The R&D Tax Aspects of Nebraska Innovation



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Nebraska-Innovation
        Nebraska is committed to job growth and industry growth, especially for businesses in the state investing in research and development (R&D).  Growth is accomplished through Nebraska’s economic and tax policies which promote innovation incentives that provide opportunity for cash savings.  A refundable R&D tax credit is one of the main driving forces of innovation in Nebraska.


Nebraska Research & Development Tax Credit

        The Nebraska Advantage Research and Development Credit is based on the Federal R&D Tax Credit as described in IRS Section 41.  The refundable tax credit for qualified research and development activities undertaken by a business is calculated in 2 ways:  the apportionment using actual expenditures and the alternative methods to apportion credit.

        Each method for calculating the Nebraska R&D Tax Credit includes industry and university research and development expenses within the calculation.  Although industry and university R&D expenses are both eligible under the guidelines of the Nebraska R&D Tax Credit, R&D conducted at universities qualifies at a higher rate for both calculations of the credit.  Both calculations require an existing Federal R&D Tax Credit for the given tax year.

        Method 1 for calculating the Nebraskan R&D Tax Credit, the apportionment using property and payroll factors, uses property factors, payroll factors, and their averages to compute a tax credit.  The percentages vary for off-campus and on-campus payroll/property factors.  Method 2 for calculating the Nebraskan R&D Tax Credit, the apportionment using actual expenditures, uses the 15% of the federal tax credit multiplied by the ratio of off-campus qualified research expenses (QREs) to the federal QREs summed with 35% of the federal credit multiplied by the ratio of on-campus QREs to federal QREs.

Qualified research must meet the following four criteria:
• New or improved products, processes, or software
• Technological in nature

• Elimination of uncertainty
• Process of experimentation

The Nebraska Advantage Act (NAA)

        The Nebraska Advantage Act was adopted in 2005 and provides incentives for R&D activities. The act created the Nebraska R&D credit and established programs that, with qualifications, created refunds on sales taxes paid for qualified capital purchases, personal property, or certain other items defined in the law. 
 
        From 2001 to 2007, Nebraska's R&D tax policy and competitive advantage program have yielded a 34.2% employment increase in R&D Engineering Services and a 20.6% employment increase in biosciences, engineering, and research and technology businesses. These results have created substantial incentives for a company to operate and locate in Nebraska.


Nebraska R&D Focus

        The State of Nebraska's largest industries include Agriculture , BioSolutions, Transportation Logistics , Software and Technology, Finance and Insurance, Health Services, and Advanced Manufacturing.  Nebraska has a total GSP of $109.6 billion in 2013. The chief selling points are regional culture, central location with vital continental transport infrastructure, a public power system, and industrial real estate capacity.

        Nebraska is rated 3rd in best Pro-Business legal climate, 5th in top 10 states for young people, 2nd in Biofuels leaders- Ethanol, 9th in top 10 states for Growth & innovation, and tied for 3rd for biotechnology Strength specialization.

        In 2011, the non-farm industries with the highest number of employees in Nebraska were Trade, Transport, Warehouse and Utilities (195,781); Education and Health Services (137,082); Professional and Business Services (103,495); and Manufacturing (93,096).

        Nebraska also has a business incubator called NMotion that has had success in providing support to new businesses. NMotion is based in Lincoln, Nebraska and is a mentor-driven, education-focused startup accelerator.  Nmotion targets the Agriculture, Healthcare, Education, Finance/Insurance, and Sports Technologies industries.


The summer 2014 nMotion class consists of:
•    Adolade - Lincoln, NE - Assists companies in creating mobile applications that are rewarding and engaging
      for users through their own platform.
•    Mowdo - Lincoln, NE - Provides a application platform for users to find quick and easy local lawn care by
      connecting them with local lawn care professionals.
•    Commissioner - Lincoln, NE - Provides a sports application to track and provide match analysis for next
      generation player development.
•    oneCanvas - Lincoln, NE - easy to use graphics editor that allows you to create print quality digital
      scrapbook pages on your desktop or on a tablet.
•    Fanstreamm - Lincoln, NE - Fanstreamm provides group tickets to customers easily for the sports and
      entertainment industry.
•    Quantified Ag - Lincoln, NE - Quantified Ag is an agricultural Internet of Things company that has created a
      platform that combine sensors and data to deliver total quality control over cattle.   
•    MusicSpoke - Lincoln, NE - MusicSpoke is an easy-to-use, high quality sheet music marketplace facilitated
      by finding gifted composers and letting them sell on the market.


University of Nebraska – Lincoln (UNL)

        The University of Nebraska is a key driver in academic R&D in the state. The most recent large project includes a Innovation Campus in Lincoln to connect the university and private sector. University of Nebraska Lincoln is among the largest employers in the state, with a workforce of more than 13,000.

        NUTech Ventures is a nonprofit affiliate of UNL and was established to commercialize technologies by forming R&D partnerships between the university and the private sector. 

        The Nebraska Innovation Campus - located in Lincoln adjacent to the UNL campus - is a 249-acre public/private research and technology center. The Innovation campus was recently opened and is entering the next phase of its development - creating attached innovation centers and additional sections to attract talent and open opportunities for students and faculty.

        The Innovation Campus cooperated with global food company ConAgra Foods, Inc to cultivate innovations in food productioniii and processes in the campus' greenhouses.


Conclusion

        Nebraska's economic and tax policies, friendliness to industry, and academic institutions make it an appealing state in which to locate R&D activities. The Nebraska Advantage presents an opportunity to take advantage of savings captured through the R&D tax credit.

Article Citation List

   


Authors

Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.

Sean Brophy is a Tax Analyst with R&D Tax Savers.

Adam Starsiak is a Tax Analyst with R&D Tax Savers.


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