Development Act is at most the loss of the amount of the credit attributable to such nonqualifying employee’s compensation, not a loss of all credits for that year. The Department of Revenue Cannot Create Its Own Timeframe for Verification. The Legislature did not include a timeframe for verification in the statute itself, so the Department of Revenue cannot impose its own timeframe. A company can verify its new employees at any time based on the statute itself. The Department’s Current Interpretation Contradicts the Tax Commissioner’s Testimony to the Legislature About the Law. In testimony to the Legislature, a prior Nebraska tax commissioner specified that the Department of Revenue allows companies to count employees as verified under the E-Verify system once that verification occurs, without a time limit. The department’s assessments directly contradict that public assurance. E-Verify Sign Up Is All That Is Needed. We believe, given the Legislature’s intent, a company may comply with the electronic verification requirements by simply signing up to electronically verify its newly hired employees under the federal E-Verify system. This is based on the department’s inconsistent interpretation of two statutory provisions that have the same language. E-Verify Isn’t Required. The statute doesn’t specify E-Verify. It only says “electronically verified,” so clearly another method to verify work status should be sufficient. The Legislature Was Concerned About Ineligible Employees, Not E-Verification. The Department of Revenue is misapplying the R&D Act by its focus on e-verification timeframes instead of a focus on, and confirmation of, whether an employee is eligible to work in Nebraska. The Law Itself Is an Unconstitutional Delegation of Authority to the Department. The law itself specifies that a taxpayer must provide “evidence satisfactory to the Tax Commissioner” to establish that the taxpayer met the law’s requirements but provides no objective standards or direction to the department as to what evidence will suffice. That is an unconstitutional delegation of authority by the Legislature. Void for Vagueness. The statutes defining the electronic verification requirements do not provide adequate notice of what is required and do not supply adequate standards to prevent arbitrary enforcement. They are void as unconstitutionally vague. These defenses to the E-Verify incentive disallowances have not yet been presented before a Nebraska court. So, we can’t be sure how a court will view them. Nonetheless, we do believe that each has a reasonable and solid legal basis and should be pressed with the Department of Revenue—during the audit phase as well as on the Appeal of a Notice of Deficiency. (Note: A legislative bill has been introduced to fix the statute, but as of the date of publication, its passage is uncertain.) If companies filed a protest before we became involved, and did not include one or more of these defenses when filing their initial protest, we’ve been working with them to file a supplement to the protest that includes these additional defenses. Nick Niemann and Matt Ottemann are partners with McGrath North Law Firm. As state and local tax and incentives attorneys, they collaborate with CPAs to help clients and companies evaluate, defend, and resolve tax matters and obtain various business expansion incentives. See their websites at www.NebraskaStateTax.com and www.NebraskaIncentives.com for more information. For a copy of their full publication, The Anatomy of Resolving State Tax Matters, or their Nebraska Business Expansion Decision Guide, visit the above websites or contact Niemann or Ottemann at (402) 341-3070 or nniemann@mcgrathnorth.com or mottemann@mcgrathnorth.com, respectively. 23 www.nescpa.org
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