Nebraska Supreme Court Holds that Sales Tax is Due on Telecommunications Construction Company’s Purchase of Materials and Furnishing of Services That Used Those Same Materials

The Nebraska Supreme Court held that a telecommunications construction company, Diversified Telecom Services, Inc. (Diversified), was not entitled to a deduction for sales tax it had already paid on building materials used in work for its customers. The Court also found Diversified liable for sales tax on gross receipts from the subsequent furnishing of services that used those same materials.

Under Nebraska law, a contractor may opt to be taxed as the retailer or as the consumer of building materials it purchases. Diversified elected to be taxed as a consumer (an “Option 2” contractor), which means the company was liable for sales or use tax on its building materials purchases. Nebraska law also imposes a sales or use tax on gross receipts of “any person involved in the connecting or installing of the [telecommunications] services.”

Diversified contended that the taxation under these Nebraska laws constituted double taxation. The Supreme Court rejected this argument stating “there is no double taxation unless both taxes are of the same kind and have been by the same taxing entity, for the same taxing period, for the same taxing purpose, and upon the same property or the same activity, incident, or subject matter.” The Supreme Court found that there were two different activities subject to tax: first, the sales or use tax on Diversified’s purchase of building materials, and second, the sales tax on gross receipts from the “furnishing, installing, or connecting” of mobile telecommunications services.

In the first instance, Diversified is the entity being taxed, as it elected to pay sales tax as a consumer on building materials purchases. In the second instance, Diversified’s customer is the entity being taxed and it is Diversified’s obligation to remit the tax to the State. There is no double taxation as theses two different instances did not meet the Court’s definition of double taxation.  (Diversified Telecom Services, Inc. v. Nebraska Department of Revenue, 306 Neb. 834, 2020)

Posted on August 14, 2020