Panel debates repeal of Nebraska’s non‑Nebraska S‑corp/LLC income exclusion (LB 8‑51)
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Summary
Sen. George Dungan introduced LB 8‑51 to repeal an exclusion that allows Nebraska residents to omit income from out‑of‑state S corporations and LLCs on Nebraska returns. Proponents (OpenSky) said repeal would restore tens of millions in revenue concentrated on a small number of high‑income filers; opponents (CPAs, chambers, bankers) warned of double taxation, complex credits and uncertain fiscal gains.
Senator George Dungan introduced LB 8‑51 to repeal Nebraska’s non‑Nebraska S‑corp and LLC income exclusion, calling it an unusual provision that results in forgone state revenue. He said repeal could help close the state’s current budget shortfall by restoring tax parity with other income types.
Dr. Rebecca Firestone of the OpenSky Policy Institute testified in support, outlining Department of Revenue–based analysis that shows repeal could return approximately $44 million in FY27 and $28 million annually thereafter. Firestone said the exclusion is claimed primarily by a very small share of high‑income filers and that past proposals have surfaced similar numbers.
Opponents — including a CPA representing more than 2,600 Nebraska CPAs, chambers of commerce, bankers and business groups — said the bill would disrupt long‑standing sourcing principles that tax pass‑through income where the business activity occurs, raise the risk of double taxation or complex credit calculations and could discourage multistate investment. Witnesses also criticized earlier revenue estimates for not fully accounting for credits and losses that would offset projected gains.
Committee members asked technical questions about sourcing, whether credits would offset much of the projected revenue, and who the affected businesses would be. Senator Dungan closed noting this is part of a broader slate of tax options to consider for the state’s fiscal situation.