NE 01-02-7 Sales and Use Tax 2002-09-30

Must an Option 1 contractor charge Nebraska sales tax on the labor to annex building materials to real estate?

Short answer: Yes. Under Revenue Ruling 01-02-7, Laws 2002, LB 1085 imposed sales and use tax, effective October 1, 2002, on any labor associated with the sale of property annexed to real estate by a person who elected to be taxed as a retailer under Neb. Rev. Stat. § 77-2702.05 (an Option 1 Contractor) -- except when the annexation is incidental to the transfer of a building. Taxable labor charges include fabricating, installing, applying, assembling, and repairing building materials and fixtures annexed to real estate, and they are taxable whether or not separately itemized or invoiced. An Option 1 contractor hired only to annex materials or fixtures owned by another person (a labor-only contract) does not collect tax on that labor, because it is not selling the materials being annexed. Contractors who elected Option 1 -- and contractors who never filed a Nebraska Sales and Use Tax Election for Contractors (Form 16) -- are Option 1 contractors, and can change their option by filing Form 16. This supersedes Regulation 1-017.05(B).

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This page answers the general question as of 2002. Ezel answers yours, under current Nebraska tax law, with citations.

Disclaimer: This is an official Revenue Ruling of the Nebraska Department of Revenue, a guidance document stating the Department's interpretation of how Nebraska tax law applies. Each Nebraska guidance document carries the notice that it 'is advisory in nature but is binding on the Nebraska Department of Revenue until amended.' Unlike a private letter ruling, a Revenue Ruling is a general statement of Department policy rather than advice to a single taxpayer, but it can be amended, superseded, or made obsolete by a later ruling or a change in statute or regulation, many rulings in this series have been rescinded or superseded, so confirm it is still in effect before relying on it. Nebraska's local option sales and use taxes are administered by the Department, not self-collected by home-rule cities. This summary is informational only and is not legal or tax advice. Consult a licensed Nebraska tax professional about your situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

Nebraska contractors elect how they're taxed on building materials. An Option 1 Contractor has elected under Neb. Rev. Stat. § 77-2702.05 to be taxed as a retailer — it buys materials tax free and charges its customer tax on the materials it sells and installs. Nebraska's 2002 tax bill LB 1085 added a new piece: effective October 1, 2002, an Option 1 contractor must also collect sales tax on the labor associated with the sale of property it annexes to real estate — except when the annexation is incidental to the transfer of a building.

What labor is taxable. Charges for fabricating, installing, applying, assembling, and repairing building materials and fixtures annexed to real estate. The labor is taxable whether or not it is separately itemized or separately invoiced.

The labor-only exception. An Option 1 contractor hired only to annex materials or fixtures owned by another person (a labor-only contract) does not collect tax on that labor — because it isn't selling the materials being annexed.

Who is an "Option 1" contractor. Both (1) contractors who elected Option 1, and (2) contractors who never filed a Nebraska Sales and Use Tax Election for Contractors (Form 16) are Option 1 contractors. A contractor may change its option by filing Form 16.

This supersedes Sales and Use Tax Regulation 1-017.05(B).

What this means for you

An Option 1 contractor selling and installing materials

From October 1, 2002, add sales tax to your labor charge when you sell and annex materials or fixtures to real estate — you can't escape it by itemizing labor separately. The exception is when your annexation is incidental to transferring a building.

A contractor doing labor-only work

If the customer (or someone else) owns the materials and you're just installing them, your labor isn't taxable under this rule, because you aren't the seller of the materials.

Choosing or changing your option

If you never filed Form 16, Nebraska treats you as Option 1 by default. To switch options, file Form 16.

Common questions

Q: Is the labor taxable if I list it as a separate line item?
A: Yes. The labor is taxable whether or not it's separately itemized or invoiced.

Q: I'm only installing fixtures my customer already owns — do I charge tax on that labor?
A: No. A labor-only contract to annex materials owned by another person isn't taxed, because you aren't selling the materials.

Q: I never filed Form 16. Which option am I?
A: Option 1. Contractors who never filed the election are Option 1 contractors; file Form 16 to change.

Citations and references

Laws 2002, LB 1085 — imposed tax on Option 1 contractor labor to annex sold property to real estate (except incidental to a building transfer), effective October 1, 2002.
Neb. Rev. Stat. § 77-2702.05 — the election to be taxed as a retailer (Option 1).
Form 16 — Nebraska Sales and Use Tax Election for Contractors (default is Option 1 if not filed; file to change).
Reg 1-017.05(B) — superseded by LB 1085.

Source

Original ruling text

REVENUE RULING 1-02-7
September 30, 2002
Sales and Use Tax - Option 1 Contractors. EFFECTIVE OCTOBER 1, 2002, CONTRACTORS
OPERATING UNDER OPTION 1 ARE REQUIRED TO COLLECT SALES TAX ON CHARGES
FOR ANY LABOR ASSOCIATED WITH THE SALE OF PROPERTY THAT IS ANNEXED TO
REAL ESTATE.
Laws 2002, LB 1085, imposed sales and use tax on any labor associated with the sale of property
annexed to real estate by a person electing to be taxed as a retailer under Neb. Rev. Stat. §772702.05, i.e., Option 1 Contractor, except when such annexation is incidental to the transfer of a
building.
Taxable labor charges include charges for fabricating, installing, applying, assembling and
repairing building materials and ﬁxtures annexed to real estate. The labor charges are taxable
whether separately itemized or separately invoiced.
Option 1 contractors who are hired to annex building materials or ﬁxtures owned by another person
(labor-only contract) are not required to collect sales tax on their labor charges as they are not
selling the materials or ﬁxtures being annexed.
Contractors who have elected to operate under Option 1 and contractors who have not ﬁled a
Nebraska Sales and Use Tax Election for Contractors, Form 16, are Option 1 contractors. Option
1 Contractors may change their option by ﬁling a Form 16.
Sales and Use Tax Regulation 1–017.05(B) is superseded by the provisions of Laws 2002,
LB 1085.
APPROVED:

Mary Jane Egr
State Tax Commissioner
September 30, 2002

Nebraska Department of Revenue, P.O. Box 94818, Lincoln, Nebraska 68509-4818

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