Nebraska Sales Tax Exemption for Forklifts Used in Manufacturing
The Nebraska sales tax exemption for forklifts used in manufacturing is generous compared to other states with similar exemptions. Nebraska has a few requirements and restrictions with their exemption, so the pioneers at Agile Consulting Group requested guidance from the Nebraska Department of Revenue for clarity on how manufacturers should be claiming the exemption. The Department’s Policy Section issued Agile proprietary and unique Tax Guidance that addresses the taxability of various purchase categories associated with the Nebraska sales tax exemption for forklifts used in manufacturing.
General Requirements for Exemption
Forklifts used in a Nebraska manufacturing operation will be exempt from sales tax according to Neb. Rev. Stat. Sec. 77-2704.22(1) if:
- The business is a manufacturer – More than 50% of the business’ revenue must come from manufacturing activities as discussed in Neb. Admin. & Regs 1-107.02.
- Physical change – The activity of the manufacturer causes tangible personal property to be “reduced or transformed into a different state, quality, form, property, or thing” pursuant t0 Neb. Admin. R. & Regs. 1-107.03.
- Used in manufacturing – This last requirement is different than other states that have a predominant use requirement, where 50% or more of the property’s use must occur in manufacturing activities to qualify for exemption. Instead, the Nebraska Supreme Court determined in Kerford Limestone Co. v. Nebraska Dept. of Rev., 287 Neb. 653, 844 N.W.2d 276 (2014) that
any amount or percentage of use meets the “used in manufacturing” requirement if the task being performed is an exempt task.
Taxability of Forklift Purchases According to Agile’s Tax Guidance Letter
The Tax Guidance issued to Agile has clarified the taxability of various forklift-related purchases and whether they qualify for the Nebraska sales tax exemption for forklifts used in manufacturing. Here are some of the highlights from that Tax Guidance:
Forklifts – Purchases, leases and rentals of forklifts are all exempt from sales and use tax when used in manufacturing operations.
Used in Manufacturing – Unlike other states that have an exemption for forklifts used in manufacturing, there is no predominant use requirement. Forklifts used in the manufacturing operation in any capacity will qualify.
Exempt Usage – Although the Nebraska Department of Revenue does not provide any definitive guidance as to the exact starting and ending points of a manufacturing operation, Neb. Admin. R & Regs. 1-107.04(F) provides that “machinery and equipment used to transport, convey, handle, or store the raw materials or components used in manufacturing, or the products produced by the manufacturer for sale” are considered exempt manufacturing activities. Therefore, forklifts used to convey to raw materials, work-in-progress, and finished material qualify for the manufacturing machinery and equipment exemption.
Fuel – All types of fuel (off-road diesel, propane, and electricity) used to power forklifts that are used in manufacturing will qualify for exemption. Although there is not a minimum use threshold for forklifts for tax exemption purposes, there is a minimum threshold for energy usage that must be met for the tax exemption of energy sources to apply. As provided in Neb. Rev. Stat. Sec. 77-2704.13(2), purchases of energy sources such as off-road diesel, propane and electricity will qualify for exemption “when more than fifty percent of the amount purchased is for use directly in processing, manufacturing, refining, or …” So, if the 50% threshold is met, then the total charge for these energy sources will be exempt.
Consumables – Consumable supplies such as grease, motor oil, hydraulic fluid and coolant that are required to maintain forklifts will not qualify for exemption according to Neb. Admin. R. & Regs. 1-107(05H).
Repair Labor – Separately stated labor charges to repair or install parts onto forklifts used in manufacturing will qualify for exemption per Neb. Admin. R. & Regs. 1-107.10.
Repair / Replacement Parts – Repair or replacement parts for forklifts used in manufacturing are exempt from sales or use tax according t0
Neb. Admin. R. & Regs. 1-107.09.
How to Claim the Nebraska Sales Tax Exemption for Forklifts
In order to claim the Nebraska sales tax exemption for forklifts used in manufacturing, the manufacturer will need to complete Form 13 “Nebraska Resale or Exempt Sale Certificate” by completing both the top section and Section B. In Section B, you will select exemption category 5 as the basis for exemption. Please note that you’ll also need to include a description of the property or service purchase and its intended use in the manufacturing process. Once you have properly completed this Form 13, you’ll need to provide it to your vendors so they stop charging you sales tax on future qualifying purchases.
How to Claim a Sales Tax Refund for Sales Tax Paid in Error to Sellers
Nebraska manufacturers that paid sales tax in error to vendors on their forklift purchases, leases, repairs, or fuel will have the ability to claim the refund directly from the Nebraska Department of Revenue by completing Form 7 – “Claim for Refund of Sales and Use Tax”. Follow the template on the second page as the Nebraska Department of Revenue requires a schedule of invoices to be in a specific format or the refund claim will be denied. The eligible lookback period to recover any overpaid sales taxes is thirty-six months. The consultants at Agile Consulting Group have experience in recovering overpaid sales taxes from the Nebraska Department of Revenue and can assist any Nebraska manufacturer with this cumbersome process.
Reach Out to Us with Questions
If you have any questions, comments or would like to discuss the specific circumstances you are encountering in regard to this issue or need assistance with a sales tax refund review or any other sales and use tax issue, please contact a member of Agile Consulting Group’s sales tax consulting team at (888) 350-4TAX (4829) or via email at info@salesandusetax.com.
