Tax credits should help the distressed

Reprinted from the North Platte Telegraph

The most effective and desirable economic development strategy for many rural communities is small entrepreneurship. Small businesses are especially important today, as opportunities to attract large employers to remote rural areas diminish.

For the past decade, the Nebraska Advantage Microenterprise Tax Credit has played an essential role in helping these businesses get started. Passed in 2005, the act provides tax credits to applicants for creating or expanding microbusinesses that contribute to the revitalization of economically distressed areas.

The credit is available to businesses with the following requirements:

  • The applicant is actively engaged in the operation of the microbusiness or will be actively engaged in the operation upon its establishment. Actively engaged in the operation of a microbusiness means personal involvement on a continuous basis in daily management and operation of the business.
  • The majority of assets of the microbusiness are located in a distressed area or will be upon its establishment. Distressed areas have (a) an unemployment rate that exceeds the statewide average, (b) a per capita income below the statewide average, or (c) had a population decrease between the two most recent federal decennial censuses.
  • The applicant will make new investment or employment in the microbusiness.
  • The new investment or employment will create new income or jobs in the distressed area.

Once these conditions are satisfied, taxpayers may receive refundable tax credits equal to 20 percent of the taxpayer’s new investment or employment in the microbusiness during the tax year. These credits expire after the end of the tax year. The total lifetime tax credits claimed by any one taxpayer and any related person is $10,000.

The credit has made a significant difference in distressed areas of our state; areas the program was meant to serve. Investment, employment and economic activity have all grown as a result.

From 2008 to 2013, the full $2 million made available by the Nebraska Advantage Microenterprise Tax Credit Act was utilized. In 2014, this amount decreased to $1,563,529, and in 2015, decreased further to $1,289,038.

A bill introduced in the Nebraska Legislature, LB 387, addresses this by broadening the pool of eligible applicants.

While we understand and support the logic behind this change, we are concerned that broadening the pool of eligible applicants to businesses in non-distressed communities undermines the spirit and intent of the act.

In the first several years, these funds were claimed within the first 60 days of the application period. If the pool is broadened, a similar outcome can be expected. This squeezes out applicants in distressed communities who may be unaware of the credit, unable to promptly complete their application, or are otherwise unprepared to apply until later in the year.

We recommend LB 387 be amended to allow microbusinesses in non-distressed communities to apply only for funds unused in the previous year.

Under the original act, the amount available each year is $2 million plus the amount not granted in the previous year. For example, $3,147,433 was made available in 2016. That would allow $1,147,433 for businesses in non-distressed communities in 2017. Any unused portion of the $2 million not utilized by businesses in distressed areas would carry into 2018.

This change achieves the dual goal of ensuring the full amount available is utilized while providing support for microenterprise ventures in those communities that need it most.

We must support small businesses in communities that thrive when given access to meaningful economic opportunity. We support changes to LB 387 that ensure the Nebraska Advantage Microenterprise Tax Credit is fully utilized while allowing it to function as intended.