Avoiding State Tax Defense Pitfalls
To optimize results in a State Tax audit, refund claim or appeal, certain specific steps need to be carefully taken before, during and after the tax audit or claim. Based on recent developments and our experience, below are some of the tax procedure pitfalls in Nebraska for companies and their advisors to be aware of and avoid.
1. Income / Sales
The protest to a Nebraska tax audit assessment must be filed within 60 days and include certain required statements addressing the defenses.
Taxpayers cannot appeal a Nebraska income tax audit by paying the tax and filing a refund claim.
The protest petition is actually the initial legal pleading. It should properly express the facts and legal grounds, to best enable settlement and offer the best result if the case goes to Court.
Audit appeal representation of a company by non-lawyers (including company employees) is limited by Department regulations.
Depending on the nature of the property tax appeal, the appeal may be proper to the state District Court, the County Board of Equalization, or the Tax Equalization and Review Commission.
Extension Signed Before Expiration:
The Department cannot resurrect an expired statute of limitations. An extension must be executed before the expiration.
Ongoing renewal of extensions must be considered even during pendency of the tax appeal or claim.
4. Sales Tax
Sales and use tax refund claims must request a hearing and detail the nature and legal specifics of the claim. Failure to do so may result in the loss of the ability to establish certain legal grounds and to have an administrative hearing to make a full and fair factual record.
5. Administrative Hearings
An administrative hearing with the Department’s Hearing Officer must be timely requested. The hearing essentially functions as a trial court.
The precise legal issue needs to be clearly stated.
Failure To Hold Hearing:
Failure to hold a hearing will result in loss of ability to make a full fact record of the necessary facts.
Rules Of Evidence:
The taxpayer or Department can elect to follow the formal rules of evidence – an option that must be carefully weighed.
Appeals are based on the factual record developed at the hearing.
Adjustment After Audit:
Changing business practices to reduce tax exposure for later years should be structured so as not to constitute an admission of liability in the pending assessment.
Resolving Nebraska Advantage Incentives Issues
Business moves and expansions are often eligible for significant tax and nontax incentives by most states and communities. These normally need to be pre-planned for, properly applied for and negotiated in advance of the move or expansion. The Nebraska Advantage Act incentive program (addressed below) contains several issues that need to be carefully addressed, before the Application is filed, to optimize its benefits.
The company needs to meet the eligible entity requirements.
The project must be for one or more “qualified business” activities.
Project Activities Description:
This needs to be carefully addressed to achieve eligibility.
The company needs to commit to reaching a level of new employment and investment by selecting a tier of benefits. This decision will impact the company’s maximum incentives and future options.
The scope of the project needs to be determined up front to optimize results.
For separate locations to qualify as one project, specific interdependence factors must exist.
3. Contract with
The State will issue a binding incentive agreement to the company. This agreement legally incorporates into the contract all of the wording in the application (including in the preprinted form). So, the application should be drafted and reviewed for legal considerations like all other contracts.
Refund claims should include specific statutory grounds and include a backup hearing request.
Property must meet certain project use tests and be located at a project location.
New property is eligible only if “acquired” after the Application date and before the end of the entitlement period.
Software As Eligible Asset:
To constitute qualified property for Nebraska incentive purposes, the company must have specific terms in its agreement with the software provider and must have received a nonexclusive license for use of the software.
6. Real Property
Certain contract requirements need to be met regarding the purchasing agent appointment, the general contractor certification, and specific language in the construction contract relating to tax obligations. This includes build-to-suit leases.
Specific, detailed documentation will need to be kept to obtain the available sales tax incentives.
Nebraska law restricts incentive benefits for certain transactions and activities, which needs to be understood in advance.
Special procedures and time limits apply to challenging the Department of Revenue.