Direct Payment Permits

Direct Payment Permits

Companies with annual taxable purchases of property and services in Nebraska of at least $3 million, excluding purchases for which a resale certificate could be used, can apply for a direct payment permit (DPP). A DPP authorizes the direct payment permitholder to pay use tax on its purchases directly to the DOR, instead of paying sales tax to the retailer (see Nebraska Sales and Use Tax Regulation 1-097, Direct Pay Permit). The Nebraska Application for Direct Payment Authorization, Form 20DP, must be sent in with a nonrefundable $10 application fee

Direct Payment Permitholders’ Duties to Retailers

If the direct payment permitholder utilizes the direct payment option, the permitholder must furnish a copy of the DPP to retailers of taxable property and services. The copy of the DPP should be completed and signed at the time it is furnished to the retailer. The use of the DPP will relieve the retailer from the responsibility of collecting the Nebraska and local sales tax on retail sales made to the direct payment permitholder. 

Option 2 and Option 3 contractors cannot accept or use the DPP issued to another company to forgo their obligation to pay or remit tax on their purchases of building materials and fixtures used in a construction project, or in the repair of annexed property in this state or any other state.

• Information Guide – Option 2 Contractors
• Information Guide – Option 3 Contractors

The direct payment permitholder must keep a current list of all retailers that are given a DPP and, upon request by the Tax Commissioner, must submit this list for examination. The direct payment permitholder must have its DPP reissued every three years from the last date of issuance.

Direct Payment Permit – Use Tax Obligations

The direct payment permitholder is required to remit the proper Nebraska and local use taxes on purchases directly to the DOR in lieu of paying the Nebraska and local sales tax to the retailer. The direct payment permitholder is authorized to advise retailers that it will pay the use tax, and that the usual requirements of the sales and use tax laws for the collection and payment of sales tax by the retailer are waived. The retailer should keep a copy of the DPP for its records. The sales and use tax return is due to the DOR on or before the 20th day of the month following the date of purchase, lease, or rental. 

Qualification Requirements

To maintain the use of the DPP, the direct payment permitholder must have annual taxable purchases in Nebraska of property and services totaling at least $3 million, excluding purchases for which a resale certificate could be used. The direct payment permitholder, or any of its controlled subsidiaries to whom the DPP has been delegated, agrees to accrue and pay all taxes on taxable property and services purchased, leased, or rented, unless the property or service is exempt from tax, or does not qualify to be purchased with the DPP.

Temporary Storage

The Nebraska and local tax that is remitted by the direct payment permitholder is treated as sales tax. Therefore, the direct payment permitholder cannot claim a temporary storage exemption on purchases made with the DPP from any Nebraska licensed retailer, or from any retailer engaged in business in Nebraska. See Neb. Rev. Stat. § 77-2704.44.

Collection Fee

The direct payment permitholder is not entitled to any collection fee on those taxes due on taxable purchases made using the DPP. The direct payment permitholder will directly report the tax on taxable purchases as a use tax on its Nebraska and Local Sales and Use Tax Return, Form 10, or Nebraska and Local Business Use Tax Return, Form 2.

Certain Transactions Not Permitted

A direct payment permitholder may utilize its direct payment option, provided the permitholder gives a copy of the DPP to the retailer. However, the permitholder cannot use its DPP in connection with the following transactions:

• Cash purchases;
• Purchases of motor vehicles, motorboats, all-terrain vehicles, and utility-type vehicles;
• Purchases of lodging or related services;
• Purchases of food or beverages;
• Purchases of admissions; and
• Purchases of taxable property purchased for resale.

ImagiNE Nebraska Act

The ImagiNE Nebraska Act allows an applicant to be issued a DPP upon execution of the agreement, even if the taxpayer does not meet the $3 million in purchases requirement. The applicant must complete Form 20DP and remit the required $10 fee. The DPP is limited to qualified locations specified in the agreement, unless the applicant meets at least $3 million in purchases.

An applicant issued a DPP must remit the appropriate Nebraska and local use tax on purchases during the ramp-up period.  If the taxpayer attains the required levels of employment and investment, the taxpayer can file for a refund of taxes paid on qualified property from the date of application through the end of the ramp-up period. 

During the performance period, the taxpayer may issue the DPP and use the exemption allowed in Neb. Rev. Stat. § 77‑6831(2)(b) and, thus, not remit use tax. This exemption is limited to purchases of qualified property for any year within the performance period which is at or above the required levels of investment and employment. The taxpayer must maintain records of the purchases for which the DPP was issued and the exemption was utilized. Form 1107F is used to report the exemption amount and remit the 0.5% fee due for benefit usage. For any year the taxpayer does not maintain the required levels of investment and employment, the taxpayer must report the sales and use taxes owed for the period on the taxpayer's tax return. The taxpayer will report and remit the sales and use tax owed by filing a Nebraska and Local Business Use Tax Return, Form 2, or a Nebraska and Local Sales and Use Tax Return, Form 10.

Nebraska Advantage Act

The Nebraska Advantage Act allows taxpayers with a Tier 2 Large Data Center project and a sequential Tier 5 Large Data Center project to receive a direct pay permit. A project holder issued a DPP must remit the appropriate Nebraska and local use tax on purchases during the attainment period. If the taxpayer attains the required levels of employment and investment, the taxpayer can file for a refund of taxes paid on qualified property from the date of application through the end of the attainment period. 77-5725(2)(a)(iii), (iv), and (v) are for the actual materials purchased.

After receiving a notice of qualification issued by the DOR, during the entitlement period, the taxpayer may issue the DPP and use the exemption allowed, not remit use tax. This exemption is limited to purchases of qualified property for any year within the entitlement period which is at or above the required levels of investment and employment. The taxpayer must maintain records of the purchases for which the DPP was issued and the exemption was utilized. For any entitlement year in which the taxpayer is not at the required levels, they must report all sales and use taxes owed for the period on their tax return for the year.

Permit Transferable or Assignable

The direct payment permitholder may delegate its DPP to any of its subsidiaries in which it has at least an 80% ownership interest, provided the subsidiary is not the holder of its own DPP.  Companies that delegate their DPPs accept responsibility for the use of the DPP by any controlled subsidiaries.

Permit Revocable

The Tax Commissioner may revoke a DPP any time the direct payment permitholder fails to comply with the conditions under which the permit was granted, or for any other reason constituting the misuse of the permit.  Upon revocation of the permit, the direct payment permitholder is required to notify all retailers that were previously given copies of the permit that it has been revoked or relinquished.

Approved Direct Pay Permits

DOR has approved the Nebraska Application for Direct Payment Authorization, Form 20DP, for the following companies: