Nebraska Construction Contractors FAQs
This guidance document is advisory in nature but is binding on the Nebraska Department of Revenue (DOR) until amended. A guidance document does not include internal procedural documents that only affect the internal operations of DOR 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. DOR 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.
Are “Contractor Labor” charges taxable?
No. Contractor labor charges are not taxable as of October 1, 2007. However, if an Option 1 contractor does not separately state its contractor labor charges on the customer’s invoice, the entire charge for the building materials and labor is taxable.
Are there other types of labor or services that are taxable?
I have been hired to landscape a customer's property. On what labor charges must I collect tax?
Labor charges to install live plants are taxable. This is not a construction contractor project. You must collect sales tax on the total amount charged for the plants, any mulch put down in conjunction with the plants, and the labor charge to install the plants regardless of your contractor option. Additional information is available in the Nebraska Sales and Use Tax Guide for Landscapers.
I have been hired to put in a retaining wall, edging, and dirt to change the slope of the yard. On what labor charges must I collect tax?
This is a construction contractor project, and the contractor option elected is important. If the work to put in the retaining wall, edging, and dirt is performed by an Option 1 contractor, the Option 1 contractor must collect sales tax on the amount charged for the building materials used for the retaining wall, edging (dirt, etc.). The labor charge is not subject to tax, provided it is separately stated on the invoice (an Option 1 contractor does not charge tax on contractor labor charges that are itemized separately). An Option 1 contractor is required to hold a Nebraska Sales Tax Permit. At the time of purchase, an Option 1 contractor will issue suppliers or vendors a Nebraska Resale or Exempt Sale Certificate, Form 13, with Section C completed with the sales tax permit ID number.
If the work to put in the retaining wall, edging, and dirt is performed by an Option 2 or Option 3 contractor, the charge for the building materials and labor is not taxable. Option 2 and Option 3 contractors do not collect any tax on the amount charged for the building materials and their labor. Option 2 and Option 3 contractors must pay or remit tax on their purchase of the building materials.
I am a subcontractor and have been hired to install plumbing for a remodeling project. The project owner is an entity which is exempt from sales tax. Do I need to collect sales tax on any of my charges to the general contractor?
Since the project is being completed for an exempt entity, you will not collect sales tax on any amounts billed to the general contractor, provided the general contractor issues to you a properly completed Purchasing Agent Appointment, Form 17. Form 17 must be completed prior to the start of your portion of the project.
I am a plumbing contractor and provide drain cleaning services for my customers. Do I need a sales tax permit and must I charge sales tax on the drain cleaning service?
When performing building cleaning services such as drain cleaning, you are a retailer and must collect sales tax on the total amount charged for these services. As a retailer, you must hold a sales tax permit. The contractor option you have elected is not applicable when performing taxable services, such as building cleaning services. A sales tax permit may be obtained by filing a Nebraska Tax Application, Form 20.
I am a contractor who has been hired to complete a construction project for an entity that is exempt from sales and use tax. Completing this project, can I purchase building cleaning services, security services, and pest control services tax exempt?
No. A contractor's purchases of these services are taxable; nor can a contractor purchase these types of services tax exempt (for resale), because it is not in the business of providing these types of service. In addition, contractors cannot use aPurchasing Agent Appointment, Form 17, issued by a governmental unit or exempt entity to purchase these services tax exempt.
If a building is torn down and replaced, is the labor taxable?
No. The labor charge to tear down the building is not taxable. If a new building is built by an Option 2 or Option 3 contractor, the amount charged to the project owner is not taxable. If the new building is built by an Option 1 contractor, sales tax will only be collected on the total amount charged for the annexed building materials, provided the labor charge is separately stated. If not separately stated, then the entire amount charged by the Option 1 contractor is taxable.
Is the charge to winterize underground sprinklers taxable?
No. Charges for services such as the blowout and draining of the underground pipes and sprinkler heads are not taxable.
How do I know which option a contractor has selected?
I am an Option 1 subcontractor and have been hired by the general contractor to complete part of a construction project. Do I need to collect tax on any of my charges to the general contractor?
Yes. You are required to collect sales tax on the total amount charged for the building materials. The charge for your contractor labor is not taxable, provided it is separately stated.
