, the credit could only be claimed for • 5 years. • LB 983,  Operative Date: January 1,2012

15. 2012 Legislative Changes (continued) • Nebraska Advantage Large Data Center Projects • A taxpayer who invests at least $200 million and creates 30 new jobs at a data center project is eligible for a 10-year personal property tax exemption for the project, in addition to the benefits currently available for other Tier 2 projects. • A taxpayer may also sign a single agreement for a Tier 2 large data center project and sequential Tier 5 project. Previously, a taxpayer could not sign an agreement for a sequential project. • LB 1118,  Operative Date: March 7, 2012

16. Nebraska Advantage Since 2006: • 293 Applications • Potential News Jobs • 19,554 • Potential Investment • $7.77 Billion *Partial Year

17. Nebraska Advantage (continued) * Partial Year

18. Nebraska Advantage (continued)

19. 103rd Nebraska Legislature (2013) • Convenes January 9, 2013 (90 days) • New Speaker of the Legislature • At least 5 new committee chairs • At least 9 new senators • FY2013/14 – FY14/15 Biennial Budget • October 2012 Nebraska Forecasting Board • FY12/13 - $57.8 Million add’l revenue • FY13/14 – FY14/15 – est. 4.5% growth • Tax Reform

20. Doug Ewald, Tax Commissioner 301 Centennial Mall South Lincoln, NE 68509 402-471-5605 doug.ewald@nebraska.gov www.revenue.ne.gov