September 17, 2018
Author: Jonathan L. Grob
Organization: McGrath North Mullin & Kratz, PC LLO
I. Nebraska Sales and Use Tax Basics
A. Nebraska Sales Tax
Nebraska sales tax is imposed on gross receipts from retail sales of most types of tangible personal property and taxable services in Nebraska, unless a specific exemption applies. The tax is imposed on the sale transaction, rather on the item sold. Sales tax is collected by the retailer from the consumer, and remitted by the retailer to the state of Nebraska.
A retail sale is the sale of goods or taxable services to the final consumer for consideration when the sale occurs, or the taxable service is performed, in Nebraska. A retail sale also includes the lease or rental of tangible personal property. A retailer, for sales and use tax purposes, is any seller, whether a business or individual, who is engaged in the business of making retail sales or providing taxable services. Companies who meet any of the following criteria are considered to be engaged in business as Nebraska retailer and must obtain a sales tax permit as a retailer:
• Maintaining or occupying an office or place of business in the state;
• Having a representative or solicitor in the state to sell, deliver, or take orders;
• Deriving rental receipts from lease of property;
• Soliciting retail sales from residents of the state on a systematic or continuous basis through media;
• Being owned or controlled by an entity which owns or controls the retailer in the state; and
• Maintaining or having a franchisee or a licensee who is a retailer in the state.
Retailers who collect and remit Nebraska sales tax are required, before collection and remission, to obtain a Nebraska Sales Tax Permit. Application for the permit is made on a Nebraska Tax Application, Form 20. A separate permit is required for each retail location.
B. Sales Tax Base
Sales tax is imposed on gross receipts earned from the following transactions:
• Gross receipts from the sales, leases, rentals, installation, or application of tangible personal property (unless the tangible personal property falls into a specific exemption, such as the sale of food for human consumption or prescription medicine);
• Gross receipts of every person providing or installing utility services (such as gas, electricity, sewer, or water service);
• Gross receipts received from the installation of or furnishing satellite programming or community or county antenna television service;
• Gross receipts from the installation of, or from furnishing, local exchange telephone service, mobile telecommunications service, and intrastate message toll telephone service;
• Gross receipts of a retailer of intellectual or entertainment properties, including gross receipts from the sale of software and from the furnishing of video tapes, movie, film, satellite programming, satellite programming service, and satellite television signaling, descrambling, or decoding devices;
• Gross receipts from computer software training;
• Gross receipts from the sale of admissions. This means any amount charged for the right or privilege of access to or use of a place or location where entertainment, amusement, or recreation is provided. This includes season or subscription tickets for multiple occasions, either for a limited or unlimited use during a period of time. Places of amusement, entertainment, or recreation include amusement parks, art exhibits, baseball parks, bowling alleys, country clubs, driving ranges, fairgrounds, movie theatres, museums, nightclubs, health clubs, swimming pools, tanning salons, theatres, and zoos.
• Gross receipts from renting or furnishing accommodations for lodging for periods of less than 30 days. This includes gross receipts from any room or rooms or accommodations furnished by a hotel, inn, tourist camp, tourist cabin or any other place in which rooms or accommodations are regularly furnished except licensed hospitals and nursing homes. The terms “rooms, lodgings, or accommodations” do not include campsites, ballrooms, banquet rooms, reception rooms, meeting rooms, or other rooms which do not constitute a sleeping facility. Recreational vehicle park services are taxable. However, rooms rented to the same person for a period of 30 continuous days or more and the occasional rental for less than 30 days of dormitories or facilities regularly used to house students are exempt from Nebraska sales and use tax.
