Nebraska Tax Reform: Why Full Expensing Is the Smart Move

The federal One Big Beautiful Bill (OBBB) creates the opportunity for Nebraska to adopt the most “America First” tax reform: full expensing. In an era of reshoring and friend-shoring critical supply chains, full expensing is the tax reform that properly defines “income” and incentivizes production in the U.S.A.  

Full expensing is the policy of allowing businesses to immediately write off the cost of capital expenditures in Nebraska. These write-offs reduce taxable income in the year the write-off occurs rather than stretching out these write-offs over years or decades. “Income” is revenue minus costs, so immediate write-off allows for cost recovery when the cost occurs.  

For example, an investment of $5 million in manufacturing or farming equipment is a cost to a business in the year the investment is made. To properly define “income” for that tax year, the $5 million cost should be deducted against revenues to define income. The same is true when a business has $5 million of payroll costs in a year; the payroll costs are deducted against revenue to define income. 

Historically, capital expenditures have been written off based upon a depreciation schedule. For example, a $5 million investment written-off over 20 years using straight-line depreciation would mean a $250,000 deduction each year [$5 million divided by 20 = $250,000]. The problem with this 20-year write-off is clear: a cost incurred in 2025 should be recovered and deducted in 2025, not in 2035, and certainly not in 2045!  

Furthermore, full expensing incentivizes businesses to make capital expenditures that will result in a more productive Nebraska economy. Qualifying expenditures range from research to software to heavy machinery to manufacturing facilities. As a result, full expensing is significantly pro-growth. And in this case, Tax Foundation has compared the (federal) growth impacts of full expensing versus a corporate rate cut. They found that full expensing delivers double the economic impact as corporate rate cuts per dollar of foregone tax revenue.  

In other words, if the federal government were to cut business taxes by $300 billion per year, they would achieve twice the positive impact on GDP if they enacted full expensing rather than cutting the corporate rate. And here’s the good news: the federal government has just made this high-impact, pro-reshoring tax change in the OBBB. Now, Nebraska simply needs to adopt and conform to the federal tax code for these provisions. 

The OBBB enacted full expensing across four sections to capture four different variations of the same policy: 

• Section 70301 makes 100% bonus depreciation permanent for qualified property (machinery and equipment) acquired and placed in service on or after January 20, 2025.

• Section 70302 allows for the immediate deduction of domestic research and experimental expenditures incurred in tax years beginning after December 31, 2024.   

• Section 70306 increases the dollar limitations for Internal Revenue Code (IRC) section 179 property placed in service after December 31, 2024 from $1 million to $2.5 million, with the phase-out to begin at $4 million, up from $2.5 million. These amounts receive an inflation adjustment each year. Section 70306 effectively applies the same policy as Section 70301, but in a way that is more manageable for smaller businesses. 

• Finally, Section 70307 creates a temporary 100% depreciation deduction for qualified production property constructed after January 19, 2025, and before January 1, 2029 that is placed in service before January 1, 2031. This deduction is for manufacturing, refining, agricultural production, and chemical production facilities. 

These changes will result in approximately $70 million of lower state tax revenue per year over the next 4 years, according to Department of Revenue estimates shared with the Platte Institute. The annual cost goes down by approximately $30 million thereafter due to the expiration of Section 70307, which provides full expensing for production facilities.  

Nebraska should adopt full expensing across the board. Nebraska already conforms with some of these provisions, and the 2026 legislature should finish the job to make Nebraska fully-aligned with the “America first” tax policy to reshore critical supply chains.