When must a Nebraska contractor remit sales tax on construction labor -- when the customer is billed or when payment is received?

Plain-English summary

Nebraska's 2004 tax overhaul (LB 1017) made contractor labor on construction services taxable, and starting July 1, 2004 contractors have to collect and remit sales tax on their gross receipts for that labor as payments are received. Because contractors bill in different ways — lump sum, down payments, progress payments — this ruling spells out when the tax is due, and the answer turns on the contractor's accounting method.

Accrual-basis contractors with more than one payment (down payments, progress payments, etc.) must collect and remit tax on each payment. They may report the tax either:

• when the amount is billed (recorded as a sale), or
• when the payment is received —

as long as they use the same method consistently for all contracts.

Accrual-basis contractors who receive only one payment for a project may keep remitting sales tax when the sale is recorded.

Cash-basis contractors continue to remit sales tax as payments are received.

The July 1, 2004 transition. Sales made by accrual-basis contractors before July 1, 2004, for which payment comes in on or after that date, are reported on the Nebraska and Local Sales and Use Tax Return for the tax period in which the sale was recorded. Contractors cannot amend their returns to move such sales into a later period just because payment arrived after July 1, 2004.

This ruling supersedes Nebraska Sales and Use Tax Regulation 1-009.03 to the extent that regulation does not reflect these down-payment and progress-payment rules.

What this means for you

Accrual-basis contractors billing in installments

Charge and remit sales tax on every payment on a taxable construction or repair project. Pick one timing — bill date or received date — and apply it to all your contracts, not case by case.

Accrual-basis contractors paid in a single payment / cash-basis contractors

If you take a single payment on the accrual basis, remit when you record the sale. If you keep your books on the cash basis, remit as you receive payment — the multiple-payment rule doesn't change that.

Anyone with pre-July-2004 jobs paid later

Report those sales in the period you recorded the sale, and don't try to shift them by amending — the payment date after July 1, 2004 doesn't move the reporting period.

Common questions

Q: When did contractor construction labor become taxable in Nebraska?
A: Beginning July 1, 2004, under Laws 2004, LB 1017, contractors collect and remit sales tax on gross receipts for construction-service labor as payments are received.

Q: As an accrual-basis contractor getting progress payments, can I choose to remit at billing rather than at receipt?
A: Yes — you may report the tax when billed or when received, but you must use the same method consistently across all your contracts.

Q: A job I recorded in June 2004 is paid in August 2004. Which period reports the tax?
A: The period in which the sale was recorded (June 2004). You cannot amend to move it to the period of payment.

Citations and references

• Laws 2004, LB 1017 — beginning July 1, 2004, contractors collect and remit sales tax on gross receipts for labor in performing construction services as payments are received.
• Nebraska Sales and Use Tax Regulation 1-009.03 — superseded to the extent it doesn't reflect the down-payment/progress-payment reporting rules.

Source

• Landing page: https://revenue.nebraska.gov/about/legal-information/revenue-rulings-issued-tax-commissioner
• Original PDF: https://revenue.nebraska.gov/sites/revenue.nebraska.gov/files/doc/legal/rulings/rr010401.pdf

Original ruling text

REVENUE RULING 1-04-1
June 24, 2004
Sales and Use Tax - Remittance of Sales Tax by Contractors. CONTRACTORS MAINTAINING
THEIR BOOKS AND RECORDS ON THE ACCRUAL BASIS OF ACCOUNTING WHO
RECEIVE MORE THAN ONE PAYMENT ON A TAXABLE CONSTRUCTION OR REPAIR
PROJECT MAY REMIT SALES TAX WHEN THE CUSTOMER IS BILLED OR WHEN
PAYMENT IS RECEIVED.
Advice has been requested on the collection and remittance of sales tax by accrual-basis
contractors performing construction services. Pursuant to Laws 2004, LB 1017, beginning July 1,
2004, contractors must collect and remit sales tax on their gross receipts for labor in performing
construction services as payments are received. Due to the fact contractors may utilize different
billing methods, the following guidelines must be used when remitting sales tax.
Beginning July 1, 2004, accrual-basis contractors receiving multiple payments on construction
projects (down payments, progress payments, etc.) must collect and remit tax on each payment.
The tax on each payment may be reported when the amount is billed (recorded as a sale), or when
the payment is received, provided the same method is used consistently for all contracts. Accrualbasis contractors who receive only one payment for a project may continue to remit sales tax on
their construction services when the sales are recorded.
Contractors maintaining their regular books and records on the cash basis of accounting will
continue to remit sales tax as payments are received.
Sales made by accrual-basis contractors prior to July 1, 2004, for which payments are received
on or after July 1, 2004, must be reported on the Nebraska and Local Sales and Use Tax Return
corresponding to the tax period in which the sale was recorded. Accrual-basis contractors cannot
amend their returns to change the tax period in which such sales are reported, even though payments
are received on and after July 1, 2004.
The provisions in Nebraska Sales and Use Tax Regulation 1-009.03 are superceded to the extent
they do not reflect the rules for contractors reporting sales tax on down payments or progress
payments.
APPROVED:

Mary Jane Egr
State Tax Commissioner
June 24, 2004

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