Which contractor labor charges became exempt from Nebraska sales and use tax under LB 968?

Plain-English summary

Nebraska taxes construction two ways: the materials and fixtures a contractor uses, and (historically) the contractor's labor on some projects. Effective July 1, 2006, Laws 2006, LB 968 exempted contractor labor from sales and use tax for several project types. This ruling lays out which labor is now exempt.

Exempt contractor labor (as of July 1, 2006). Charges for contractor labor are exempt when performed on:

• A. the first or original construction of a new structure, building, or unit of a building;
• B. the addition to, or remodel, restoration, repair, or renovation of a residential dwelling -- including adding an entire room or floor, completing an unfinished portion, and repairing a dwelling damaged by fire, flood, tornado, or other natural disaster;
• C. the construction, repair, or annexation of any structure used for the generation, transmission, or distribution of electricity; and
• D. a major addition, remodel, restoration, repair, or renovation of an existing building, unit, or structure that costs at least 50% of the current value of the building, unit, or structure.

What stays taxable. Contractor labor on a building containing three or more residential units (apartment, condominium, townhouse) remains taxable -- but an owner-occupant of a unit may apply for a refund of the sales and use tax paid on labor performed on his or her own unit. Separately, all building materials and fixtures remain taxable according to the contractor option chosen.

Older exemptions folded in. Four narrower project exemptions were repealed July 1, 2006 -- (1) adding a room or floor to an existing building, (2) completing an unfinished portion, (3) repairing disaster damage, and (4) renovating an existing building when at least 75% of its square footage is renovated -- because that labor may now qualify under categories A-D above.

Key definitions. A residential dwelling is a building for one family, or a duplex for two families; attached decks/porches and attached or detached garages are part of it, but fences, landscaping, retaining walls, storage buildings, driveways, patios, sidewalks, and other non-dwelling structures are not. An owner-occupied residential unit is a unit in a 3-or-more-unit building actually occupied by the owner of record or a life tenant at the time of the project. Current value comes from the county assessor's records (apportioned by square footage if the unit has no separate value), or a licensed appraisal within six months before the project starts if there is no assessed value.

Process. Notification to or approval from the Department is no longer required. But contractors must retain documentation -- construction contracts, building permits, bid/building specifications, purchase orders, billing invoices, blueprints, drawings, appraisals, county valuation records, and any other records identifying the work. This ruling supersedes Nebraska Sales and Use Tax Regulations 1-017.10 and 1-017.18.

What this means for you

Contractors

Do not charge sales/use tax on labor that falls in categories A-D (new construction, residential dwelling work, electric-utility structures, or major 50%+ remodels). Continue to charge tax on materials and fixtures per your contractor option, and keep thorough project documentation even though pre-approval is no longer required.

Owners in multi-unit buildings

Labor on a 3-or-more-unit building is still taxable, but if you own and occupy a unit, you can apply for a refund of the tax paid on labor performed on your unit.

Common questions

Q: Is contractor labor on my new house taxable?
A: No. First or original construction of a new structure (and work on a residential dwelling) is exempt contractor labor as of July 1, 2006.

Q: Are the building materials also exempt?
A: No. Building materials and fixtures remain taxable according to the contractor option chosen; only the qualifying labor is exempt.

Q: I own a condo in a large building -- can I avoid the tax on remodel labor?
A: Labor on a 3-or-more-unit building is taxable, but as an owner-occupant you may apply for a refund of the sales and use tax paid on the labor for your unit.

Citations and references

• Laws 2006, LB 968 -- exempted the listed categories of contractor labor from sales and use tax effective July 1, 2006, and supersedes the prior contractor-labor exemption regulations.
• Nebraska Sales and Use Tax Regulations 1-017.10 and 1-017.18 -- the contractor-labor exemption regulations superseded by LB 968.

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/rr010607.pdf

Original ruling text

REVENUE RULING 1-06-7
August 8, 2006
Sales and Use Tax - Contractors. EFFECTIVE JULY 1, 2006, SALES AND USE TAXES ARE
NOT IMPOSED ON THE GROSS RECEIPTS FOR THE LABOR OF A CONTRACTOR IN
CONNECTION WITH CERTAIN TYPES OF CONSTRUCTION PROJECTS.
With the passage of Laws 2006, LB 968, effective July 1, 2006, charges for contractor labor
performed in connection with the following types of construction projects are exempt:
A. The first or original construction of a new structure, building, or unit of a building;
B. The addition to, or remodel, restoration, repair, or renovation of a residential dwelling (see
definition below). This includes the addition of an entire room or floor to the dwelling, the
completion of an unfinished portion of the dwelling, and repairs to a dwelling damaged by fire,
flood, tornado, or other natural disaster;
C. The construction, repair, or annexation of any structure used for the generation, transmission,
or distribution of electricity; and
D. The major addition to, or remodel, restoration, repair, or renovation of an existing building,
unit of a building, or structure that costs at least 50% of the current value (see definition below)
of the building, unit, or structure.
Charges for contractor labor performed on a building containing three or more residential units
(e.g., apartment, condominium, townhouse) continue to be taxable. However, the owner-occupant
(see definition below) of the residential unit may apply for a refund of sales and use taxes paid on
the charges for contractor labor performed on his or her unit.
All building materials and fixtures used on construction projects remain taxable according to the
contractor option chosen.
Specific exemptions for the following types of projects were repealed as of July 1, 2006. However,
charges for the related contractor labor may still qualify for exemption under the new categories
described in A. - D. above.

1. The addition of an entire room or floor to any existing building;
2. The completion of an unfinished portion of an existing building or structure;
3. The repair of a building or structure damaged by fire, flood, tornado, or other natural disaster;
   or
4. The renovation of an existing building or unit of an existing building when at least 75% of
   the square footage of the building or unit is renovated.
   Residential dwelling means a building designed for occupancy by one family or duplexes designed
   for occupancy by two families. Attached decks or porches and attached or detached garages are
   included as part of the dwelling. Fences, landscaping, retaining walls, storage buildings, driveways,

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

Revenue Ruling 1-06-7

August 8, 2006

Page 2 of 2

patios, sidewalks, and other structures that are not a part of the dwelling itself are not included in
the definition of a residential dwelling.
Owner-occupied residential unit means a residential unit in a building containing three or more
units that is actually occupied by the owner of record or by a person who has a life tenancy in the
unit at the time of the construction project.
Current value means the value of the structure, building, or unit as determined in the records of
the county assessor. If a unit of a building has no separate assessed value, the current value of the
building shall be apportioned to the unit based on square footage of floor space. If the assessor
has no current assessed value for the structure, building, or unit, the market value as shown by an
appraisal of the property by a licensed appraiser within six months prior to commencement of the
construction project must be used.
Notification to or application for approval of an exempt project by the Department of Revenue is
no longer required. Contractors must continue to retain construction contracts, building permits,
bid or building specifications, purchase orders, billing invoices, blue prints, drawings, appraisals,
county valuation records, and any other appropriate documentation to describe or identify the
construction work performed.
Nebraska Sales and Use Tax Regulations 1-017.10 and 1-017.18 regarding the exemptions for
contractor labor are superceded by the provisions of Laws 2006, LB 968.
APPROVED:

Mary J. Egr Edson
State Tax Commissioner
August 8, 2006