When must a Nebraska contractor collect and remit sales tax on taxable contractor labor -- when billed or when paid?

Plain-English summary

This ruling tells contractors when to collect and remit sales tax on taxable contractor labor -- and it matters more than usual because Laws 2006, LB 968 changed the taxability of certain contractor labor effective July 1, 2006. Getting the timing right determines which version of the law applies.

The baseline rule. Under Neb. Rev. Stat. § 77-2701.10(3), contractors collect and remit sales tax on the gross receipts for labor in performing taxable construction services when payment is received. Because contractors bill in different ways, the ruling sets consistency guidelines.

Accrual-basis contractors. A contractor keeping books on the accrual basis who receives multiple payments on a project (down payments, progress payments, etc.) must collect and remit tax on each payment. The tax may be reported either when billed or when payment is received -- provided the same method is used consistently for all current and future contracts. Whatever method the contractor was using as of the date of this ruling must be used for all such contracts, unless the contractor requests in writing and the State Tax Commissioner grants permission to change.

Which law applies. The reporting date fixes the applicable law:

• Report when billed → use the law in effect on the billing date.
• Report when payment is received → use the law in effect on the payment date.

Cash-basis contractors. A contractor keeping books on the cash basis continues to remit tax as payments are received, and uses the law in effect on the payment date.

What this means for you

Accrual-basis contractors

Collect and remit on every payment (including down and progress payments), and pick one reporting trigger -- billed or paid -- then stick with it across all contracts. You can only switch with written permission from the State Tax Commissioner. Around the July 1, 2006 LB 968 change, your reporting trigger decides whether the old or new labor-taxability rule applies to a given charge.

Cash-basis contractors

Keep remitting as you receive payment, using the law in effect on each payment date.

Common questions

Q: Can I report sales tax when I bill instead of when I'm paid?
A: Accrual-basis contractors may report either when billed or when paid, but must use the same method consistently for all current and future contracts.

Q: Can I switch my reporting method?
A: Only if you request it in writing and the State Tax Commissioner grants permission. Otherwise you must keep the method you used as of the date of this ruling.

Q: Which law applies to a labor charge that straddles the July 1, 2006 change?
A: The date tied to your reporting method controls -- the billing date if you report when billed, or the payment date if you report when paid (and always the payment date for cash-basis contractors).

Citations and references

• Neb. Rev. Stat. § 77-2701.10(3) -- contractors collect and remit sales tax on the gross receipts for labor when payment is received.
• Laws 2006, LB 968 -- amended certain contractor-labor provisions effective July 1, 2006, making the collection-timing rules in this ruling significant.

Source

• Landing page: https://revenue.nebraska.gov/about/legal-information/revenue-rulings-issued-tax-commissioner
• Original PDF: https://revenue.nebraska.gov/sites/revenue.nebraska.gov/files/doc/legal/rulings/rr010602.pdf

Original ruling text

REVENUE RULING 1-06-2
May 4, 2006
Sales and Use Tax - Collection and Remittance of Sales Tax by Contractors. CONTRACTORS
MAINTAINING THEIR BOOKS AND RECORDS ON THE ACCRUAL BASIS OF
ACCOUNTING MUST CONSISTENTLY COLLECT AND REMIT SALES TAX ON TAXABLE
CONTRACTOR LABOR CHARGES WHEN THE CUSTOMER IS BILLED OR WHEN
PAYMENT IS RECEIVED.
Advice has been requested regarding the collection and remittance of sales tax by accrual- basis
contractors performing contractor labor. Certain contractor labor provisions were amended by
Laws 2006, LB 968. These provisions of LB 968 become effective on July 1, 2006.
Pursuant to Neb. Rev. Stat. § 77-2701.10(3) contractors are required to collect and remit sales
tax on the gross receipts for labor in performing taxable construction services when payment is
received. Due to the fact contractors may utilize different billing methods, the following guidelines
must be used when remitting sales tax.
Accrual-basis contractors receiving multiple payments on construction projects (down payments,
progress payments, etc.) must collect and remit tax on each payment. The tax on each payment
may be reported when the amount is billed, or when payment is received, provided the same
method is used consistently for all current and future contracts. The reporting method employed
by the contractor as of the date of this revenue ruling must be used for all such contracts, unless
permission to change such reporting method is requested in writing and granted by the State Tax
Commissioner.
Contractors collecting and reporting tax when the amount is billed must use the law in effect on
the billing date to determine the taxation of their contractor labor charges. Contractors collecting
and reporting tax when payment is received must use the law in effect on the date the payment is
received to determine the taxation of their contractor labor charges.
Contractors maintaining their regular books and records on the cash basis of accounting will
continue to remit tax as payments are received. Cash basis contractors must use the law in effect
on the date payment is received to determine the taxation of their contractor labor charges.
APPROVED:

Mary J. Egr Edson
State Tax Commissioner
May 4, 2006

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