• Gross receipts from the sale of providing of the following enumerated services are also subject to Nebraska sales use tax:
ii. Building cleaning and maintenance, pest control, and security;
iii. Motor vehicle washing, waxing, towing, and painting;
iv. Computer software training;
v. Installing and applying tangible personal property if the sale of the property is subject to sales tax;
vi. Services of recreational vehicle parks;
vii. Repair or maintenance services performed with regard to tangible personal property the sale of which would be subject to sales use taxes, excluding motor vehicles;
viii. Animal specialty services, except for animal specialty services provided to certain livestock. The term animal specialty services includes: boarding or caring for animals; grooming; training, exercising, or handling animals; animal waste removal; breeding or insemination services; identification implants; or cremation, burial, or disposal services. Animal specialty services do not include: professional services, including hospitalization by a veterinarian; breeding or insemination services for use in ranching, farm, commercial, or industrial uses; and impound fees set by a local ordinance or amounts collected by animal control agencies for violations of local ordinances;
ix. Gross income received for detective services.
Insight. For some service providers, it may be unclear from the statutory definitions alone whether a service is subject to sales tax. The Department of Revenue has published “Information Guides” which state the Department’s position on the taxability of many service providers.
Taxable gross receipts also include the following:
• The sale of live plants incorporated into real estate, except when such incorporation is incidental to the transfer of an improvement upon real estate or the real estate;
• The sale of building materials annexed to real estate by certain contractors (Option 1 contractors);
• The sale or prepaid telephone calling arrangements and the recharge of prepaid telephone calling arrangements;
• The retail sale of digital audio works, digital audio visual works, digital codes, and digital books delivered electronically (i.e. on the internet).
This includes the sale of codes which provide the purchaser with the right to obtain one or more of these products delivered electronically. For sales and use tax purposes, the term “gross receipts” means the sales price of the property or services, as discussed below.
C. Sales Price
The term “sales price” means the total amount of the sale or the lease or rental price, valued in money, whether that is received in money or otherwise. Gross receipts includes the value of any property, services, commodities, or precious metals which are received. There is no deduction to the sales price for any of the following:
1. The seller’s cost of the property sold;
2. The cost of materials used, the cost of labor or services, interest, losses, all costs of transportation bore by the seller, all taxes imposed on the seller, or any other expense of the seller;
3. Charges by the seller for any services necessary to complete the sale;
4. Delivery charges; and
5. Installation charges.
Sales price includes any consideration received by a seller from a third party if:
a. The seller actually receives consideration from a party other than a purchaser and the consideration is directly related to a price reduction or a discount on the sale;
b. The seller has an obligation to pass the price reduction or discount through to the purchaser;
c. The amount of the consideration attributable to the sales is fixed and determinable by the seller at the time of the purchase; and
d. One of the following criteria is met:
• The purchaser presents a coupon, certificate, or other documentation to claim a price reduction or discount with the understanding that the third party will reimburse the seller when the coupon, certificate, or documentation is presented;
• The purchaser identifies himself or herself to the seller as a member of a group or organization entitled to price reduction or discount; or
• The price reduction or discount as identified as a third party price reduction or discount or on the invoice received by the purchaser or on a coupon, certificate or other documentation presented by the purchaser.
Thus, the amount of sales tax on the sale of an item will generally not be reduced if the consumer presents a manufacturer’s coupon to a retailer.
Example. A consumer wishes to purchase a container of a cleaning solution from a retailer. The container of cleaning solution has a retail price of $2.00. The consumer presents a $1.00 manufacturer’s coupon to the retailer, which will entitle the retailer to reimbursement of $1.00 from the manufacturer and cause the consumer to only pay $1.00 in cash for the cleaning solution. In this case, sales tax is charged on the full $2.00 price. Sales tax is not reduced by the amount of the manufacturer’s (third party) coupon. However, the “sales price” does not include:
1. Any discounts, including cash, terms, or coupons not reimbursed by third party which are allowed by a seller and taken by purchaser on a sale. Thus, a retailer’s own discount will reduce the sales price which is subject to Nebraska sales tax.
Example. A retailer establishes that an item has a normal retail price of $2.00, but reduces the price of the item by 30% (to $1.40) during a promotional event. In this case, because the retailer itself provides the discount and the retailer is not reimbursed by a third party for the discount, the sales price for sales and use tax purposes is $1.40.
