Nebraska Tax Update: The Department Restricts The Manufacturing Machinery Exemption And Nebraska Revises Its Withholding Tax Rules

by Matt Ottemann

Ottemann, Matthew
(402) 341-3070

•     Department Of Revenue Restricts Eligibility For The Manufacturing Machinery Exemption For Companies With Multiple Lines Of Business.

Nebraska law currently exempts the purchase of manufacturing machinery and equipment “by a person engaged in the business of manufacturing” from Nebraska sales tax.

On May 19, the Nebraska Department of Revenue issued Rev. Rul. 1-08-2, which states that, effective July 1, only “persons” which derive more than 50% of their total annual revenue from sales of tangible personal property they manufacture are “engaged in the business of manufacturing.”  For purposes of this ruling, a person includes “all departments, divisions, locations, and other sub-units” of a single corporation.

This ruling means that “contractors and other persons deriving more than 50% of their total annual revenues from sales of annexed property, services, or intangible property, are not engaged in the business of manufacturing for purposes of this exemption.”  Under the ruling, such companies would not be eligible for the exemption.

•    Nebraska Reduces Withholding Requirement To 1.5% Of Wages, Not 3% As Previously Enacted.

As we highlighted in our March/April issue, the Nebraska Legislature had enacted a new Nebraska withholding tax requirement for employers with 25 or more employees: 3% of gross wages, minus tax qualified deductions.  Under LB 1004, passed by the Legislature during the last session, the 3% requirement was changed to 1.5% of gross wages minus tax qualified deductions.  The bill was approved by the Governor on April 16 and took effect immediately thereafter.  This legislative change did not affect the increased penalties for failing to properly withhold tax, which we discussed in the March/April article.


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