316 Neb. Admin. Code, ch. 22, § 003

Current through September 17, 2024

Section 316-22-003 - INCOME OF NONRESIDENT INDIVIDUALS SUBJECT TO NEBRASKA INCOME TAX

003.01 Nebraska adjusted gross income for a nonresident individual is the nonresident's income from Nebraska sources after the adjustments provided in Reg-22-003.02. Income derived from Nebraska sources shall include, but not be limited to, items relating to real and tangible personal property, a business, trade, profession, or occupation, compensation for services, intangible property, small business corporations, partnerships, estates and trusts, and lottery and gambling winnings.

003.01AReal or tangible personal property. The ownership of any interest in real or tangible personal property located in Nebraska shall be sufficient to qualify any income, gain, or loss from such real or tangible personal property as derived from or connected with Nebraska sources. This would include rents or royalties from property located in Nebraska for any period of time during the taxable year, and any gain or loss from the sale of property located in Nebraska.

003.01BBusiness, trade, profession, or occupation. Income from sources in Nebraska as it relates to a business, trade, profession, or occupation carried on in Nebraska shall mean that portion of an individual's gross income that is reasonably and equitably attributable to Nebraska, irrespective of the accounting method employed.

The Nebraska source income of a business, trade, profession, or occupation shall be determined by use of the apportionment factor as provided for the taxing of corporations under the Nebraska Revenue Act and Reg-24-023. If the portion of taxable income derived from sources in Nebraska so determined does not reasonably and equitably reflect Nebraska source income, the Tax Commissioner may allow alternative methods of determining income from Nebraska sources.

003.01C Compensation for Services.

003.01C(1)Generally. Compensation received by a nonresident for services performed which are directly related to a business, trade, or profession carried on within Nebraska shall constitute income derived from Nebraska.

Compensation received by a nonresident will be considered Nebraska source income if the nonresident's services are performed entirely within Nebraska, if such services performed without Nebraska are incidental to the services performed within Nebraska, or if the services that have to be performed in Nebraska are an essential part of the services performed.

If the nonresident's service is performed without Nebraska for his or her convenience, but the service is directly related to a business, trade, or profession carried on within Nebraska and except for the nonresident's convenience, the service could have been performed within Nebraska, the compensation for such services shall be Nebraska source income.

When a taxpayer has performed some service in this state and the base of operations, or, if there is no base of operations, the place from which the services are directed or controlled is in this state, the compensation paid by a business, trade, or profession for all services of the taxpayer shall be income from Nebraska sources.

003.01C(2)Commissions. Income from commissions earned by a nonresident traveling salesman, agent, or other employee for services performed or sales made whose compensation depends directly on the volume of business transacted by him or her, may be allocated to Nebraska based upon specific identification of each item of income and expense. Allocation may be used only when the books and records of either the nonresident or his or her employer accurately reflect the business transacted and expenses incurred in Nebraska by the nonresident in connection therewith. If the books and records do not accurately reflect the business transacted and expenses incurred in Nebraska by the nonresident, the nonresident will include that proportion of the compensation received which the volume of business transacted by such employee within the State of Nebraska bears to the total volume of business transacted by him, or her, both within and without the state. (See Reg-21-006.01)

003.01C(3)Periodic employment in Nebraska. If a nonresident employee is employed in this state at intervals throughout the year and is paid on an hourly, daily, weekly, or monthly basis, the gross income from sources within this state must include that portion of the total compensation for personal services which the total number of working hours, days, weeks, or months employed within Nebraska compare to the total number of such working intervals both within and without the state. If the majority of the interval is spent within this state, then the entire interval is within this state. (See Reg-21-006.02 and Reg-21-006.04)

If a nonresident employee is paid on a mileage basis, the gross income from sources within Nebraska must include that portion of the total compensation for services which the number of miles traveled in Nebraska bears to the total number of miles traveled both within and without Nebraska. (See Reg-21-006.03)

If the nonresident employee is paid on some other basis, the total compensation for personal services must be apportioned between this state and other states and foreign countries in such manner as to attribute to Nebraska that portion of the total compensation which is reasonably attributable to personal services performed in the state.

003.01C(4)Services of fiduciary. Compensation paid by a resident trust or estate, as defined in Reg-23-001, for services by a nonresident fiduciary shall constitute income from sources within Nebraska.