Are building cleaning services, pest control services, and security services purchased by a contractor and performed at a construction site subject to sales tax?
Yes. Contractors cannot purchase these services tax-free (for resale) because these services are not considered contractor labor for sales tax purposes; nor can these services be purchased tax exempt under a Purchasing Agent Appointment, Form 17, issued by a governmental unit or exempt entity.
Is construction site clean-up subject to sales tax?
Yes. Charges for the clean-up of a building under construction are subject to sales tax as building cleaning services. Contractors cannot purchase such services tax exempt (for resale) from a third party. This service is not considered contractor labor for sales tax purposes; nor can these services be purchased tax exempt under a Purchasing Agent Appointment, Form 17, issued by a governmental unit or exempt entity.
Are charges to clean a furnace, air conditioner, heat pump, duct work, or drains taxable?
Yes. Building cleaning services includes any work done to clean a fixture that has been annexed to real estate. This includes cleaning a furnace, air conditioner, heat pump, duct work, sewer, or drain located in or attached to a building. This kind of work is not considered contractor labor.
What happens when a contractor responds to a service call to repair a furnace blower and takes a few minutes to change out the furnace filter?
An Option 1 contractor must collect sales tax on the total amount charged for the furnace filter and parts. Option 2 and Option 3 contractors pay or remit tax on the furnace filter and repair parts and do not collect any tax on the amount charged to the customer.
I install a built-in dishwasher for my customer. Is the installation charge subject to sales tax as taxable installation labor?
No. Since a built-in dishwasher is annexed to real estate, the general rules on taxing labor to install tangible personal property do not apply. The person "installing" the dishwasher is a contractor.
If the dishwasher is installed by an Option 1 contractor, the total amount charged for the dishwasher is taxable, and the separately stated charge for the contractor labor to install it is not subject to sales tax. Separately stated labor charges are not taxable.
If the dishwasher is installed by an Option 2 or Option 3 contractor, the total amount charged for the dishwasher and the labor charge are not taxable. The Option 2 or Option 3 contractor must pay or remit tax on its purchase of the unit.
Do security services include the installation of the security system wires and monitoring equipment?
No. Contractors and third party installers who install parts that remain tangible personal property after installation are required to collect sales tax on the total amount charged for the parts and installation labor. All security system wires and equipment (parts) that are annexed are taxed based on the contractor’s option. A definition of “annexed” is available at Nebraska Sales and Use Tax Regulation 1-017.02A.
An Option 1 contractor is required to collect sales tax on the total amount charged for the annexed parts and labor, unless the labor charge is separately stated. Separately stated contractor labor charges are not taxable.
An Option 2 or Option 3 contractor will not collect any sales tax on the amount charged for the annexed parts and labor.
Is a business which provides security services required to collect sales tax on the charge to repair the security system?
Yes. A security monitoring service that repairs a security system is required to collect sales tax on the total amount charged to repair the security system regardless of whether the item repaired is annexed or remains tangible personal property. A definition of “annexed” is available at Nebraska Sales and Use Tax Regulation 1-017.02A.
Contractor Registration Database (Database)
Why do I need to be registered in the Database?
As required by the Contractor Registration Act and the Nebraska Revenue Act, before performing any construction work in Nebraska, a contractor is required to be registered in the Database.
This Database is only applicable to construction contractors performing construction services, and not other types of independent contractors (see question below for further information on who is a construction contractor for purposes of this Database).
A “construction contractor” is a contractor that is required to be registered in the Database, and may also be referred to in these Frequently Asked Questions as a “subcontractor.” The term "contractor" in this section can be either a general contractor or a subcontractor. Both contractors and subcontractors are required to be registered in the Database. All contractors making payments to other contractors (subcontractors), who are not listed in the Database, are required to withhold 5% of all payments to the subcontractor. This payment must be remitted as income tax withholding to the Nebraska Department of Revenue. Contact the Department of Revenue for additional details on the 5% income tax withholding requirements.
How do I get registered in the Database?
Electronically submit a Contractor Registration Application which is available at www.dol.nebraska.gov. There is a $40 fee for most contractors. This registration is renewable annually for a 12-month period beginning with the month of registration.
How do I search the Database?
