Introduction

Nebraska hosts a diverse business climate, from its several Fortune 500 companies to its numerous small businesses. Its industries include agriculture, banking, healthcare, retail, transportation, insurance, technology, manufacturing and staffing, among others. Nebraska’s largest city, Omaha, is home to Union Pacific, Mutual of Omaha, Valmont Industries and Berkshire Hathaway, among others, including First National Nebraska, the country’s largest privately held bank. Many global technology companies such as Google and Meta own and operate offices and data centres in Nebraska, and Nebraska is home to a robust agricultural industry featuring large agricultural companies as well as family farms and ranches.

Nebraska state laws include the Nebraska Constitution, laws passed by the Nebraska legislature and periodically codified in the Nebraska Revised Statutes, and decisions by courts that interpret those Nebraska laws. Nebraska’s lawmaking process is unique as it is the only state in the US with a unicameral legislature.

Data Privacy and Security

While 2023 has been a landmark year for comprehensive data privacy legislation, developments in Nebraska have been few and far between. Although the Nebraska legislature has considered bills in previous legislative sessions that would constitute comprehensive privacy laws, no effort has garnered significant traction thus far. Thus, Nebraska businesses (while doing business exclusively in Nebraska) are not subject to many of the requirements regarding personal information seen in other states such as California, which often include the recognition of certain consumer rights, the obligation to handle personal information in accordance with certain standards, and the obligation to make certain disclosures.

Despite this, Nebraska businesses should keep two key considerations in mind. The first consideration to keep in mind is that Nebraska has adopted a data breach notification law. Pursuant to the Financial Data Protection and Consumer Notification of Data Security Breach Act of 2006, entities doing business in Nebraska must generally notify affected individuals and the state attorney general in the event that they suffer a data breach. The second consideration to keep in mind is that, although Nebraska has not adopted a comprehensive data privacy law, some of Nebraska’s neighbouring states have, including Iowa. Iowa’s law goes into effect on 1 January 2025, and carries many obligations for entities doing business in Iowa, including recognising certain consumer privacy rights. Consequently, businesses that are present in both Iowa and Nebraska should be aware of Iowa’s new comprehensive data privacy law and prepare to be in compliance by the beginning of 2025.

Labour and Employment

In early 2023, the Federal Trade Commission (FTC) issued a proposed rule that would ban non-compete clauses that restrict the business activities of workers post-employment. Prior to issuance of the proposed rule, restrictive covenants have historically been regulated under state law. Nebraska remains one of the strictest states in the US relating to the enforcement of post-employment restrictive covenants. The new FTC rule is generally consistent with Nebraska public policy. Here is a summary that addresses the interplay between the new FTC rule and Nebraska law:

The proposed FTC rule will impose a ban on non-compete agreements that prevent a “worker from seeking or accepting employment with a person, or operating a business, after the conclusion” of employment. This rule is consistent with Nebraska law.

The FTC rule not only applies to employees but also applies to independent contractors and workers who provide services to clients and customers of the employer. In Nebraska, the non-compete ban applies to employees. Unlike the FTC rule, a non-compete in Nebraska may be enforceable in agreements with independent contractors and service providers.

The FTC rule and Nebraska common law will enforce non-compete agreements relating to the sale of a business if the individual restricted is the owner or a “substantial member or substantial partner of the business”. Such restrictions may be enforced if they are reasonable to protect the employer’s legitimate business interests and are not injurious to the public or otherwise unduly harsh and oppressive.

The FTC rule does not address post-employment restrictions relating to the solicitation of customers and employees. In other words, customer-based restrictions that prevent an employee from soliciting or providing competitive products and services to customers may still be enforced as provided under state law, as well as restrictions relating to the solicitation and hiring of employees. The Nebraska courts will enforce a customer non-solicitation restriction if it is limited to clients or accounts of the employer with whom the former employee actually did business and had personal contact. Nebraska will also enforce restrictions on soliciting and hiring employees.

If a restrictive covenant goes beyond the requirements adopted by the Nebraska courts, the restriction will not be enforced in Nebraska. Unlike other states, the Nebraska courts will not sever or reform a restrictive covenant to render it enforceable. This is true even if the agreement contains a severability clause or expressly allows reformation by the courts.

Tax

McGrath North assists with numerous tax and incentive projects for companies of various sizes and industries that are looking to grow and expand in Nebraska. As part of that work, we have identified four significant Nebraska tax trends and developments.

Nebraska Business Climate Developments

We regularly review Nebraska’s business and tax climate, as well as Nebraska’s competitiveness with other states, and report on these at a number of conferences. This past year, the Nebraska legislature enacted a number of business climate changes. The most impactful of these are reductions in the top corporate and individual tax rates in Nebraska. By 2027, Nebraska’s top individual and corporate income tax rates will be 3.99%, a reduction from a top rate of 6.64% for individuals and 7.25% for corporations in 2023.