003.01C(5)Professional services. Nonresident attorneys, physicians, engineers, architects, nurses, or any other professional people, even though not regularly employed in carrying on their profession in Nebraska, must include as income from sources within this state the entire amount of fees or compensation received for services performed in Nebraska as defined in Reg-21-003.01C(1)(1) on behalf of their clients.

003.01C(6)Entertainers and athletes. Nonresident actors, singers, performers, wrestlers, boxers, professional athletes, etc., must include as income from sources within Nebraska the gross amount received from performances within the state.

003.01C(7)Military service members. Income derived from or connected with Nebraska sources does not include compensation paid to nonresidents for active duty service in the armed forces of the United States, even though such service is performed within Nebraska. If the service member has elected to file a joint Nebraska return with a Nebraska resident or partial-year resident, the nonresident's military income is deducted as an adjustment on the Nebraska return. (See Reg-22-013).

The term "service" means the service of an individual who is a member of the Army, Navy, Air Force, Marine Corps, or Coast Guard who is on active duty, as defined in section 101(d)(1) of title 10, United States Code, and in the case of an individual who is a member of the National Guard, includes service under a call to active service authorized by the President or the Secretary of Defense for a period of more than 30 consecutive days under section 502(f) of title 32, United States Code, for purposes of responding to a national emergency declared by the President and supported by Federal funds. The term also includes active service by an individual who is a commissioned officer of the federal Public Health Service or the National Oceanic and Atmospheric Administration.

The term service as used herein does not include service of a civilian in the employ of any branch of the armed forces nor does it include any individual, partnership, corporation or other association which, as an independent contractor, is performing service or supplying tangible property to any branch of the armed forces. All other nonresident federal employees who perform their services in Nebraska shall be deemed to have income derived from or connected with Nebraska sources.

003.01C(8)Pensions. Nonresidents who are receiving pensions, deferred compensation, or annuities based on services performed within Nebraska in an earlier tax year do not have income from Nebraska sources.

003.01C(9)Employees of Rail Carriers. Compensation paid by a rail carrier to a nonresident employee who performs regularly assigned duties on a railroad in more than one state is not included in Nebraska source income.

003.01C(10)Employees of Motor Carriers or Private Carriers. Compensation paid by a private carrier or a motor carrier providing transportation in interstate commerce subject to federal regulation to a nonresident employee who performs regularly assigned duties with respect to a motor vehicle in more than one state is not included in Nebraska source income.

003.01C(11)Employees of Air Carriers. Compensation paid by an air carrier to a nonresident employee who is regularly assigned duties on aircraft in more than one state is not included in Nebraska source income if the employee's scheduled flight time in Nebraska is fifty percent or less of the total scheduled flight time of the employee during the calendar year.

003.01D Intangible property.

003.01D(1)Interest and dividends. No tax is to be imposed on a nonresident receiving income which arises from annuities, interest on bank deposits, interest on bonds, notes or other interest bearing obligations, or dividends from corporations, except to the extent to which the same shall be a part of the taxable income from any business, trade, profession, or occupation carried on in Nebraska by the nonresident. Income from intangible property shall be a part of taxable income of a business, trade, profession, or occupation carried on within Nebraska when such property is acquired or used in the course of such business, trade, profession, or occupation.

003.01D(2)Gains and losses. Gains or losses from the sale, exchange, or other disposition of intangibles are not subject to tax by Nebraska, except to the extent to which the same shall be a part of the income from a business, trade, profession, or occupation carried on in the State of Nebraska by the nonresident taxpayer, even though the sale or disposition thereof may have been consummated within the state.

Likewise, losses sustained from the sale, exchange, or other disposition of stocks, bonds, or other intangibles under like conditions are not deductible from the Nebraska source income of the nonresident taxpayer, except to the extent that they are losses incurred in a business, trade, profession, or occupation carried on within Nebraska by the nonresident taxpayer.

003.01E S corporations.

003.01E(1)Nebraska source income. A nonresident stockholder of a small business corporation having an election in effect under Subchapter S of the Internal Revenue Code shall file a Nebraska income tax return and shall include as Nebraska source income that portion of the S corporation's income derived from or attributable to Nebraska. The nonresident shareholder shall file a Nebraska income tax return even though the income derived from the S corporation is the nonresident's only income derived from or attributable to Nebraska except as allowed under Reg-22-003.01E(3)(3).