2. Interest, financing, and carrying charges from credit extended on the sale of personal property or services, if that amount is separately stated on an invoice or other document given to a purchaser;
3. Any taxes legally imposed directly on the consumer that are separately stated on the invoice, bill of sale, or other document given to the purchaser; and
4. Credit for your trade-in taken as part of the consideration for the sale of the property.
Example. A motor vehicle dealer agrees to sell a car for $6,000 in cash and the purchaser’s existing vehicle, valued at $4,000, as a trade-in. Total consideration is thus valued at $10,000. In this case, sales tax is imposed on the full $10,000 purchase price, not the $6,000 in cash which the customer must pay. The car’s sales price is not reduced by the value of the traded-in vehicle.
Two aspects of the definition for “sales price” have caused many audit findings and controversies between taxpayers and the Department. First, many people do not recognize that installation charges are taxable as part of the sales price of an item. If a customer buys an item for $100.00 but pays the retailer an extra $200.00 to install the item, sales tax is imposed on the $300.00 total charge - $100.00 for the taxable item and $200.00 for the installation cost.
Second, an item’s sales price includes the amount paid for delivery charges. The term “delivery charges” is defined by statute to mean “charges by the seller of personal property or services for preparation and delivery to location designated by the purchaser of personal property or services, including, but not limited to transportation, shipping, postage, handling, creating, and packing.” This means that a seller’s charges for postage may be subject to Nebraska’s sales tax. This provision has posed administrative difficulty (as well as unexpected expense) for companies in the direct mail industry, companies who mail customer statements, and companies who use mailer advertisements as a significant part of their business. In many situations, the cost of postage is far greater than the cost of the statement or advertisement itself. In a typical example, a statement may cost 10 cents to print, but postage for mailing the statement costs between 25 and 30 cents.
If the company pays those postage charges to a vendor, the amount of that postage is generally subject to Nebraska sales tax. This is true even though the vendor may receive only reimbursement of the actual cost of postage used at the U.S. Postal Service.
Companies often want to have the statements or advertisements mailed by the vendor, to take advantage of postage discounts available to the vendor (due to the quantity of mail sent by the vendor).
Example. One attempt to avoid the imposition of sales tax on postage charges was held invalid in a Nebraska District Court case from 2007. In the case Norris Public Power District v. State, an electric utility printed and mailed bills to its customers on a regular basis. The utility hired a printer to print the statements and also had the printer directly mail the statements to the utility’s customers. The electric utility reimbursed the printer for the cost of the postage used to mail those statements, by making out a check for the postage reimbursement directly to the United States Postal Service. However, the electric utility sent the reimbursement check directly to the printer. Upon audit, the Department of Revenue assessed Nebraska sales tax on the cost of the postage which was sent to the printer.
Upon appeal, the District Court held that the postage charges were subject to Nebraska sales tax, as part of the total consideration paid to the retailer. The District Court made this ruling despite the fact that the check in that case was addressed directly to the U.S. Postal Service and could not have been cashed or deposited by the printer. Because the District Court’s decision was not appealed by the electric utility, the case was not heard by the Nebraska Supreme Court or the Nebraska Court of Appeals. Of course, there is potential that one of those courts would have ruled differently.
D. Use Tax
Nebraska’s sales and use taxes complement each other. Through sales and use taxes, the legislature has attempted to provide a uniform tax upon the sale, lease, rental, use, storage, distribution, or other consumption of most types of tangible personal property and on certain intangible property or services. Use tax (also known as consumers’ use tax) is not a duplication of a sales tax. Rather, use tax is imposed on the storage, use, distribution, or other consumption of tangible personal property and any intangible property or services which would be included in the measure of the sales tax and would be subject to sales tax if the sale transaction was completed in this state. Use tax thus applies when sales tax has not been paid to Nebraska.
The Department of Revenue will presume that any property or services sold, leased, or rented by any person which are delivered in Nebraska constitutes a taxable transaction until the taxpayer establishes the contrary. The burden of proving that any property or services delivered in the state are delivered for purposes other than storage, use, distribution, or other consumption in Nebraska is on the purchaser. Use tax is paid directly to the Nebraska Department of Revenue by the purchaser.
