NE 01-07-2 Sales and Use Tax 2007-12-14

After Nebraska repealed the tax on contractor labor in 2007, is work on telephone and cable lines still taxable?

Short answer: Yes. Revenue Ruling 01-07-2 concludes that charges to install, construct, repair, replace, upgrade, or remove telephone, telegraph, mobile telecommunications, or community antenna (cable) television property on the service provider's side of the demarcation point remain subject to sales and use tax -- even after October 1, 2007, when LB 367 repealed both the exemption for the first or original construction of a new structure (Neb. Rev. Stat. § 77-2704.45) and the provision that defined taxable construction (contractor) labor to include this telecom work (§ 77-2704.41). Although the general tax on contractor labor was repealed, Neb. Rev. Stat. §§ 77-2701.16(8) and 77-2703(1) continue to tax the gross receipts of any person (including contractors) who provides, installs, constructs, repairs, replaces, upgrades, or removes property used to furnish, install, or connect these communications services. The 'demarcation point' is where the provider-owned wires, cables, and equipment connect to the wiring dedicated to the customer's use; everything on the provider's side is the general distribution system (see Capitol City Telephone, Inc. v. Nebraska Dept. of Revenue, 264 Neb. 515, 650 N.W.2d 467 (2002)).

Apply this to your situation

This page answers the general question as of 2007. Ezel answers yours, under current Nebraska tax law, with citations.

Disclaimer: This is an official Revenue Ruling of the Nebraska Department of Revenue, a guidance document stating the Department's interpretation of how Nebraska tax law applies. Each Nebraska guidance document carries the notice that it 'is advisory in nature but is binding on the Nebraska Department of Revenue until amended.' Unlike a private letter ruling, a Revenue Ruling is a general statement of Department policy rather than advice to a single taxpayer, but it can be amended, superseded, or made obsolete by a later ruling or a change in statute or regulation, many rulings in this series have been rescinded or superseded, so confirm it is still in effect before relying on it. Nebraska's local option sales and use taxes are administered by the Department, not self-collected by home-rule cities. This summary is informational only and is not legal or tax advice. Consult a licensed Nebraska tax professional about your situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

Effective October 1, 2007, Nebraska repealed its tax on contractor labor (LB 367). This ruling answers a natural follow-up question: does that repeal also end the tax on work done on telephone, telegraph, mobile telecommunications, and cable (community antenna) TV lines and equipment?

The answer is no -- that work is still taxable. Charges to install, construct, repair, replace, upgrade, or remove communications property on the service provider's side of the demarcation point remain subject to sales and use tax.

Why the repeal didn't exempt it. LB 367 repealed two provisions as of October 1, 2007: the exemption for the first or original construction of a new structure (§ 77-2704.45) and the provision defining taxable construction/contractor labor to include telecom installation and removal (§ 77-2704.41). But two other statutes were left in place -- §§ 77-2701.16(8) and 77-2703(1) -- and they independently impose tax on the gross receipts or gross income of anyone (including contractors) who provides, installs, constructs, repairs, replaces, upgrades, or removes property used to furnish, install, or connect these communications services. So the tax on this specific telecom work survived the repeal of the broader contractor-labor tax.

Key terms (from Capitol City Telephone). The demarcation point is where the wires, cables, and equipment owned and maintained by the telephone, telegraph, cable, or mobile telecom company connect to the wiring or equipment dedicated to the customer's use. Everything on the provider's side -- wires, cables, fiber, towers, antennas, and other materials -- is the general distribution system. These definitions come from Capitol City Telephone, Inc. v. Nebraska Dept. of Revenue, 264 Neb. 515, 650 N.W.2d 467 (2002).

What this means for you

Telecom/cable providers and their contractors

Work on the general distribution system (the provider's side of the demarcation point) is taxable on its gross receipts, regardless of the 2007 contractor-labor repeal. Continue collecting and remitting tax on installing, repairing, upgrading, or removing this network property.

