NE 01-10-2 Sales and Use Tax 2010-03-01

Does Nebraska sales and use tax apply to charges for website design, development, and hosting?

Short answer: Website design, development, and hosting are generally not taxable in Nebraska -- the tax applies only if the finished website is handed to the customer on a physical storage medium. Revenue Ruling 01-10-2 explains that a web site service provider's charges for design and development are not subject to sales and use tax if the site is retained by the provider for hosting or transferred electronically (to the customer or a third-party host); only a transfer on tangible media like a disc is a taxable sale of tangible personal property. Web hosting is not one of Nebraska's statutorily enumerated taxable services, so it is not taxed. Embedded programming (scripts that let a visitor download files, buy products, or enroll) is not treated as a sale of taxable computer software to the customer, because the customer isn't using it to process data or run a computer. The provider is the consumer of the hardware, software, and services it uses to build and host sites and must pay tax on those purchases. The authority is Neb. Rev. Stat. § 77-2703.

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This page answers the general question as of 2010. 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Ruling is a general statement of Department policy rather than advice to a single taxpayer, but it can be amended, superseded, or made obsolete by a later ruling or a change in statute or regulation, many rulings in this series have been rescinded or superseded, so confirm it is still in effect before relying on it.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

This ruling answers a common question for web shops and their clients: is website work taxable in Nebraska? The short answer is no -- with one narrow exception.

The rule:

Design and development charges are not taxable if the finished site is retained by the provider for hosting or transferred electronically (to the customer or to a third-party host).
The only taxable path is delivering the finished website to the customer on tangible storage media (like a disc) -- that's a sale of tangible personal property, and it's taxable.
Web hosting is not one of Nebraska's statutorily enumerated taxable services, so hosting charges are not taxed.

Why the embedded code doesn't make it "software." A site may contain scripts that let a visitor download files, buy products, enroll in memberships, or interact with databases. The Department says this programming is not a sale of taxable computer software to the customer, because the customer isn't using it to process data or operate a computer system -- it runs in the visitor's browser to help them use the site.

Who pays tax, then? The web site service provider is the consumer of the hardware, software, and other taxable property and services it uses to design, develop, and host sites -- so the provider owes tax on its own purchases (servers, software licenses, etc.), even though it doesn't charge tax to its clients for the design/development/hosting service.

What this means for you

Web designers, developers, and hosting providers

You generally don't charge Nebraska sales tax on design, development, or hosting when you deliver electronically or host the site yourself. But you do owe use/sales tax on your own inputs -- the equipment, software, and taxable services you buy to do the work, because you're the end consumer of those. The one time to collect tax from a client is if you hand over the completed site on physical media (a disc or drive) -- that's a taxable sale of tangible personal property.

Businesses buying websites

Expect no sales tax on a typical web-design or hosting engagement delivered online. If your contract has you receiving the site on a disc, that portion can be taxable as tangible personal property.

Common questions

Q: Is web hosting taxable in Nebraska?
A: No. Hosting is not one of the enumerated taxable services under Neb. Rev. Stat. § 77-2703, so hosting charges are not subject to sales and use tax.

Q: When would website charges become taxable?
A: Only when the finished website is transferred to the customer on tangible storage media (such as a computer disc) -- that's treated as a taxable sale of tangible personal property.

Q: My site has shopping-cart and download scripts -- is that taxable software?
A: No. The Department treats that embedded programming as helping the visitor use the site, not as software sold to the customer to process data or run a computer, so it isn't a taxable software sale.

Q: Do I owe any tax as the web developer?
A: Yes -- on your own purchases. The service provider is the consumer of the hardware, software, and taxable services used to build and host sites and must pay tax on those.

Citations and references

Neb. Rev. Stat. § 77-2703 -- imposes sales and use tax on retail sales of tangible personal property, computer software, and certain enumerated services (hosting and electronically delivered design/development are not among them).
Nebraska Sales and Use Tax Regulation 1-088 -- defines "computer software" as a sequence of instructions that directs the computer to process data (the definition the ruling applies to conclude embedded site scripts aren't taxable software).

Source

Original ruling text

Revenue Ruling 01-10-2
Sales and Use Tax

March 1, 2010
WEB SITE DESIGN, DEVELOPMENT, AND HOSTING
Issue:
Are retail sales of Web site design, development, and hosting by a Web site service provider subject
to sales and use tax?
Conclusion:
Charges by a Web site service provider for Web site design and development are not subject
to tax unless the Web site design is transferred to the customer on a tangible storage medium
such as a computer disc. If the Web site design is retained by the service provider for hosting, or
electronically transferred to either a third party hosting entity or to the customer, the charges are
not subject to tax.
Web site hosting by a service provider is not one of the statutorily enumerated services subject to
tax in Nebraska.
Definitions:
Web site service provider. A Web site service provider is the person or business who performs
any or all of the functions related to Web sites, including the design, development, hosting, and
updating of all or part of a Web site.
Web site hosting. Web site hosting is the storage of Web site data on a computer, and can include
the domain name registration, security, access monitoring, and data backup services.
Analysis:
Pursuant to Neb. Rev. Stat. §77-2703, retail sales of tangible personal property, computer software,
and certain enumerated services are subject to tax. Computer software is defined in Nebraska
Sales and Use Tax Regulation 1-088 as a sequence of instructions which directs the computer to
process data.
The development of a Web site generally involves consulting, designing, programming, and placing
the site on a server for viewers to access via the Internet. Web sites are made of a combination of
one or more files, created through the use of different HTML editors, graphics, and sounds. The
files, which can vary in their levels of sophistication, tell the viewer’s browser what to do when
a Web site is viewed. The Web site may also contain embedded programming (scripts) that may
be executed by the viewer’s browser to perform such functions as downloading files, purchasing
products, enrolling for memberships, or connecting to or interacting with software applications or
databases that reside on another computer.
Once the Web site is developed, it can be transferred to the customer, transferred to a third party
hosting service, or retained by the developer for hosting. Purchasers of Web sites may be provided
passwords by the hosting entity in order to upload or delete files, create file directories, change

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

Revenue Ruling 01-10-2

March 1, 2010

Page 2 of 2

permissions, etc. Entities providing hosting services furnish the equipment and servers which are
used by many customers simultaneously.
Charges for the design, development, and hosting of Web sites which are retained by the service
provider for hosting, or electronically transferred to the customer or to a third party hosting
entity, are not charges for the sale of tangible personal property, computer software, or one of the
statutorily enumerated services subject to tax. While the Web site may contain some embedded
programming to assist the viewer in performing tasks such as accessing information, purchasing
products, enrolling for memberships, or generally interacting with the Web site, this programming
is not being used by the purchaser to process data or operate a computer system, and therefore is not
considered the sale of computer software to the purchaser. Only when the Web site is transferred to
the customer on tangible storage media does the transaction represent the sale of tangible personal
property which is taxable. The Web site service provider is the consumer of any programming used
in designing, developing, or hosting the Web site, and must pay tax on its purchases of hardware,
software, and other taxable property and services.
APPROVED:

Douglas A. Ewald
Tax Commissioner
March 1, 2010

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