The purchaser need not obtain a permit to pay use tax.
Use tax will specifically apply to the following transactions:
1. Purchases for delivery in Nebraska from out-of-state retailers were the applicable Nebraska sales tax has not been paid;
Example. A consumer purchases cigarettes from an online vendor (without nexus in Nebraska, meaning that the online vendor need not collect Nebraska sales tax on the transaction). The consumer is responsible for reporting the transaction to the Department of Revenue and paying use tax on the sales price of the cigarettes, including the charges for delivery of the cigarettes to the consumer.
2. Retail purchases made in this state where the applicable sales tax has not been paid;
3. Purchases at retail from federal government agencies and instrumentalities not required to act as collectors of Nebraska sales use tax;
4. Purchases where an exempt sales certificate was originally given, but the property or service is subsequently put to a taxable use;
5. Use of property or services originally purchased tax free for resale purposes but which was later consumed for personal needs or consumed by or within the business;
6. Purchases from out of state retailers of items exempt in the other state that are used in this state and are taxable if purchased in this state; or
7. Purchases that are manufactured, processed or fabricated in another state that are not used for their intended purposes in the other state after the manufacture, processing or fabrication.
Consumer’s use tax does not apply to the following transactions:
1. Transactions upon which Nebraska sales tax has been paid;
2. Storage, use, or other consumption of property or services exempt from Nebraska sales tax;
3. Transactions where sales tax has properly been paid on the sale, purchase, use, or other consumption of property or services in another state at a rate equal to or greater than the rate in Nebraska.
Example. If a purchaser purchases an item in Iowa (by taking possession at the Iowa location of the seller), then that purchaser will likely be subject to Iowa sales tax on that purchase. If the amount of sales tax paid in Iowa is equal or greater to any amount of Nebraska use tax that would be paid on that item, the item is exempt from Nebraska use tax. If the purchaser brings the item back to use in Nebraska and the purchaser pays a lower rate of sales tax in Iowa than the rate of Nebraska use tax imposed at the location where the purchaser will use the item, then the purchaser must pay (as use tax) the difference between the Nebraska use tax on the full sales price and the Iowa sales tax actually imposed.
4. Transactions in which the item purchased has been used for its intended purpose in another state. This exemption does not apply to motor vehicles, motor boats, or airplanes.
Example. A printer with locations in both Nebraska and Iowa purchases a new copier in Iowa, installs the copier at the Iowa location, and uses the copier in Iowa for two months. If the printer then brings the copier to the printer’s Nebraska location where the copier remains, Nebraska use tax is not due because the copier was purchased and first used for its intended purpose in Iowa.
5. Transactions where the item was purchased in another state, was stored in Nebraska, and was subsequently taken to and used in another state without any use other than storage in this state. Under this provision, a company may bring an item into Nebraska, store it in a Nebraska warehouse (but not use that item), then move the item to another state for its intended use without being subject to Nebraska use tax on the storage of that item.
Regarding donations, Nebraska use tax is due on items which are withdrawn from a company’s inventory for the purposes of being given away or donated. The tax is calculated at the rate in effect at the location where the inventory is stored. However, use tax is not due when services, which are normally taxable, are donated – if the service provider is the one donating or giving away the service.
E. State vs. Local Sales And Use Taxes
The total Nebraska sales and use tax rate is comprised of two components. The first is a statewide rate of 5.5%, which applies to sales in all parts of the state. The second part is a local option sales and use tax which is imposed by cities or counties. Cities or counties can choose to impose an additional .5%, 1%, 1.5%, 1.75% or 2% local option sales and use tax on transactions sited within that city or county (the situs of a transaction is discussed below). This would bring the total sales tax rate to 6%, 6.5%, 7%, 7.25% or 7.5%. NOTE: the 1.75% and 2% rates are applicable on October 1, 2014. Persons living in Omaha are familiar with a 7% tax rate. This is a combination of the 5.5% Nebraska rate, along with a 1.5% local option sales and use tax imposed by the city of Omaha. Because the sales tax rates are set by the state legislature, the city of Omaha may not unilaterally raise the local option sales and use tax rate above 1.5%. Cities with sales tax rates greater than 7% (effective October 1, 2014) are Alma, LaVista, Sidney, and Waterloo.
