Nebraska Supreme Court Confirms Tax On Charges For Equipment Cleaning When Incurred Under The Same Contract As Building Cleaning

by McGrath North Tax Group

(402) 341-3070

On October 23, the Nebraska Supreme Court issued a ruling in Swift & Co. v. Nebr. Dep’t of Revenue.  In the case, Swift & Co. operated meat processing plants in Nebraska. Swift contracted with one company (under one contract) to provide both the specialized cleaning of its meat processing equipment, as required by health authorities, as well as its building cleaning.

The Department of Revenue issued a sales and use tax assessment to Swift, claiming that the charges for both the building and equipment cleaning were taxable as “building cleaning.” The Department cited its Reg. 1-098.03A, which states: “Building cleaning and maintenance services include: … Cleaning and maintenance of tangible personal property located in a building, and fixtures or any property annexed to real estate that is attached to, is a part of, or is enclosed in, a building.”

The Supreme Court first addressed whether Reg. 1-098.03A impermissibly expanded the definition of “building cleaning” by also taxing the cleaning of personal property located in a building. The Court ruled that the Department did not exceed the scope of its rulemaking authority in issuing this regulation, because cleaning personal property and cleaning the building in which the personal property was located were nearly indistinguishable in the case.

The Court explained that most cleaning contracts contemplate at least some cleaning of tangible personal property located within a building. In addition, the Court stated that Reg. 1-098.03A clearly contemplated that taxable cleaning and maintenance of tangible personal property must be incidental and related to the cleaning and maintenance of a building and fixtures, which it was in the Swift case.

Therefore, the Court found that Reg. 1-098.03A did not exceed the Department’s rulemaking authority and that Swift & Co. was obligated to pay Nebraska sales tax on the charges for both the building and equipment cleaning.

However, of particular note in the decision was a concession by the Department of Revenue that a separate contract for cleaning only tangible personal property would not be taxable under the current statute. This leaves open the possibility that a company could avoid sales tax on the amounts paid for the cleaning of tangible personal property by executing a separate contract, with a distinct price, for the cleaning of furniture or equipment within a building.

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