Do Iowa and its political subdivisions still get a Nebraska sales tax exemption on industrial machinery and equipment they buy in Nebraska?

Plain-English summary

Nebraska normally does not tax a purchase of industrial machinery and equipment (including parts for repairs) made by another state or its political subdivision -- but only when that other state offers Nebraska a matching (reciprocal) exemption. That condition is written into Neb. Rev. Stat. § 77-2704.43. This ruling addresses whether Iowa still qualifies.

What happened. From July 1, 2003, the Department had read Iowa's exemption statute (Iowa Code § 423.3(36)) as providing the required reciprocity, so Iowa's purchases in Nebraska were exempt. But in a letter dated July 13, 2009, Iowa told Nebraska that the two states' reciprocity statutes are too dissimilar to create reciprocity -- Iowa's view is that the statutes must be virtually identical to qualify.

The result. Because the reciprocity condition is no longer met, effective September 1, 2009, purchases by Iowa and its political subdivisions are taxable when the purchased property or service is delivered in Nebraska. That includes industrial machinery and equipment and related repair parts, as well as their other purchases of tangible personal property and taxable services.

Scope. This change applies to Iowa specifically. As of the ruling's date, no state other than Iowa had notified the Department that it would not honor the § 77-2704.43 reciprocity provision -- so other states' qualifying purchases can still be exempt under that statute.

What this means for you

Nebraska sellers to Iowa state and local governments

If the State of Iowa or one of its political subdivisions buys from you and takes delivery in Nebraska, charge Nebraska sales tax on and after September 1, 2009 -- including on industrial machinery, equipment, and repair parts. Do not treat those sales as exempt under the reciprocal-exemption certificate that would have applied before that date.

Iowa governmental buyers purchasing in Nebraska

Expect to pay Nebraska sales or use tax on purchases delivered in Nebraska. The industrial-machinery reciprocal exemption no longer applies to Iowa.

Sellers to other states' governments

The reciprocal exemption in § 77-2704.43 still exists. This ruling only removed Iowa's eligibility; another state's purchases can still qualify if that state provides Nebraska a similar reciprocal exemption and has not repudiated it.

Common questions

Q: Why did Iowa lose the exemption?
A: The exemption requires the other state to give Nebraska a similar reciprocal exemption. Iowa told Nebraska (letter dated July 13, 2009) that the two states' statutes are too dissimilar and must be virtually identical to create reciprocity, so the condition is no longer satisfied.

Q: What purchases are now taxable, and when?
A: Effective September 1, 2009, purchases by Iowa and its political subdivisions delivered in Nebraska -- industrial machinery and equipment, repair parts, and their other taxable property and services -- are subject to Nebraska sales tax.

Q: Does this affect other states?
A: No. As of the ruling, only Iowa was affected; no other state had told the Department it would not honor § 77-2704.43, so qualifying purchases by other states can remain exempt.

Citations and references

• Neb. Rev. Stat. § 77-2704.43 -- exempts purchases of industrial machinery and equipment (including repair parts) by another state or its political subdivision, but only if that state provides Nebraska a similar reciprocal exemption.
• Iowa Code § 423.3(36) -- Iowa's reciprocal exemption provision, which Iowa determined was too dissimilar to Nebraska's to create reciprocity.
• Effective date -- September 1, 2009, following Iowa's letter dated July 13, 2009.

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/rr010901.pdf

Original ruling text

INDUSTRIAL MACHINERY AND EQUIPMENT;
RECIPROCAL EXEMPTION WITH THE STATE OF IOWA

This guidance document is advisory in nature but is binding on the Nebraska Department
of Revenue (Department) until amended. A guidance document does not include internal
procedural documents that only affect the internal operations of the Department and does
not impose additional requirements or penalties on regulated parties or include
confidential information or rules and regulations made in accordance with the
Administrative Procedure Act. If you believe that this guidance document imposes
additional requirements or penalties on regulated parties, you may request a review of the
document.
This guidance document may change with updated information or added examples. The
Department recommends you do not print this document. Instead, sign up for the
subscription service at revenue.nebraska.gov to get updates on your topics of interest.
Issue:
Does the State of Nebraska provide a sales tax exemption for purchases of industrial machinery and equipment
made by the State of Iowa and its political subdivisions?
Conclusion:
The State of Iowa has informed the Nebraska Department of Revenue (Department) that the sales tax reciprocity
statutes of Nebraska and Iowa are too dissimilar to create reciprocity between the two states for these purchases.
Therefore, as of September 1, 2009, purchases of industrial machinery and equipment, including parts for repairs,
made by Iowa and its political subdivisions in Nebraska are taxable. Purchases of other tangible personal property
and taxable services remain subject to sales tax.
Analysis:
Neb. Rev. Stat. §77-2704.43 provides: “Sales and use taxes shall not be imposed on the gross receipts from the sale,
lease, or rental of and the storage, use, or other consumption in this state of purchases of industrial machinery and
equipment, including parts for repairs, by another state or a political subdivision of another state if the other state
provides a similar reciprocal exemption for this state and political subdivisions of this state.”
Iowa Code §423.3(36) provides: “There is exempted from the provisions of this subchapter and from the
computation of the amount of tax imposed by it the following . . . (36) The sales price from sales of tangible personal
property or of the sale or furnishing of electrical energy, natural or artificial gas, or communication service to another
state or political subdivision of another state if the other state provides a similar reciprocal exemption for this state
and political subdivision of this state.”
Based on the above Nebraska and Iowa reciprocity laws, the Department had, since July 1, 2003, interpreted Iowa’s
law to provide reciprocity regarding the purchase of industrial machinery and equipment, including parts for repairs
for machinery and equipment. However, the State of Iowa, in a letter dated July 13, 2009, set forth its position that
the two states’ reciprocity laws are too dissimilar to provide an exemption and that the statutes must be virtually
identical in order for reciprocity to exist between Iowa and Nebraska. Therefore, as of September 1, 2009, all
purchases of property and services, including purchases of industrial machinery and equipment and related parts by

the State of Iowa and its political subdivisions are taxable, provided delivery of the purchased property or service
occurs in Nebraska.
As of the date of this ruling, the Department has not been notified by any state other than Iowa that the reciprocity
provision found in Neb. Rev. Stat. §77-2704.43 will not be honored.
APPROVED:
Douglas A. Ewald
Tax Commissioner
September 1, 2009