The Nebraska Supreme Court held that a telecommunications construction company was liable for sales taxes on both its purchases of construction materials to build telecommunications infrastructure and for its subsequent sales of services installing and constructing the same telecommunications property.
Nebraska law requires a construction contractor to make an election as to whether it will be treated as a “consumer” or “retailer” with respect to building materials it purchases. With respect to its purchase of construction materials, the taxpayer elected to be the consumer, which meant that it was liable as the consumer for sales tax upon purchase. In addition to sales tax on building materials, Nebraska also imposes sales tax on “any person involved in the connecting and installing of [telecommunication] services.”
The taxpayer argued this outcome resulted in improper double taxation, whereby it was required to pay tax on the gross receipts it earned in the installing and connecting of telecommunications services using those same previously taxed goods.
In rejecting this argument, the court found the scenario involved two different activities subject to tax, with different legal incidences of the tax. Double taxation, according to the court, occurs when “both taxes are of the same kind and have been imposed 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.” Here, for sales tax on its construction materials, the taxpayer was the consumer and therefore the payer of the tax. But, in the case of sales tax on the construction services, the taxpayer was no longer the consumer, but instead the seller, and therefore responsible for remitting the tax paid by its customers. While the legal incidence of sales tax is on the customer, the taxpayer was nonetheless obligated for the unpaid amounts.