A Nebraska sales tax exemption releases a customer from the 5.5% state-level tax and typically any applicable local option tax on a specific transaction. The sales tax exemption depends on who's buying, what's being sold, and, in some cases, how the item will be used. A Nebraska business might encounter all the exemption types depending on its customer base. The rules regarding each sales tax exemption are specific. If you get them wrong by exempting a sale that doesn't qualify or by not collecting a valid certificate, the mistake creates liability for the seller.

Below, we'll discuss who qualifies for a sales tax exemption in Nebraska, which products get exempt treatment and which ones don't, and what happens if businesses don't follow the rules.

Key takeaways

• Nebraska has sales tax exemptions based on customer status, product type, and intended use.

• Form 13 covers exempt Nebraska transactions, but sellers can also accept a Streamlined Sales Tax (SST) certificate for customers registered across multiple member states.

• A seller who accepts an incomplete or clearly mismatched exemption certificate can end up liable for the uncollected tax during an audit.

What is a Nebraska sales tax exemption?

A Nebraska sales tax exemption cancels the sales tax due on a transaction when the customer, the product, or the intended use meets the criteria in state statutes. Nebraska charges a minimum 5.5% state sales tax on most retail sales, and cities can layer on a local option tax, which makes the rate 7% or higher in some places.

Who qualifies for a Nebraska sales tax exemption?

Qualification for sales tax exemptions in Nebraska depends on the customer's status.

These are five major categories of exempt customers:

• Government entities: Federal agencies, the state of Nebraska, and most of Nebraska's political subdivisions don't pay sales tax on purchases made for official use.

• Non-profits and non-profit contractors: Certain non-profits, such as religious organisations, licensed hospitals, and educational institutions, qualify after applying with the Nebraska Department of Revenue. A customer-based exemption applies to contractors purchasing building materials for non-profits and governmental units.

• Resellers: A business that buys goods to resell rather than consume can purchase without paying sales tax at that point.

• Agricultural producers: Farmers and ranchers buying qualifying products for commercial production, such as feed, seed sold to commercial producers, or agricultural chemicals, can claim exemptions on those purchases.

• Manufacturers: Businesses buying qualified machinery and equipment used directly in a manufacturing process can exempt those purchases.

What products qualify for a Nebraska sales tax exemption?

Many products in Nebraska are exempt from sales taxes, and businesses should understand the distinctions.

Here are some of the main categories of product exemptions:

• Grocery food: Unprepared groceries intended for home consumption are exempt from the state rate and any local option tax, which sets Nebraska apart from states that exempt groceries at only the state level.

• Candy and soft drinks: These stay taxable if they're sold through a vending machine but are exempt if they're sold at a grocery store, served at schools or hospitals, or vended by a religious organisation at a function.

• Prescription drugs and prosthetic devices: These are exempt with a prescription. Insulin does not require a prescription, but it is also exempt from sales tax.

• Motor fuel: This is exempt from sales tax because it's taxed under Nebraska's motor fuel tax.

• Vehicle repair: Labour to restore a motor vehicle to its original condition is exempt from sales tax.

• Water: Residential water service is exempt.

How do you use a Nebraska sales tax exemption certificate?

Nebraska's primary sales tax exemption document is an exemption certificate (Form 13), which also functions as a resale certificate. The form has three sections that cover different exemption types, though a customer fills out only the section that applies to their purchase:

• Section A: Covers resale purchases and requires the customer's Nebraska sales tax ID number

• Section B: Covers exempt sales, such as those made by government agencies or non-profits holding a Nebraska exemption number

• Section C: Covers contractors making purchases such as fixtures and building materials

The customer completes Form 13 and gives it to the seller at or near the time of purchase, and the seller keeps the form on file rather than submitting it to the Department of Revenue. The state can ask a seller to show the forms during an audit. Nebraska sets no statutory renewal period for the certificate, though a seller should request an updated one whenever a customer's permit number changes or a non-profit's exempt status lapses.

Nebraska also belongs to the Streamlined Sales and Use Tax Agreement (SSUTA), which means sellers can accept the Streamlined Sales Tax (SST) exemption certificate instead of Form 13 from customers operating across multiple states.

What records should businesses keep for Nebraska sales tax exemptions?

Nebraska's general statute of limitations for a sales tax assessment is three years from the date a return was filed, so exemption certificates must be kept at least that long. The state can look back further if no return was filed or fraud is suspected.

Two recordkeeping habits are useful for cross-referencing:

• Certificates tied to sales: Keep every certificate connected to an exempt sale with enough transaction details to link it to the specific sale it covers.

• Certificates tracked by customer: A single certificate, such as a resale certificate from a wholesale customer, might apply to dozens of purchases over time; tracking by customer rather than by transaction keeps the paper trail manageable.

When a customer's underlying qualification changes, a permit lapses, or a non-profit's exemption expires, the certificate on file should be updated.

What happens if a Nebraska sales tax exemption certificate is invalid or missing?

If the Department of Revenue audits a business and finds an exempt sale without a corresponding certificate on file, the seller typically becomes liable for the uncollected tax. A certificate that's incomplete carries the same exposure.

A fraudulent certificate, one that states a purpose other than what the goods are used for, can incur penalties. Nebraska law typically shifts liability back to the customer if the seller accepted a properly completed certificate in good faith. That protection has limits, though. It is a felony to wilfully fail to collect, truthfully account for, or remit sales tax.

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FAQs about Nebraska sales tax exemptions