003.01E(2)Agreement to pay tax. A nonresident shareholder of an S corporation which has Nebraska income, may execute and forward to the corporation a Nebraska Nonresident Income Tax Agreement, Form 12N, which states that the nonresident will file a Nebraska income tax return and pay tax on all income derived from or connected with Nebraska sources. This agreement must be forwarded to the S corporation before the filing of the original corporate return.

003.01E(3)Withholding by an S corporation. In the absence of the above agreement, the S corporation must remit to the Nebraska Department of Revenue a percentage of the nonresident shareholder's Nebraska income. The percentage shall be the highest rate applicable to individuals. Upon request by any nonresident shareholder, the S corporation must complete a Statement of Nebraska Income Tax Withheld for Nonresident Individual, Form 14N. When an S corporation has made a remittance to the Nebraska Department of Revenue on behalf of a nonresident shareholder, such nonresident may choose not to file a return, and the amount withheld shall be retained in satisfaction of the liability, or such nonresident may file a return and claim the corporation's remittance as a credit against his or her Nebraska income tax liability.

003.01F Partnerships.

003.01F(1)Nebraska source income. A nonresident partner of a partnership shall file a Nebraska income tax return and shall include his or her distributive share of partnership income, gain, loss, and deduction from sources within Nebraska, except as allowed under Reg-22-003.01F(3)(3).

003.01F(2)Agreement to pay tax. A nonresident partner of a partnership which has Nebraska income may execute and forward to the partnership a Nebraska Nonresident Income Tax Agreement, Form 12N, which states that the nonresident will file a Nebraska income tax return and pay tax on all income derived from or connected with Nebraska sources. This agreement must be forwarded to the partnership before the filing of the original partnership return.

003.01F(3)Withholding by partnership. In the absence of the above agreement, the partnership must remit to the Nebraska Department of Revenue a percentage of the nonresident partner's Nebraska income. The percentage shall be the highest rate applicable to individuals. Upon request by any nonresident partner, the partnership must complete a Statement of Nebraska Income Tax Withheld for Nonresident Individual, Form 14N. When a partnership has made a remittance to the Nebraska Department of Revenue on behalf of a nonresident partner, the nonresident partner may choose not to file a return and the amount withheld shall be retained in satisfaction of the liability, or such nonresident partner may file a return and claim the partnership's remittance as a credit against his or her Nebraska income tax liability.

003.01G Limited Liability Companies (LLC's).

003.01G(1)Nebraska source income. A nonresident member of an LLC shall file a Nebraska income tax return and shall include as Nebraska source income that portion of the LLC's income derived from or attributed to Nebraska, except as allowed under Reg-22-003.01G(3)(3).

003.01G(2)Agreement to pay tax. A nonresident member of an LLC which has Nebraska income may execute and forward to the LLC a Nebraska Nonresident Income Tax Agreement, Form 12N, which states that the nonresident will file a Nebraska income tax return and pay tax on all income derived from or connected with Nebraska sources. This agreement must be forwarded to the LLC before the filing of the original partnership return.

003.01G(3)Withholding by LLC. In the absence of the above agreement, the LLC must remit to the Nebraska Department of Revenue a percentage of the nonresident member's Nebraska income. The percentage shall be the highest rate applicable to individuals. Upon request by any nonresident member, the LLC must complete a Statement of Nebraska Income Tax Withheld for Nonresident Individual, Form 14N. When an LLC has made a remittance to the Nebraska Department of Revenue on behalf of a nonresident member, the nonresident member may choose not to file a return and the amount withheld shall be retained in satisfaction of the liability, or such nonresident member may file a return and claim the LLC's remittance as a credit against his or her Nebraska income tax liability.

003.01H Estates and trusts.

003.01H(1)Nebraska source income. A nonresident beneficiary of a trust or estate shall be taxed only on items of income, gain, loss, or deduction which were derived from or connected with sources within Nebraska and which were taxable to him or her for federal income tax purposes. If a trust is classified as a Grantor Trust for federal income tax purposes, the nonresident grantor thereof shall be taxed on all items of income, gain, loss, or deduction which were derived from or connected with Nebraska sources, regardless of whether or not actually received. (See Reg-23-003 and Reg-23-004.04A(1)(1) ).

The residence of the fiduciary of an estate or trust will not be determinative as to whether income from intangibles is Nebraska source income. Nor shall the classification of a trust or estate as resident or nonresident have any effect upon the taxation of a nonresident beneficiary for his or her share of trust income, gain, or loss.