To assist retailers and consumers in determining what rate applies to each given address, the Department of Revenue maintains a Sales Tax Rate Finder at http://salestaxrates.ne.gov/nedor. At this website, retailers and consumers may enter a Nebraska address and determine the applicable sales and use tax rate.
F. Cash Discounts Versus Rebates: Rebates Do Not Reduce Taxable Price
As noted above, discounts allowed by the retailer to customers are deductible in arriving at the taxable sales price. Thus, a 30% discount given by a retailer will reduce the taxable sales price by 30%. To reduce the amount of the sales price, such discounts must appear on new retailer’s invoices, records, or accounts and be substantiated to the satisfaction of the Department of Revenue.
Often, a seller will provide a cash discount as a inducement for payment within a specified time or may provide a volume discount as an inducement for larger purchases. These discounts may be deducted from the sales price by the seller, but may not be deducted until the discount has actually been given to the purchaser. Such discounts will be allowed as a deduction on the seller’s tax return when there is sufficient evidence in the seller’s records to indicate such discounts have been given.
In contrast to sales discounts, a cash rebate is not deductible in arriving at the taxable sales price. A cash rebate is generally allowed by a manufacturer subsequent to an actual sales transaction and is generally contingent upon the claimant submitting proof that the sales transaction has been finalized. For sales tax purposes, a rebate does not reduce the original sales price upon which the tax is imposed. Rather, a rebate simply changes the party who is responsible for paying the sales price.
The key exception to this rule is a rebate received from a manufacturer that is used to reduce the selling price of a motor vehicle -- when the rebate is transferred to the dealer at the time of the sale and is shown on the sales invoice as a price reduction, partial payment, or a down payment. Under Nebraska law, such rebates act to reduce the sales price of the car. In that situation, the amount of the rebate is not subject to Nebraska sales and use tax.
G. Returned Articles, Repossessions, and Bad Debts Returned Articles. If taxable purchases are returned to a retailer by the purchaser, and the sale is rescinded, the retailer shall refund or give a credit to the purchaser in the amount of the Nebraska sales tax previously charged on that sale. If only a portion of the purchase price is ultimately refunded or credited, the amount of sales tax to be refunded or credited by the retailer shall be computed based on the percentage of the purchase price to be refunded or credited. If a retailer charges a separate charge for the return of an item, such as a restocking fee, that fee constitutes a portion of the purchase price of the item which is not refunded.
The retailer may deduct from gross sales on the retailer’s sales tax return that portion of the sales price which was refunded or credited to the purchaser (assuming the retailer previously remitted the sales tax to the Department). The retailer may claim the deduction on the retailer’s tax return for the period in which the refund was made or the credit was given.
Repossessions. Sales tax previously remitted by a retailer arising from the sale of property, which is subsequently repossessed, may be allowed as a credit against the retailer’s current sales tax liability, but only to the extent of the portion of the purchase price remaining unpaid at the time of repossession. No sales tax credit is allowable for expenses incurred by the retailer in attempting to collect either the account or repossessing the property. The transaction in which the property is repossessed is not a sale in itself and there is no tax due from the repossession.
If the repossessed property is used other than for demonstration or display to other potential purchasers, the repossessor owes a use tax in the property. The taxable amount shall be the amount of the purchaser’s unpaid debt. When property which has been repossessed is resold by the original retailer, or by a finance company or other financial institution, the gross receipts from such sales are generally taxable. The Department has established via regulation that such property will not be eligible for the occasional sale exemption because the seller has not paid tax or productively used the property for one year.
