On February 22, following the Governor’s approval, the Department of Revenue formally enacted a new set of tax regulations. Most of the new regulations deal with sales and use taxes, although a few deal with corporate income tax, individual income tax, and other Nebraska taxes. In a previous article which appeared when these regulations were first proposed, we highlighted Regulation 1-107, which dealt with the sales tax exemption for manufacturing machinery and equipment. Prior to the initial hearing on the regulations, the Department withdrew Reg. 1-107, so it is not included in the enacted regulations.
Key changes within the enacted regulations include the following:
Reg. 1-004 Permits. Following revocation of a sales tax permit, the Department of Revenue will issue another permit only if all tax liabilities, including interest and penalties have been paid in full and additional security has been posted with the Department.
Reg. 1-012 Exemptions. The regulation was updated to reflect that fine art purchased by a museum is exempt from sales and use tax.
Reg. 1-013 Sales For Resale – Resale Certificate. Sellers are relieved from collecting sales tax if a properly completed resale certificate is received, or the seller captures the data elements needed to support the exemption, within 90 days after the date of sale. In addition, sellers are relieved from liability for sales tax if the resale certificate is received, or the sellers otherwise obtains the relevant data elements to support the exemption, with 120 days after a request for substantiation made by the Department. This establishes that a seller can receive the sale for resale exemption upon audit even if it does not receive a resale certificate or the relevant data elements to support the exemption at the time of the sale.
Reg. 1-017 Contractors. Due to statutory changes regarding the taxation of contractor labor, Reg. 1-017 has been reorganized and updated for changes in the taxation of contractor labor, manufacturing machinery and equipment, and charges for the installation of cable and satellite television. The entire regulation has been rewritten, so contractors and their tax advisors should plan to review the new regulation.
Reg. 1-066 Sewer And Water. Amounts received from installation, service connection, move and change charges, and construction are not gross receipts of providers of sewer and water service and, therefore, are not taxable.
Reg. 1-074 Warranties And Guarantees. This regulation clarifies that charges for warranties and guarantees covering items of real property or property annexed to real property are exempt from sales tax. In addition, the regulation now reflects Rev. Rul. 1-07-1 which clarifies that a deductible amount paid by the owner of a motor vehicle pursuant to a maintenance agreement is not taxable because repair labor on motor vehicles is not taxable.
Reg. 1-082 Labor Charges. The update to this regulation reflects the repeal of the taxation of contractor labor pursuant to LB 367 in 2007.
Reg. 1-104 Multiple Points Of Use Exemption. This regulation was repealed due to the repeal in LB 223 (enacted in 2007), of the multiple points of use sourcing provision for the sale of software.
Reg. 1-108 Bundled Transactions. This new regulation provides rules for bundled transactions, where two or more distinct and identifiable products are sold for one non-itemized price. The regulation provides a definition of a bundled transaction, lists the records required to be maintained by sellers of bundled transactions, and establishes exclusions for certain transactions that would otherwise qualify as a bundled transaction.
Reg. 22-019 Credits Against The Nebraska Individual Income Tax. This regulation was updated to recognize the Nebraska Charitable Endowment Tax Credit, the Financial Institution Shareholder Credit (for shareholders of financial institutions organized as “S” corporations), the Biodiesel Credit (for investments in biodiesel facilities), and the increase in Nebraska’s Earned Income Credit for 2007 and beyond.
This list of regulation updates is not comprehensive. Other regulation changes have been enacted. Therefore, you should review the Nebraska regulations which may be applicable to you, your business, or the clients you advise. A copy of the complete regulations is available on the Department’s website.