The character of income, gain, or loss from intangible personal property held in a trust or estate shall be the same with regard to a nonresident beneficiary (or a nonresident grantor of a Grantor Trust) as if said beneficiary (or grantor) had received the income, gain, or loss without the trust or estate.

003.01H(2)Agreement to pay tax. A nonresident beneficiary deriving Nebraska income from a trust or estate may execute and forward to the trust or estate a Nebraska Nonresident Income Tax Agreement, Form 12N, which states that the nonresident will file a Nebraska income tax return and pay tax on all income derived from or connected with Nebraska sources. This agreement must be forwarded to the trust or estate before the filing of the original fiduciary return.

003.01H(3)Withholding by fiduciary. In the absence of the above agreement, the estate or trust must remit to the Nebraska Department of Revenue a percentage of the nonresident beneficiary's income which was derived from or attributable to Nebraska sources. The percentage shall be the highest rate applicable to individuals. Upon request by any nonresident beneficiary, the estate or trust must complete a Statement of Nebraska Income Tax Withheld for Nonresident Individual, Form 14N. When a trust or estate has made a remittance to the Nebraska Department of Revenue on behalf of a nonresident beneficiary, the nonresident beneficiary may choose to file a return and the amount withheld shall be retained in satisfaction of the liability, or such nonresident beneficiary may file a return and claim the remittance made by the trust or estate as a credit against his or her Nebraska income tax liability.

003.01ILottery and gambling winnings. All lottery winnings from a lottery game conducted pursuant to a Nebraska lottery are Nebraska source income. All winnings from any game or operation licensed under the Nebraska Bingo Act, the Nebraska Lottery and Raffle Act, the Nebraska County and City Lottery Act, the Nebraska Pickle Card Lottery

Act, the Nebraska Small Lottery and Raffle Act or the State Lottery Act are Nebraska source income. All winnings from any other licensed or unlicensed operation involving any game of chance are Nebraska source income if the wager was placed in Nebraska, or any ticket, chance, or any other entry fee was purchased in Nebraska.

003.02 In determining Nebraska adjusted gross income of a nonresident individual, the following adjustments are made to the nonresident's income from Nebraska sources:

003.02APayment as a self-employed person or partner to a ( self-employed SEP, SIMPLE, or other qualified retirement plan. A nonresident who is self-employed or a partner who pays into a qualified pension, profit sharing, annuity, or bond purchasing plan shall be allowed this federal deduction only to the extent of the ratio of the Nebraska self-employed or partnership income to the total self-employed or partnership income.

003.02BPayment to an IRA. A nonresident who pays into an IRA shall be allowed the federal deduction only to the extent of the ratio of the Nebraska self-employed income and wages to total self-employed income and wages.

003.02COne-half of self-employment tax. A nonresident individual shall be allowed this deduction only to the extent of the ratio of the Nebraska self-employed income to the total self-employed income.

003.02DPenalty on early savings withdrawal. A nonresident individual shall be allowed this deduction only to the extent that the penalty relates to interest reported as Nebraska source income.

003.02EMoving expenses. A nonresident individual may not deduct moving expenses allowed on the federal return.

003.02FDomestic production activities . A nonresident individual shall be allowed this deduction to the extent it is directly related to Nebraska source income.

003.02GAlimony paid. A nonresident individual shall be allowed this deduction only to the extent of the ratio of the Nebraska adjusted gross income to federal adjusted gross income after Nebraska adjustments.

003.02HEducator expenses. A nonresident individual shall be allowed this deduction only as it relates to educational wages reported as Nebraska source income.

003.02IStudent Loan Interest. A nonresident individual shall be allowed this deduction only to the extent of the ratio of the Nebraska adjusted gross income to federal adjusted gross income after Nebraska adjustments.

003.02JTuition and fees. A nonresident individual shall be allowed this deduction only to the extent of the ratio of the Nebraska adjusted gross income to federal adjusted gross income after Nebraska adjustments.

003.02KHealth Savings Account. A nonresident individual shall be allowed this deduction only to the extent of the ratio of the Nebraska adjusted gross income to federal adjusted gross income after Nebraska adjustments.

003.02LCertain business expenses of reservists, performing artists, and fee-basis government officials. A nonresident individual shall be allowed this deduction to the extent it is directly related to Nebraska source income.

316 Neb. Admin. Code, ch. 22, § 003

Sections 77-2724, 77-2729, 77-2733, and 77-2768, R.R.S. 2003 and sections 77-2717, 77-2727, and 77-2734.01, R.S.Supp., 2005. March 7, 2006.