Bad Debts. A retailer may deduct sales tax paid on the amount of debt found worthless for federal income tax purposes and actually deducted or, if a reserve method is elected, charged against bad debt reserve (assuming the sales and use tax has previously been remitted to the state by the retailer). The deduction should be taken on the return in the period in which the debt was found worthless or charged off for income tax purposes. To substantiate its claims for refund or credit of Nebraska sales tax from bad debts, the retailer must maintain complete and adequate records which demonstrate:
a. Date of original sale;
b. Name and address of purchaser;
c. Amount purchaser contracted to pay;
d. Amount on which retailer collected tax;
e. All payments or other credits applied to account of purchasers; and
f. Evidence that the uncollected portion of gross receipts on which tax was remitted actually was charged off as a bad debt for income tax purposes.
H. Absorption Of Sales And Use Tax Prohibited
A retailer is required to pass on to the consumer or user the full amount of the Nebraska sales and use tax. The retailer must collect the tax as an item separate and distinct from the selling price of the property or services being sold. Under Nebraska law, it is a criminal misdemeanor for a retailer, directly or indirectly, to represent to the public that the sales tax or any part of the sales tax will be assumed, absorbed, or refunded by the retailer, or that it will not be added to the purchase price. However, by regulation, the Tax Commissioner may permit a retailer to add and collect sales or use tax without separately stating the tax. The regulation must be adopted prior to the advertising of the item.
Examples. In the Department’s Sales Tax Regulation 1-044, regarding admissions, the Department has allowed sales tax to be included in the total admission price for a ticket to an entertainment or sporting event. In the Department’s Sales Tax Regulation 1-041, regarding concessionaire sales, the Department has established that sales tax does not have to be separately stated and collected from the customer on concession sales of food and beverages.
The general rule regarding absorption of tax does not apply to companies which furnish sewer or water services. These companies may elect to assume or absorb the applicable sales tax or may alternatively elect to pass the tax to the final consumer in the same manner as all other retailers.
I. Situs Of A Sale: Sourcing In-State Transactions Sourcing Of Services And The Sale Of Tangible Personal Property. As discussed herein, local cities and counties often impose a local option sales tax, at a rate between ½% and 2%. Thus, sales and use tax rates may differ within Nebraska. This creates the obvious question: which sales tax rate applies for purchases made at a retailer’s location, which are shipped to another location?
The rules for sourcing transactions (determining which sales tax rate to charge) were mandated under the Streamlined Sales Tax Project. Rules for sourcing transactions within Nebraska are identical to the rules for sourcing transactions between Nebraska and other states. In short, the rules are as follows:
1. If a property or service is received by the purchaser at the business location of the retailer, this sale is sourced to that business location.
2. If the property or service is not received by the purchaser at the retailer’s business location, the sale is sourced to the location where receipt by the purchaser or purchaser’s donee, designated as such by the purchaser, occurs, including the location indicated by instructions for delivery to the purchaser or donee which is known to the retailer.
Example. Bo Pelini purchases a large red chair for his home from a local furniture store located within the city of Lincoln. The total sales tax rate within Lincoln is 7%: 5.5% state and 1.5% local. Because Bo is too busy with other matters (i.e. the offense and the defense) to load the chair onto a truck and take the chair home himself, Bo has the chair delivered to his home by the furniture store. Bo lives outside the city limits of Lincoln, in an area in which no local option sales tax applies. Because Bo has the chair delivered to his house, the sale is sourced to Bo’s house. Thus, Bo will only pay the state sales tax rate of 5.5%. Bo would pay a 7% sales tax rate if he picked up the chair at the store.
3. When the previous provisions do not apply, the sale is sourced to the location indicated by an address or other information for the purchaser as available from the business records of the retailer.
4. When the previous provisions do not apply, this sale is sourced to location indicated by an address for the purchaser obtained during consummation of the sale, including the address on the purchaser’s payment instrument (such as a check), if no other address is available.