To perform a search in the Database, go to dol.nebraska.gov/conreg/Search. Some suggestions for using the Database:
- Enter just the main parts of the company name. If you enter the entire name and your entry is not an exact match (including spacing, commas, periods, hyphens, apostrophes, etc.), it will not find a match;
- Drop parts of the name such as “company” or “Inc.” to assist in your search. For example, if the subcontractor’s name is “Carl Contractor Company”, just enter “carl contractor”. By dropping the word “company”, you may be more successful in the search;
- Drop punctuation like hyphens, commas, and periods;
- Try alternative names, spacing, and symbols. For instance, if the name has initials in it, try it with spaces between the initials or try it with the initials at the end of the name;
- If the name contains “and,” try searching it with the word spelled out, or substitute the “&” (ampersand) sign; or
- Try different abbreviations, for instance, “plumbing” might be entered as “plbg.”
The database is not case-sensitive. Here is an example of a possible search:
If the subcontractor’s name is “No Leak Plumbing Company, Inc.”, try entering “no leak plumb” and the subcontractor’s name should display.
I have found my subcontractor in the Database. What do I do now?
When the subcontractor is located, we suggest that you print the Contractor Registration document. This is your proof that the subcontractor was in the Database when payments were made to the subcontractor. This registration verifies that the subcontractor is in the Database and you will not need to withhold 5% of the payments made to that subcontractor. This only applies to payments made to subcontractors performing construction services in this state.
As a contractor, do I need to confirm that ALL my “subs” are registered in the Database?
- No. The subcontractors that are required to be in the Database are just those subcontractors that “PERFORM CONSTRUCTION SERVICES.” A very simple definition of “performing construction services” is annexing or attaching building materials to real property or performing repairs on real property. Examples of “performing construction services” include, but are not limited to:
- painting; or
- installing floor coverings.
- Those persons who do NOT perform construction services are not required to be in the Database. While some of the following services are taxable to a contractor, the person performing the service is not subject to the 5% withholding requirement and does not need to be in the Database. Examples include, but are not limited to:
- materials suppliers;
- rental of tools or equipment;
- rental of portable toilets;
- refuse/garbage removal companies;
- pest control service providers; and
- building cleaning service providers.
I am ready to make a payment to a subcontractor, but cannot locate the subcontractor in the Database. What should I do?
- It is recommended that you contact the subcontractor first. Confirm the registration name with the subcontractor, or ask the subcontractor to provide a copy of the Contractor Registration document. A Registration document is emailed to every contractor that has entirely completed the registration. If they are not showing in the Database, there may be a problem with registration requirements established by the Department of Labor, such as failing to submit a current copy of the Workers' Compensation Certificate of Insurance. The Workers' Compensation Certificate of Insurance has a different expiration date from the Database registration date, so it is very important that the Workers' Compensation Certificate be sent to the Department of Labor when it is renewed.
- If the subcontractor has not registered in the Database and made payment for it, then encourage the subcontractor to complete the registration process immediately. The Database is updated on a daily (Monday through Friday) basis, so the subcontractor's information will be entered in the Database shortly after the registration and payment are received. If it is possible to delay payment for several days until the subcontractor is in the Database, you will not have to withhold the otherwise mandatory 5% income tax withholding on the payment.
- However, if the subcontractor fails to register in the Database, then the contractor making payments to that subcontractor for construction services performed in Nebraska must withhold 5% of all payments. The 5% amount withheld is remitted to the Department of Revenue in the same manner as income tax withholding. The amount withheld is submitted to the Department of Revenue on the Nebraska Withholding Return, Form 941N. A Form 1099-MISC must be issued to the subcontractor at its normal filing time, and must show the amount withheld. This information must be included on the Nebraska Reconciliation of Income Tax Withheld, Form W-3N. Contractors that do not currently file and pay income tax withholding must register with the Department of Revenue by filing a Nebraska Tax Application, Form 20, to report the amount withheld from a payment to a subcontractor that is not registered in the Database.
- If the subcontractor has registered in the Database with the Department of Labor and paid the required fees, but still cannot be found in the Database, contact the Department of Labor at 402-471-2239.
Who needs to provide the confirmation of being in the Database, the subcontractor or the contractor?
