Since December of 2018, taxpayers have been battling with the Nebraska Department of Revenue over its interpretation of the state’s dividend received deduction (DRD) provisions. Although the statute provides a 100% DRD for dividends or dividends deemed to be received and the Department has long taken the position that Subpart F income qualifies for that deduction, the Department asserted in a GIL that I.R.C. § 965 (deemed repatriation) income did not qualify for the DRD. (GIL 24-18-1, Superseded by GIL 24-19-1).  In its 2018 guidance, the Department asserted that 965 income is not a foreign dividend. Subsequently, the Department has since refined its position to encompass the taxation of Subpart F income as a whole and not just 965 income, including global intangible low tax income (GILTI). (GIL 24-20-1). Specifically, the Department has taken the position that beginning with the 2018 tax year substantially all of a taxpayer’s subpart F income must be included in the tax base.  The Department has taken a similar position with GILTI, that GILTI is not a deemed dividend and thus does not qualify for the state’s DRD.

On January 13, LB 347 was introduced in Nebraska, which if passed would make clear that Nebraska’s DRD would apply to I.R.C. § 965 as well as I.R.C. § 951A (GILTI).  Specifically, the bill provides that such receipts would be treated as “dividends deemed” for purposes of NRS § 77-2716(5) and that the changes are intended to clarify the meaning of this subsection prior to the effective date of the bill.

A similar bill was proposed last year but failed to pass, which many believe has much to do with Covid-19 pandemic shutdown. The Eversheds Sutherland policy team is working with a coalition supporting this legislation run by the Nebraska Chamber of Commerce.