5. When none of the previous provisions apply, including the circumstance when the retailer is without sufficient information to apply the rules in any provision, then the location will be determined by the address from which the property was shipped, from which a digital good was first made available for transmission, or from which the service was provided disregarding any location that merely provided the digital transfer of the product sold.
Lease Or Rental Of Most Tangible Personal Property. Special rules apply for the lease or rental of tangible personal property, other than motor vehicles, trailers, semitrailers, aircraft, or transportation equipment. The lease or rental of such tangible personal property shall be sourced as follows:
1. For a lease or rental that requires recurring periodic payments, the first periodic payment is sourced the same as a retail sale (in accordance with the previous rules). Periodic payments made subsequent to the first payment are sourced to the primary property location for each period covered by the payment. The primary property location shall be as indicated by an address for the property provided by the lessee that is available to the lessor from its records maintained in the ordinary course of business when use of this address does not constitute bad faith. The property location shall not be altered by intermittent use at different locations, such as use of business property that accompanies employees on business trips and service calls.
2. For a lease or rental that does not require recurring periodic payments, the payment is sourced the same as a retail sale.
Lease of Motor Vehicles, Trailers, Semitrailers, And Aircraft. The lease or rental of motor vehicles, trailers, semitrailers, or aircraft that do not qualify as “transportation equipment” (under the definition specified in the following section) shall be sourced as follows:
1. For a lease or rental that requires recurring periodic payments, each periodic payment is sourced to the primary property location. The primary property location shall be as indicated by an address for the property provided by the lessee that is available to the lessor from its records maintained in the ordinary course of business when use of this address does not constitute bad faith. This location shall not be altered by intermittent use at different locations.
2. For a lease or rental that does not require recurring periodic payments, the payment is sourced the same as a retail sale of tangible personal property. This subsection does not affect the imposition or computation of sales or use tax on leases or rentals based on a lump-sum or accelerated basis or on the acquisition of property for lease.
Sale, Lease, Or Rental Of Transportation Equipment. The retail sale, including lease or rental, of transportation equipment shall be sourced the same as a retail sale of most types of tangible personal property. Transportation equipment means any of the following:
1. Locomotives and railcars that are utilized for the carriage of persons or property in interstate commerce;
2. Trucks and truck-tractors with a gross vehicle weight rating of ten thousand one pounds or greater, trailers, semitrailers, or passenger buses that are (i) registered through the International Registration Plan and (ii) operated under authority of a carrier authorized and certificated by the United States Department of Transportation or another federal authority to engage in the carriage of persons or property in interstate commerce;
3. Aircraft operated by air carriers authorized and certificated by the United States Department of Transportation or another federal authority or a foreign authority to engage in the carriage of persons or property in interstate or foreign commerce; and
4. Containers designed for use on and component parts attached or secured on the items discussed above.
Direct Mail. Special sourcing rules apply for direct mail, which rules were recently revised pursuant to Nebraska’s membership in the Streamlined Sales Tax Project (see below). If you would like to review these rules in detail, please feel free to contact the author.
J. Bundled Transactions
Gross receipts from the sale of “bundled transactions” are taxable when one or more of the products included in the bundle are taxable. The term “bundled transaction” means the retail sale of two or more products, except real property and services to real property, when (a) the products are otherwise distinct and identifiable and (b) the products are sold for one non-itemized price. Bundled transaction does not include the sale of any products in which the sales price varies, or is negotiable, based on the selection by the purchaser of the products included in the transaction.
Distinct and identifiable products do not include:
1. Packaging, such as containers, boxes, sacks, bags, and bottles or other materials such as wrapping, labels, tags, and instruction guides that accompany the retail sale of the products and are incidental or immaterial to the retail sale thereof.
2. A product provided free of charge with the required purchase of another product.
3. Items included in the definition of “sales price,” such as delivery charges or installation charges.
One non-itemized price does not include a price that is separately identified by product on binding sales or other supporting sales-related documentation made available to the customer in paper or electronic form, including, but not limited to, an invoice, bill of sale, receipt, contract, service agreement, lease agreement, periodic notice of rates and services, rate card, or price list.
