Were cloud-based camera, lock, sensor, and alert services taxable security services in Nebraska?

Plain-English summary

Cloud-based control of cameras, locks, sensors, sirens, lights, and related alerts was a taxable security service. Based on the described product, all recurring service charges were taxable because the seller provided video surveillance and alerts.

The service was sourced to the purchaser's address. A remotely located application did not prevent tax when the protected property was in Nebraska.

Setup and installation charges

Installation of tangible personal property used for the security service was taxable.

When equipment became annexed to real estate, contractor rules controlled:

• Under Option 1, one combined charge for the device and installation was taxable. If separately stated, only the device charge was taxable.
• Under Option 2 or Option 3, the contractor paid sales or consumer's use tax when buying the property and did not collect tax on the customer's installation charge.

Common questions

Q: Was the service exempt because customers controlled devices through software?

A: No. Monitoring or controlling surveillance equipment and providing alerts fell within taxable security services.

Q: Did an out-of-state server make a Nebraska property's service nontaxable?

A: No. The purchaser's address and location of the covered property controlled under the GIL.

Q: Was every installation charge taxable?

A: No. Treatment depended on whether property was tangible personal property or annexed to real estate and, for realty, which contractor option applied.

Q: Under Option 1, what if equipment and installation were separately stated?

A: Tax applied only to the device charge.

Citations and references

• Nebraska Sales and Use Tax Regulation 1-101 — taxable security services
• Nebraska contractor Options 1, 2, and 3 — annexed-property installation treatment
• Nebraska GIL 1-15-1 — cloud monitoring, installation, and sourcing

Source

• Landing page: https://revenue.nebraska.gov/about/legal-information/general-information-letters-gils
• Original PDF: https://revenue.nebraska.gov/sites/revenue.nebraska.gov/files/doc/legal/gil/GIL01-15-01_Security_Services.pdf

Original ruling text

GIL 1-15-1 Sales and Use Tax: Security Services
This guidance document is advisory in nature but is binding on the Nebraska Department of Revenue (Department) until
amended. A guidance document does not include internal procedural documents that only affect the internal operations of the
Department and does not impose additional requirements or penalties on regulated parties or include confidential
information or rules and regulations made in accordance with the Administrative Procedure Act. If you believe that this
guidance document imposes additional requirements or penalties on regulated parties, you may request a review of the
document.
This guidance document may change with updated information or added examples. The Department recommends you do not
print this document. Instead, sign up for the subscription service at revenue.nebraska.gov to get updates on your topics of
interest.
January 2, 2015
Dear XXXX:
In your December 3, 2014 email inquiry to XXXX, you requested sales tax information on monitoring systems. Based on the
information contained in your letter we are providing this General Information Letter (GIL).
GILs address general questions; provide analysis of issues; and direct taxpayers to the Nebraska statutes, Nebraska
Department of Revenue (Department) regulations, revenue rulings, or other sources of information to help answer a question.
A GIL is a statement of current Department policy, and taxpayers may rely on the Department to follow the principles or
procedures described in a GIL until it is rescinded or superseded. You may also find current regulations, revenue rulings,
information guides, taxpayer rulings, and other GILs at revenue.nebraska.gov that may be helpful to you.
The description of the product provided in your note is that of a service where residential or business customers are able to
control cameras, locks, outlets, and other devices via a cloud-based software application. The services are sold with a nonrecurring setup or installation service fee with a monthly, recurring service fee.
As provided in Nebraska Sales and Use Tax Regulation 1-101, taxable security services include services to protect property
from theft, vandalism, or destruction or to protect individuals from harm. Included in this category are services of monitoring
or controlling surveillance video and camera shots, motion sensors, door or window sensors, door locks, sirens, and flashing
lights. Based on the limited description of the services provided in your note, it appears that all charges for the XXXXX
Service are subject to tax as security services because video surveillance and alerts are provided to your customers.
The taxation of the setup or installation fee will depend on whether the property or devices become annexed to real estate.
The installation of any tangible personal property used in providing security services is taxable. The taxability of installations
of any property or devices which become annexed to real estate is governed by the rules for contractors. If the contractor is
operating as a retailer under Option 1, a single charge for both the installation and the device are taxable. If there are separate
charges for the installation and the device, tax is due only on the charge for the device. If the contractor is operating under
either Option 2 or Option 3, the contractor is liable for paying the sales or consumer’s use tax on its purchase of the property
and will not collect tax on the installation charge to the customer. Additional information on the taxation of building
materials and contractor labor charges is available on our website.
Security services are subject to tax at the address of the purchaser. Therefore, even though the software application used to
provide these services is located at a remote location or in another state, the service charge is taxable if the covered property
is located in Nebraska.
For the Tax Commissioner
Sincerely,

Ellen Thompson
Tax Specialist
Policy Section