of Revenue now plans to withhold those earned benefits from companies that the state has decided are a “foreign adversarial company,” even though those restrictions were never part of the original contracts. The implications we are hearing from companies and those who work in economic development are far reaching: Business leaders and investors now face uncertainty about whether Nebraska will respect its commitments on incentives, as well as other matters. State tax advisors must now address how to protect clients’ rights in their tax incentive filings. Communities and employees may bear an unexpected cost, depending on the impact to Nebraska’s national reputation as a state that retroactively changes the rules of engagement. LB 644’S IMPACT ON NEBRASKA INCENTIVES LB 644 was enacted during the 2025 legislative session. The new law includes several acts designed to protect Nebraska from foreign adversaries—the Foreign Adversary and Terrorist Agent Registration Act and the Crush Transnational Repression in Nebraska Act among them. In addition, buried within the bill is a lesser-known provision— Section 31 (now codified at Neb. Rev. Stat. § 77-3,114)—which declares that any “foreign adversarial company” is ineligible to receive benefits under any incentive program of the state of Nebraska. The Department of Revenue has identified 31 incentive programs to which this applies. The statute’s definition of a “foreign adversarial company” is extraordinarily broad. It can include a company that: Has a subsidiary organized in any of six listed countries, or Has any ownership interest held by one of those governments. The six countries are China, Cuba, North Korea, Russia, Iran, and Venezuela. Together, these companies represent more than 20% of the world’s GDP (with the vast majority coming from China). Under that definition, a company could be deemed a “foreign adversarial company” merely for having, for example, a Chinese subsidiary—or even because one of those governments, such as through a sovereign investment fund, acquires a single share of its stock. Crucially, LB 644 contains no grandfather clause for existing incentive contracts. On its face, the law would impose a brand-new condition on companies that already have binding agreements with the state of Nebraska. THE STATE’S FIRST RETROACTIVE CHANGE TO INCENTIVE CONTRACTS The Nebraska Department of Revenue has indicated—both in its initial guidance and in recent discussions—that it intends to apply LB 644 to existing projects, even where the company already has an incentive contract with the state. Those contracts, of course, do not contain the new LB 644 restrictions. This marks the first time that we are aware of where Nebraska has attempted to impose a substantive, adverse, retroactive change to an existing project incentive contract. A company could now have fully performed—invested capital, created jobs, met payroll commitments—and yet be denied its incentive benefits because the state has decided to apply new rules after the fact. The Department of Revenue has told us that such companies would have to go to court to obtain the incentives they were already promised and had already earned. SOME OF THE LEGAL PROBLEMS WITH THE STATE’S ACTION The state’s intended approach raises serious contractual and constitutional issues, some of which may include the following: 1. Contract Violation. Nebraska’s Supreme Court has confirmed that incentive agreements are binding contracts between the company and the state. See Farmland Foods, Inc. v. State of Nebraska, 273 Neb. 262 (2007). A unilateral refusal by the state to honor those contracts by imposing new terms certainly appears to be in contradiction to the express terms of the agreement and would seemingly constitute a breach under ordinary contract law principles. 2. Constitutional Impairment of Contracts. The framers of both the U.S. and Nebraska Constitutions anticipated this very danger. The Contracts Clause—found in U.S. Const. Art. I, § 10 and Neb. Const. Art. I, § 16—expressly prohibits states from enacting any law that “impairs the obligation of contracts.” Courts have previously applied this protection to tax incentive contracts. See e.g., Reserve Mining Co. v. State, 310 N.W.2d 487 (Minn. 1981) (which finds a contract exists even without an express provision in the statute, since the company, by investing or adding jobs, is accepting the offer made by the state to perform under its incentive statute). Our firm analyzed this contract impairment principle in depth nearly four decades ago in Nebraska’s Tax-Based Business Incentives: A Constitutional Review, 21 Creighton L. Rev. 439 (Rohde/Niemann,1987-88). As the principal designers and drafters of Nebraska’s main incentive statutes since 1987, we specifically included the contract-requirement language in the statutes to prevent exactly this type of retroactive change. By imposing new LB 644 restrictions not contained in the original agreements, the state would impair vested contractual rights, effectively stripping away the incentives that companies have earned while the companies continue to perform their side of the deal. 17 nescpa.org
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