A transaction, which otherwise meets the definition of a bundled transaction, is not a bundled transaction if it is:
1. The retail sale of tangible personal property and a service where the tangible personal property is essential to the use of the service, and is provided exclusively in connection with the service, and the true object of the transaction is the service;
2. The retail sale of services when one service is provided that is essential to the use or receipt of a second service and the first service is provided exclusively in connection with the second service and the true object of the transaction is the second service; or
3. A transaction that includes taxable products and nontaxable products and the purchase price or sales price of the taxable products is de minimus. De minimus means the seller's purchase price or sales price of the taxable products is ten percent or less of the total purchase price or sales price of the bundled products.
In addition, a bundled transaction does not include the retail sale of exempt tangible personal property and taxable tangible personal property if: (a) the transaction includes food and food ingredients, drugs, durable medical equipment, mobility enhancing equipment, over-the-counter drugs, prosthetic devices, or medical supplies; and (b) the seller's purchase price or sales price of the taxable tangible personal property is fifty percent or less of the total purchase price or sales price of the bundled tangible personal property.
K. Streamlined Sales Tax
Nebraska is a full member of the Streamlined Sales Tax Project, meaning that it complies with all requirements of the Project. The Streamlined Sales Tax Project is an initiative undertaken by many states for the purpose of trying to reduce the administrative work and expense businesses incur while administering the state and local tax. The Streamlined Sales Tax Project has undertaken many steps to reduce the work and expense needed for businesses to comply with sales tax rules in multiple states, including enacting standardized definitions for terms, utilizing common forms and procedures, the certification of sales tax administration software for businesses’ use, and potentially allowing businesses to register for sales tax collection in multiple states in one location (i.e. a central website). (Nebraska’s sales tax collection registration system will be covered in depth later on in this presentation.) Members of the Streamlined Sales Tax Project are required to pass common definitions and other sales tax provisions which are adopted at the group’s meetings. Failure to do so within a defined period will lead to expulsion from the group.
Approximately 23 states are full members of the Streamlined Sales Tax Project, including neighboring states Iowa, Kansas, and South Dakota. Certain provisions passed by the Streamlined Sales Tax Project, including certain rules regarding the sourcing of transactions among locations, have kept some of the larger states (such as California, Texas, and New York) from joining the Streamlined Sales Tax Project.
As you will note from the administration section of this presentation, Nebraska’s membership in the Streamlined Sales Tax Project has led to a number of differences in the way Nebraska’s sales tax system is currently administered. In addition, definitions adopted by Nebraska as a result of its membership in the Streamlined Sales Tax Project have clarified and amended Nebraska’s rules regarding the sourcing of transactions between states (and within Nebraska) for sales tax purposes.
Because Nebraska is required to adopt the provisions agreed upon at Streamlined Sales Tax Project meetings, professionals who wish to track potential changes to the Nebraska’s sales and use tax laws must monitor the proceedings at the Streamlined Sales Tax Project meetings. Commenting at the meetings is generally the appropriate place to voice concerns or make comments regarding any changes proposed or discussed at those meetings. After a new tax provision has been formally approved by the Streamlined Sales Tax Project, a legislative bill to enact that provision is introduced in the Nebraska Legislature. At that point, objections to the provision would likely be disregarded, because state senators are not likely to remove Nebraska from the whole Streamlined Sales Tax Project. As noted above, if Nebraska does not pass a measure adopted by the Streamlined Sales Tax Project, Nebraska would lose its membership in the Project, and the benefits to Nebraska’s sales tax system that come from it.
STATEMENT REGARDING THESE MATERIALS
This publication should not be considered as legal, tax, business or financial advice. This publication is designed to provide information about the subject matter covered. It is provided with the understanding that while the author is a practicing attorney, neither he nor McGrath North has been engaged by the reader to render legal or other professional service (unless a specific engagement agreement has been executed). If legal advice or other expert assistance is required by the reader, the services of a competent professional should be sought.