The Nebraska sales and use tax is imposed on taxable retail sale of tangible personal property and certain services. The state sales and use tax rate is 5.5%. Local jurisdictions are authorized to impose a sales or use tax on the same base as the state – local rates average 1.4%.
Nebraska does have some unique rules for contractors.
In most states, contractors are considered the end users/consumers of tangible personal property they purchase for use or consumption in the performance of improvements to real property. In Nebraska, contractors may elect to be taxed as either consumers or retailers in handling tangible personal property to be incorporated into realty.
Nebraska offers three options to the contractor for the taxation of building materials as follows:
- Option 1. Contractors are retailers of building materials that become annexed and they may purchase those materials for resale. The contractor must collect sales tax from all of their customers, including contractors, on the total amount charged for building materials they annex to real estate or use to repair fixtures or property annexed to real estate. Separately stated labor charges are not subject to Nebraska sales or use tax.
- Option 2. Contractors must pay sales tax on all building materials and other taxable items when purchased. The contractor must remit use tax directly to the state on all building materials and other taxable items on which no sales tax has been paid. The contractor under option 2 does not charge sales or use tax to the customer for either the materials or labor.
- Option 3. Contractors are consumers of building materials that become annexed but are entitled to maintain a tax exempt inventory. The contractor must remit use tax directly to the Department on all building materials when the building materials are removed from inventory. The contractor under option 3 does not charge sales or use tax to the customer for either the materials or labor.
The taxation of tools, supplies, fabrication and over–the–counter sales is not changed by the option selected for taxing building materials.
A contractor or repair person who has not completed and filed an election for Options 1, 2 or 3 before or within three months after beginning to operate, whichever is later, is treated as a retailer under Option 1 until an election is made. An election is not irrevocable, but may be changed upon approval by the Tax Commissioner.
Outside of these unique rules for contractors, Nebraska is fairly straight forward from a sales and use tax perspective.
Stay tuned for more of Jeff's EYE ON series as he blogs aboout sales and use tax State by State.