Will Nebraska Decouple from Federal CARES Act Tax Provisions?

Date: July 17, 2020

Legislature reconvenes July 20 with property tax relief, economic development incentives taking center stage

State Director Bob Hallstrom reports from Lincoln on the small-business agenda

The Legislature is set to reconvene on Monday, July 20, and will begin the sprint to the finish line, with only 17 days remaining in the 2020 legislative session, and much work yet to be completed.

The Legislature will continue to focus on priority bills, with property tax relief and economic development incentives taking center stage. Speaker Jim Scheer (Norfolk) has indicated that debate on each of these measures will take place as early as Tuesday or Wednesday of next week, with property tax relief (Legislative Bill 1106) to be debated first, followed by economic development incentives (Legislative Bill 720).

The uncertainty of the pandemic’s effect on the state budget may require lawmakers to adjust their expectations. In this regard, Speaker Scheer has suggested to his fellow senators that they may need to reduce or eliminate the fiscal impact of their individual priority bills in order to minimize the impact to the General Fund. On a positive note, Tax Commissioner Tony Fulton has reported that gross General Fund receipts for the month of June were 0.4 percent above the certified forecast of $576 million.

Business Not as Usual

Senators and lobbyists will encounter new experiences as the legislative session resumes. The legislative chamber has been modified with Plexiglass barriers and greater spacing between seats assigned to senators. Senators, staff, lobbyists, and members of the public will be encouraged to wear a mask. Those entering the Legislative Chamber will be required to pass health screening procedures and access to the chamber will be restricted to senators and key staff. Lobbyists will be prohibited from having the sergeant at arms deliver notes to members of the Legislature.

Legislators will convene at 9 a.m., Monday through Friday, with the Speaker having scheduled numerous “evening sessions” which could run as late as 10 p.m.

Workers’ Compensation

The following workers’ compensation legislation, which is on Final Reading, is expected to receive final approval when lawmakers reconvene.

Legislative Bill 963 – Workers’ Compensation – Mental/Mental Injuries: Introduced by Sen. Tom Brewer (Gordon), and designated as a priority bill by Sen. Mike McDonnell (Omaha), LB 963 would modify the standards for recovery of workers’ compensation benefits for “mental–mental” injuries to first responders and front-line state employees. The bill would allow a first responder to establish prima facie evidence of a mental injury or mental illness if:

  • the first responder has undergone a mental health examination upon entry into service as a first responder or subsequent to such entry and before the onset of the mental injury or mental illness and the examination did not reveal the mental injury or mental illness for which the first responder seeks compensation
  • testimony or an affidavit from a mental health professional is presented stating the first responder suffers from a mental injury or mental illness
  • prior to the employment conditions which cause the mental injury or mental illness, the first responder had participated in resilience training and updated the training at least annually thereafter.

The legislation would also require the Department of Health and Human Services to reimburse a first responder for the cost of annual resilience training not reimbursed by the first responder’s employer. The bill also contains a “sunset” of January 1, 2027, which will provide for termination of the law as of that date, unless the Legislature elects to reenact and extend its provisions.

LB 963 also contains the provisions of Legislative Bill 448 (Workers’ Compensation – Burial Benefits). Introduced by Sen. Mike McDonnell (Omaha), LB 448 would revise the manner in which an employer’s responsibility for burial expenses is determined. As originally introduced, the burial expense would have been set at 14 times the state’s average weekly wage. As amended, the maximum burial benefit would be increased from $10,000 to $11,000 and subject to adjustment based on future changes to the Consumer Price Index, rather than increases in the state’s average weekly wage. The adjustments, which would begin in 2023, would be capped at 2.75 percent per annum and increased by at least 1 percent per annum.

Decoupling from Federal Tax System

The federal CARES Act contained several provisions related to income taxes which were designed to provide cash flow and liquidity to businesses and individuals. The effect of these provisions will serve to lower Nebraska tax collections over the next three years.

The four most significant CARES Act tax provisions having state income tax implications, include the following:

  • Reducing the Limitations on The Use of Non-Corporate Business Losses by Individuals.
  • Suspension of the 80 Percent Limitation on Net Operating Losses.
  • Waiver of Required Minimum Distributions from Retirement Accounts.
  • Increased Limits on Charitable Deductions.

There are indications that an amendment to “decouple” Nebraska from the federal tax system which would defeat the purpose of the federal tax changes to keep businesses and individuals up and running during the pandemic, will be introduced next week.

Decoupling will result in a tax increase for Nebraska’s small businesses and individuals and will be opposed by NFIB.

Previous Reports and News Releases

[Photo courtesy of Unicameral Update, The Nebraska Legislature’s official news source since 1977]

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