While Nebraska’s smallest businesses continue to face uncertainty as a result of the COVID-19 pandemic, the Nebraska Legislature’s Revenue Committee had a decision to make.
Should they improve a program that incentivizes small business growth and encourages investment and job creation? Or is the better decision to eliminate that program for good?
On one side, Legislative Bill 366, introduced by State Sen. Tom Briese, District 32, seeks to improve the Nebraska Advantage Microenterprise Tax Credit to address current challenges. On the other side, LB 74, introduced by his colleague, Sen. Suzanne Geist, District 25, sought to abolish the program and terminate its funding.
Last week, the Revenue Committee made the right choice and rejected LB 74. It is time to finish the job. Committee members can now turn their attention to making this program even better.
With every Nebraska community feeling the consequences of the pandemic, which has forced many small businesses to shutter and others to put plans for future growth on pause, now is not the time to eliminate the only true incentive available to microbusinesses. We applaud the committee for recognizing this and compliment the many small business owners and economic development professionals who made their voices heard.
But, we all agree, the program could be improved. LB 366 does that by increasing the maximum tax credit from $10,000 to $20,000; allowing family members to apply the credit to unrelated businesses; asking the Nebraska Department of Revenue to show more transparency when approving new applications; and ensuring it remains available beyond 2022.
The Microenterprise Tax Credit was first enacted in 2005 with statewide support. It offers a 20% refundable tax credit to business owners with five or fewer full-time equivalent employees. To qualify, a business must commit to generating new income and expanding its economic footprint. This requirement means the credit is available only to the entrepreneurs that want to grow their business.
Investment credits can be earned on expenditures for hiring Nebraska residents, increasing wages, securing new buildings, repairing or maintaining Nebraska-based property, purchasing needed equipment, or professional services, such as advertising. These strategic investments are proven to accelerate business activity. The proof can be found in the 79 Nebraska counties where the program has been used.
From Omaha to Chadron, our state has seen that microentrepreneurship is a successful strategy for growing and sustaining the local economy. In 2014 alone, the 164 firms that applied combined to create between 416 and 472 new jobs. Of these, 55% used the credit to expand an existing business, and 45% were new to the state. These applicants had an estimated cost per job between $2,349 and $10,655.
The Microenterprise Tax Credit is especially important today, as we know that small business investment last year was low. Many investments scheduled for 2020 were postponed. Knowing this credit is available can help business owners feel more confident about new investments in 2021 and 2022, a welcome feeling in uncertain times.
While they aren’t always the flashy technology companies being sought by economic developers these days, microbusinesses are our essential businesses. With more than 80% of Nebraska’s entrepreneurs falling into this category, they are the heart of communities across the state. From hair salons and restaurants to grocery and hardware stores, these entities provide valuable services to their residents and boost local economies.
With the small, but meaningful, changes proposed in LB 366, we believe the Microenterprise Tax Credit can play an important role in helping businesses recover. Putting the right changes in place is an important step toward helping our small business community emerge stronger than before. We urge the Revenue Committee to show their support for Nebraska’s entrepreneurs by advancing LB 366.
Johnathan Hladik is policy director for the Center for Rural Affairs in Lyons, Neb.