Either one. The contractor is required to withhold 5% of payments made to a subcontractor that is not in the Database. Subcontractors are encouraged to locate their information in the Database and provide it to the contractors paying them to make it easier for those contractors to know they are in the Database. A contractor who has not received this confirmation must verify that the subcontractor performing construction services is in the Database, which releases them from the responsibility of the 5% income tax withholding on payments.
How do I change my contractor option?
Contractors may change their option through the Department of Labor's Database. The new contractor option applies to all contracts in progress and also to all new contracts. You must notify the Department of Revenue if you make a change in your contractor option.
Do I need to contact DOR if I change my contractor option?
Yes. It is important to notify DOR if you change your contractor option because of differing responsibilities in how sales tax is paid on building materials depending on the contractor option selected. Contact DOR even if you make a change in your contractor option during your annual renewal process. Refer to the specific contractor information guide for Option 1, Option 2, or Option 3 contractors for additional information on your sales and use tax reporting responsibilities if you change your contractor option.
Do I need to reapply each year to be in the Database?
Yes, the Department of Labor will email you a renewal application approximately one month prior to your annual expiration date. The registration is good for 12 months from the month of registration. You must notify the Department of Labor in order to change the information in the Database if:
- The information in the Database is no longer current, such as address or phone number changes, etc.;
- You decide to change the contractor option you have elected; or
- You change your business form (for example, if you change from a sole proprietorship to a corporation). A change in business form, or creating a new business, requires you to obtain new identification numbers with both the Department of Labor and Department of Revenue, for other tax programs for which your business is licensed.
Do I need to check the Database each time I make a payment to a subcontractor?
No, once you have confirmed that a particular subcontractor is in the Database, this confirmation is good for any future payments for the remainder of that calendar year. If the subcontractor is hired for a single project that will last more than one calendar year, then the confirmation is good for payments on that project until it is completed.
If I had the 5% withheld from my payment because I was not in the Database, what must I do to get this back and prevent further withholding?
This withholding is treated as income tax withholding. You will need to wait until you file your income tax return to determine if any of this is refundable. By registering in the Database and paying the appropriate fees to the Department of Labor, you will be in the Database and future payments will not be subject to the 5% income tax withholding.
I do not have employees so I do not remit income tax withholding. If I hire a subcontractor who is not registered in the Database, how do I remit the 5% income tax withholding on this subcontractor?
You need to get licensed for Nebraska Income Tax Withholding, by filing a Nebraska Tax Application, Form 20, with DOR. You will need to file the required Nebraska income tax withholding returns and remit the amount withheld. The primary income tax withholding returns are Forms 941N and W-3N. In addition, you must issue a Form 1099-MISC to the subcontractor at the end of the year.
I am a project owner hiring contractors to do work on my property. Do I need to confirm that these these contractors are registered in the Database?
No, the withholding requirement is not applicable to project owners such as homeowners or other commercial property owners who hire construction work to be done on their own property. Additionally, property management companies are not required to be in the Database. The income tax withholding required under this law applies to contractors paying other subcontractors who are in the business of performing construction services.
For example, when a homeowner hires a remodeler to update a bathroom, the homeowner does not need to confirm that the remodeler is in the Database. It is the responsibility of the remodeler making payments to its subcontractors, such as the plumber and electrician, to confirm that these subcontractors are in the Database.
I am a utility service provider, SID, county engineer, or other similar entity hiring construction services. Do I need to be in this Database? Are payments I make to the contractors subject to the 5% withholding?
Generally, payments made to contractors for construction services performed for the above types of entities do not fall within the scope of these requirements. These entities are considered to be project owners and are generally not subject to the 5% withholding requirements. However, contractors performing construction services for these project owners must confirm that their subcontractors performing construction services are in the Database.
For instance, if an SID hires contractors to install a wastewater system, the SID is not required to confirm that the contractors involved in the construction project are in the Database. However, any contractor hired by the SID who is making payments to subcontractors working on the wastewater system installation is required to confirm that those subcontractors are in the Database.
As a general contractor, occasionally I use a temporary employment agency to hire a day laborer. Does the temporary employment agency need to be registered in the Database?
Yes. A temporary employment agency that provides workers performing construction services is required to be in the Database.