Nebraska looks to tax services, digital advertisements

Lawmakers in Nebraska are considering significant changes to the state’s sales and use tax laws. One measure under consideration would tax services. Another would extend the sales and use tax to the retail sale of digital advertisements.

LB946 would make most services subject to Nebraska sales and use tax starting October 1, 2021. Services rendered by an employee to an employer would remain exempt, as would services that are specifically exempt from sales tax.

This is a considerable departure from the current policy, under which only the following specified services are subject to sales tax:

• Animal specialty services (except specialty services performed on livestock and services provided by licensed veterinarians or licensed veterinary technicians in conjunction with medical treatment)
• Building cleaning, maintenance pest control, and security services
• Computer software training services
• Detective services
• Installation and application services for taxable tangible personal property
• Labor, maintenance, or repair services for taxable tangible personal property (except motor vehicles, except as provided below)
• Motor vehicle painting, towing, washing, and waxing services
• Recreation vehicle (RV) park services

Most states that have broadened their sales tax in recent years (e.g., Utah) extended it to specified services. Only a few states presume all but specified services are exempt; if LB 946 is enacted, Nebraska will join that short list.

In addition to expanding the tax base, LB946 would reduce the state sales tax rate from its current 5%. It would drop to 4% on October 1, 2021, after which periodic adjustments would take place as outlined below:

• January 1, 2022: The Tax Commissioner would determine the rate
• April 1, 2022: The new rate would take effect; the Tax Commissioner would redetermine the rate
• July 1, 2022: The new rate would take effect; the Tax Commissioner would redetermine the rate
• October 1, 2022: The new rate would take effect; the Tax Commissioner would redetermine the rate
• January 1, 2023: The new rate would take effect

The rate adjustments aim to ensure the state receives approximately the same amount of sales tax revenue it would have had the tax base not been broadened.

LB989 seeks to tax the retail sale of digital advertisements, defined as “an advertising message delivered over the internet that markets or promotes a particular good, service, or political candidate or message.” If enacted as written, it would take effect October 1, 2020 — just in time for the final flurry of political ads ahead of the November 2020 election.

As the National Law Review notes, “the exact scope [of the proposed tax] is unclear as the terms used are not further defined. It is also unclear how a taxable digital advertising transaction would be sourced if the proposed legislation is enacted.”

One thing is clear: A tax on online ads would be enormously impactful for businesses and individuals interested in marketing to residents of Nebraska.

Keep ahead of change

The burden of proving a sale isn’t subject to sales tax lays with the retailer in Nebraska, so it’s important to know exactly which sales are taxable and which are exempt.

And sales tax collection responsibilities in Nebraska don’t fall on in-state sellers alone. The Cornhusker State has required out-of-state sellers to collect and remit sales tax since April 1, 2019, provided their Nebraska sales exceed a certain threshold.

Learn more about sales tax collection requirements in Nebraska and other states in our seller’s guide to nexus laws.