Foreign Income May Increase a Corporation’s Nebraska Tax Liability

The Nebraska Department of Revenue has, by administrative pronouncement, ruled that corporations must include Subpart F income earned globally – including both IRC § 965(a) income and income known as Global Intangible Low-Taxed Income (GILTI) that was repatriated to the US under the 2017 Tax Cuts and Jobs Act – as part of their federal income that is subject to Nebraska apportionment. For many companies, this has resulted in a part of that foreign income becoming subject to Nebraska income tax and a resulting increase in their Nebraska tax bill.

The Department’s position is being challenged judicially now, but a final ruling on this issue is pending (and may, based on certain procedural issues, be multiple years in the future). We have also seen proposals to address this issue in the legislature, but again those have not yet been successful. So, we are now representing a number of lead companies in appeals to address the Nebraska tax issues surrounding their foreign income and potentially reduce their Nebraska tax liability.

Uncertainty Surrounding Remote Employees

Nebraska-based companies hiring remote employees who primarily work in other states are dealing with uncertainty as to whether the wages of those employees are subject to Nebraska tax. As a corollary to that, the tax law is uncertain whether those companies must withhold Nebraska income tax on the wages paid to certain remote employees. This is largely because Nebraska takes the position that if a non-resident employee’s service is performed outside 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”, then the wages for that employee are subject to Nebraska income tax. This is true even if the remote employee never set foot in Nebraska. In addition, for wages paid to such employee, there is contradictory regulatory guidance regarding whether the employer must withhold Nebraska income tax on such wages.

Residency Issues for Business Owners

For individuals, including business owners and high-ranking employees who have residences in multiple states, the Department of Revenue has become very aggressive in claiming that such individuals constitute Nebraska residents and owe Nebraska income tax on all income (subject to certain credits for income also taxed by another state). For many individuals, this has resulted in unexpected and significant tax assessments.

We are working with numerous business owners and other individuals, before, during and after Department of Revenue audits regarding this issue. This includes taking steps to reduce the likelihood of a Department of Revenue challenge, to persuade the Department’s auditors that an individual is not a Nebraska resident and to challenge a Department of Revenue assessment through the judicial process.

Intellectual Property

There is high growth of Nebraska startups, and investment in innovation for Nebraska businesses is at an all-time high. Intellectual property protections in Nebraska rely heavily on federal law, with state protection of trademarks and trade names and available claims for state infringement, unfair trade practices or dilution. Nebraska state copyright law, like all others, was pre-empted by the Copyright Act of 1976. As such, Nebraska creatives must turn to federal law for protection of their works. Therefore, Nebraska content creators and those who utilise the works of others should take note of a recent Supreme Court holding considering the fair use defence against copyright infringement.

The fair use doctrine is a key limitation on the rights of copyright owners, intended to balance various aspects of the public interest, ie, creative work is to be encouraged and rewarded but the law must ultimately serve the cause of promoting broad public availability of arts. In Andy Warhol Foundation for the Visual Arts, Inc. v Goldsmith, the Supreme Court took an in-depth look at transformative fair use in Section 107 of the Copyright Act, ie, considering “the purpose and character or the use, including whether such use is of a commercial nature or is for nonprofit educational purposes”. At issue in this case was whether Andy Warhol’s licensure to Condé Nast of a colourful screen print of the musician Prince, derived from a black and white photograph taken by Lynn Goldsmith, was transformative and therefore permitted under fair use.

The Court rejected the Foundation’s arguments that the work at issue, Orange Prince, was “transformative” and found that it did not convey a different meaning or message than the original photograph. The Court made clear the question is not merely whether copying may have been helpful to convey a new meaning or message and that although “new expression may be relevant to whether a copying use has sufficiently distinct purpose or character, it is not, without more, dispositive of the first factor.” In the end, the Court found that Orange Prince’s purpose, for the use at issue in the case, was substantially similar to the purpose of Goldsmith’s original work – both were used to illustrate Prince in a magazine. Further weighing against a fair use finding was that the Foundation’s use was of a commercial nature. The Foundation provided no independent justification for copying the original photograph sufficient to outweigh the commercial nature of the Foundation’s use for such a highly similar purpose.

Ultimately, as evidenced by the Court’s dissenting opinion, the doctrine of fair use finds itself still at odds with clear-cut application and there are still strong opinions arguing entirely different views on when a work is considered “transformative”. While the scope of this opinion may be narrow, Nebraskans should continue to exercise caution and diligence when utilising works of others under the assumption that such use is permitted under the fair use doctrine. Obtaining the necessary permission or licences is always the safest strategy.