VIDEO LINK INCLUDED — NU tax law professor discusses LB 939’s corporate tax cut

The corporate income tax cut proposed in LB 939 – a bill being debated by the Nebraska Legislature – would offer corporations little incentive to move here, University of Nebraska Tax Law professor Adam Thimmesch said in a recent conversation with OpenSky.

Nebraska’s corporate income tax rate applies only to a corporation’s sales within the state and therefore corporations pay the same tax rate whether they have a presence here or not, Thimmesch said.

“We tax you zero based on where your property or payroll are located,” Thimmesch said. “Based upon the rules that we have, if (corporations) move here or expand here, it has absolutely no effect on their corporate income taxes.”

Nebraska’s top personal income tax rate is 6.84% and the top corporate rate is now 7.5% following a corporate tax rate cut passed by lawmakers last year. LB 939 would ratchet both rates down to 5.84% over the next few years. Some proponents of LB 939 want the state to have parity in the rate corporations and individuals are taxed but Thimmesch said the reality is corporate and personal income tax systems are very different and these differences makes actually achieving parity impossible.

For example, Thimmesch said, the federal government allows corporations to deduct state corporate income taxes from their federal taxes, a deduction that is not afforded to most individual taxpayers.

By making the corporate and individual rates the same, policymakers can “achieve parity on its face,” Thimmesch said. “But … when you import real-world conditions you can’t functionally achieve parity.”

As such, Thimmesch said he has questions about whether achieving rate parity is a good tax policy goal for Nebraska.

Thimmesch also discussed why a large portion – possibly more than 90% according to some estimates – of a corporate tax cut would leave the state. The reason for this is the vast majority of corporations that pay Nebraska’s corporate income tax are not in Nebraska but rather are large national and multinational entities. As such, Thimmesch said, most of the tax cut would go to the companies and their shareholders, who are largely in other states and countries, he said.

Watch the full conversation with Thimmesh here. Debate on LB 939 will likely resume Tuesday morning and will be streamed live by Nebraska Public Media.