Detailed Nebraska Development
The Nebraska Supreme Court recently affirmed a district court decision holding that a taxpayer was liable for uncollected sales tax on its service receipts. The taxpayer, a contractor specializing in building and maintaining cellular towers, transmission lines, and other improvements at cellular sites, purchased materials to construct and equip the towers and paid sales tax on such materials. Under Nebraska law, contractors and repairpersons can elect among three options with respect to payment of sales and use tax on their purchase of materials. Under Option 1, the contractor is treated as a retailer. Under Option 2 and Option 3, the contractor is treated as the consumer of the materials. Specifically, Option 2, which the taxpayer at issue had elected, requires the consumer of building materials annexed to real estate to pay sales or use tax on such materials at the time of purchase. On audit, the Department of Revenue issued an assessment against the taxpayer on the basis that its receipts from customers were subject to sales tax as income “received from the provision, installation, construction, servicing, or removal of property used in conjunction with the furnishing, installing, or connecting of any public utility services” (defined to include mobile telecommunications services). The taxpayer’s protest was denied by the Department. After losing at the district court level, the taxpayer sought review before the Nebraska Supreme Court.
Before the Nebraska Supreme Court, the taxpayer argued that it was improper to require the taxpayer to apply the sales tax to both its purchase of materials and its receipts from furnishing, installing or connecting mobile telecommunications services and that such treatment constituted impermissible double taxation. It also argued that certain of the services it provided were not “in conjunction” with the mobile telecommunication services. The court first determined that the Nebraska statutes were clear and unambiguous in requiring a contractor electing Option 2 to both pay tax on its materials and to collect tax on its income from providing services. Moving to the double taxation argument, the court explained that double taxation occurs only if the same kind of tax is levied by the same tax authority for the same tax period on the same property or activity. Even then, such taxation is not unconstitutional or prohibited unless it “unreasonable, confiscatory, or discriminatory.” The court did note that its policy was to guard against double taxation. However, in the court’s view, there was no double taxation in the instant case as two different activities were subject to tax – the taxpayer’s purchase of building materials, and the taxpayer’s performance of services. The taxpayer also argued that certain receipts in the assessment – those relating to electrical services, gas lines, concrete pads, and backup generators – were not used in conjunction with the “furnishing, installing, or connecting” of mobile telecommunications services. After examining the role of these items, the court concluded that they did serve to furnish mobile telecommunications service and the court upheld the district court’s decision. Please contact Audra Mitchell at 816-802-5456 for more information on Diversified Telecom Services, Inc. v. State of Nebraska.
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