Nebraska: A Year Later, the Department of Revenue Issues Revised Guidance on GILTI and FDII

On December 10, 2019, the Nebraska Department of Revenue issued a General Information Letter, GIL 24-19-3, addressing the state tax treatment of GILTI and FDII.  Almost a year later, on November 19, 2020, the Department issued GIL 24-20-1 superseding the earlier GIL. Similar to the prior guidance, the GIL confirms that (1) GILTI is included in Nebraska income; (2) the IRC section 250 deductions for GILTI and FDII are allowed; and (3) GILTI is not eligible for the state’s foreign dividend subtraction. In the revised GIL, the Department clarifies that IRC section 78 dividends attributed to GILTI are eligible for the foreign dividend exclusion.

The revised GIL also changes the prior guidance on how GILTI should be apportioned. Because the Nebraska sales factor includes income from intangibles, the Department states that the denominator of the sales factor should include the entire amount of GILTI.  Previously, the Department had taken the position that GILTI should be treated as investment income and if Nebraska was the taxpayer’s commercial domicile, then GILTI would generally be included in the numerator of the Nebraska sales factor. Under the revised guidance, the Department states that GILTI is intangible value generated by United States operations but realized by a controlled foreign corporation. After reviewing the state’s sourcing rules, the Department notes that none of them specifically capture GILTI. As such, a catch-all sourcing provision requires that GILTI be sourced to Nebraska in a manner that fairly represents the extent of the taxpayer’s business activity in Nebraska. Recognizing that there is not a “uniform way” to identify how much activity that results in GILTI is associated with Nebraska, the Department concludes that part or all of the GILTI amount included in the denominator should be included in the numerator of the sales factor to the extent that part or all of the intangible value that gives rise to GILTI is connected with and fairly attributable to developing or maintaining the intangible property in Nebraska.  Please contact Brandon Boetel at 612-305-5474 with questions on GIL 24-20-1..