The line that matters

The taxable/nontaxable divide tracks the demarcation point. Property and work on the provider's side is covered by this ruling; the customer's side is governed by the general rules for the customer's own equipment and any remaining construction-labor treatment.

Common questions

Q: Didn't the 2007 repeal of contractor-labor tax make this work exempt?
A: No. The repeal removed §§ 77-2704.45 and 77-2704.41, but §§ 77-2701.16(8) and 77-2703(1) still tax the gross receipts from this telecom/cable property work.

Q: What is the "demarcation point"?
A: It is where the provider-owned wires, cables, and equipment connect to the wiring dedicated to the customer's use. The provider's side is the general distribution system.

Q: Who owes the tax -- the provider or the contractor?
A: The tax reaches the gross income of any person, including contractors, who provides, installs, repairs, upgrades, or removes the covered communications property.

Citations and references

Neb. Rev. Stat. §§ 77-2701.16(8) and 77-2703(1) -- continue to impose tax on gross receipts for providing, installing, repairing, upgrading, or removing telephone/telegraph/mobile telecom/CATV property.
Neb. Rev. Stat. §§ 77-2704.45 and 77-2704.41 -- the new-structure exemption and the contractor-labor definition, both repealed effective October 1, 2007 by Laws 2007, LB 367.
Capitol City Telephone, Inc. v. Nebraska Dept. of Revenue, 264 Neb. 515, 650 N.W.2d 467 (2002) -- source of the demarcation-point and general-distribution-system definitions.

Source

Original ruling text

REVENUE RULING 01-07-2
December 14, 2007
Sales and Use Tax - Taxability of Certain Telecommunications Services
Issue:
Is the amount charged to install, construct, repair, replace, upgrade, or remove telephone, telegraph,
mobile telecommunications, or community antenna television property on the service provider’s side of
the demarcation point taxable after the changes in the law that repealed the tax on contractor labor charges
effective October 1, 2007?
Deﬁnitions:
Demarcation Point. The demarcation point is the point at which the wires, cables, and equipment that
is owned and maintained by the telephone, telegraph, community antenna television company, or mobile
telecommunications company is connected to the wiring or equipment dedicated to the customer’s use.
(See, Capitol City Telephone, Inc. v. Nebraska Dept. of Revenue, 264 Neb. 515, 650 N.W. 2d 467 [2002])
General Distribution System. The general distribution system consists of the wires, cables, ﬁber optic
cables, towers, antennas, and any other property or materials on the service provider’s side of the demarcation
point. (See, Capitol City Telephone, Inc. v. Nebraska Dept. of Revenue, 264 Neb. 515, 650 N.W. 2d 467
[2002])
Service Provider. The service provider is the telephone, telegraph, mobile telecommunications, or
community antenna television company.
Analysis:
As of October 1, 2007, the statutory provision exempting the ﬁrst or original construction of a new structure
(Neb. Rev. Stat. §77–2704.45) as well as the provision that deﬁned construction services (contractor labor)
to include the installation, construction, servicing, and removal of property used in conjunction with the
furnishing, installing or connection of telephone, telegraph, mobile telecommunications, or community
antenna television services (Neb. Rev. Stat. §77-2704.41) were repealed (see Laws 2007, LB 367). Even
though the tax on contractor labor was repealed, Neb. Rev. Stat. §§77-2701.16(8) and 77-2703(1) continue
to impose a tax on the gross receipts or gross income of any person (including contractors) who provide,
install, construct, repair, replace, upgrade, or remove property used in conjunction with the furnishing,
installing, or connecting of telephone, telegraph, mobile telecommunications, or community antenna
television services.
Conclusion:
The gross income received by any person, including contractors, from the provision, installation,
construction, servicing (repair, replace, upgrade), or removal of property used in conjunction with the
furnishing, installing, or connecting of telephone, telegraph, mobile telecommunications, or community
antenna television services on the service provider’s side of the demarcation point is subject to sales and
use tax.
APPROVED:

Douglas A. Ewald
Tax Commissioner
December 14, 2007

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

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