Occupation Taxes
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Recently a number of cities have adopted occupation taxes on a variety of business activities. DOR has prepared the following information to address the many questions and issues related to these types of taxes.
What is an occupation tax?
To generate revenue, any class of city may collect a “privilege or license tax” on an occupation or business within its boundaries. This is commonly referred to as an occupation tax. The tax must be applied uniformly and fairly to the types of businesses on which it is imposed. The most common types of businesses affected are hotel operators, car rental companies, telecommunications providers, restaurants, and bars.
Note: There are two common references to “occupation tax” in Nebraska law. The information in this document relates only to city-imposed occupation taxes on certain types of products or services offered by specific business types or occupations. The second type of occupation tax is administered by the Secretary of State and is imposed on corporations registered to do business in Nebraska. Information on this occupation tax on corporations is available from the Secretary of State’s office.
Who can impose an occupation tax?
Any city or village may impose an occupation tax under Nebraska law:
| Metropolitan Class Cities | Neb. Rev. Stat. §§ 14-109 and 18-1208 |
| Primary Class Cities | Neb. Rev. Stat. §§ 15-202 and 18-1208 |
| First Class Cities | Neb. Rev. Stat. §§ 16-205 and 18-1208 |
| Second Class Cities | Neb. Rev. Stat. §§ 17-525 and 18-1208 |
Who sets the occupation tax rate?
The occupation tax rate is set by the city imposing it. The rate may vary from city to city, and by type of occupation or business activity within the city. This may result in multiple rates on different activities in the same city at the same time.
Note: LB 474 (2014) limits the imposition of occupation taxes on certain businesses selling food products, motor fuels, tobacco products, and alcohol.
Who pays the occupation tax?
The occupation tax is imposed on the business, similar to income taxes and property taxes. However, many cities allow retailers to itemize the occupation tax on their customer’s bill or invoice as a separate line item.
How is the occupation tax paid?
The business pays the occupation tax directly to the city on forms provided by the city.
Depending on the ordinance or resolution enacted by the city, a retailer may:
- Choose to itemize the occupation tax by showing it on the customer’s bill;
- Choose to absorb the occupation tax; or
- Raise prices to recoup the occupation tax without separately itemizing it on the customer’s bill.
When is the occupation tax subject to state or local sales taxes?
If a retailer selling items or services subject to sales tax chooses to show the occupation tax on the customer’s bill, the occupation tax is part of gross receipts. In this case, the occupation tax must be included in the sales price before calculating the state and any applicable local sales tax.
A business is not allowed to combine the occupation tax rate with the sales or lodging tax rate and charge its customers one flat rate.
Why is this not considered “a tax on a tax?”
Collecting sales tax on the occupation tax is not considered a “tax on tax” because the occupation tax is simply another cost of doing business. It is no different than income, property, or other business or license taxes which are also considered costs of doing business. Stating the occupation tax on the customer’s invoice does not impose it on the customer. Whenever a retailer itemizes its costs of doing business for the customer, these amounts are still part of gross receipts subject to sales tax. See the definition of “gross receipts” in Sales Tax Regulation 1-007.01. Also see the definition of “sales price” in Neb. Rev. Stat. § 77-2701.35(3)(c), which states in part that the sales price does not include taxes “legally imposed directly on the consumer.” This is explained in more detail in the next question and answer.
What is the difference between sales tax and occupation tax?
Sales tax is imposed by the state and certain local jurisdictions directly on the consumer (customer). The state sales tax is enacted by the Legislature. A local sales tax may be adopted only after a vote of the residents of the local jurisdiction seeking to impose the tax. Except where specified by law, retailers of taxable items and services are required to separately state and collect all state and local sales taxes from the customer, and remit the sales tax directly to DOR.
Occupation tax is imposed by a city directly on an occupation or business activity. The rate is set by the city resolution or ordinance. It may require a vote by the residents of the city. Businesses pay the occupation tax directly to the city even when they itemize or otherwise recoup the occupation tax from the customer.
Example 1 – Meal-only Restaurant Bill
A customer purchases a meal at a restaurant in a city with a 2.5% occupation tax on restaurants. The calculation of the invoice is shown below:
| Meal |
$ 50.00
|
|
| Occupation Tax (2.5%) |
+ 1.25
|
(remit to City)
|
| Subtotal |
$ 51.25
|
|
| 7% Sales Tax (State 5.5% and City 1.5%) |
+ 3.59
|
(round this from $3.5875, according to Reg-1-011)
(remit to Nebraska Department of Revenue) |
| Total |
$ 54.84
|
|
The retailer is required to calculate the occupation tax on the meal charge and then use this “subtotal” to calculate the state and local sales tax. In this example, the business is not allowed to add the tax rates together and charge 9.5% (one flat rate). The receipt must separately identify the sales tax from the occupation tax.
Example 2 - Hotel Bill
A customer rents a hotel room in a city with a 5.5% occupation tax on hotel operators. The state sales tax rate is 5.5% and the state lodging tax rate is 1%. This hotel is located in a city with a 1.5% city sales tax, and in a county with a 4% county lodging tax.
| Hotel Room Rate |
$100.00
|
|
| City Occupation Tax (5.5%) |
+ 5.50
|
(remit to City)
|
| Subtotal |
$ 105.50
|
|
| Gross Receipts Subject to Sales and Lodging Taxes = $105.50 | ||
| Sales Tax Calculation | ||
| Gross Receipts |
$105.50
|
|
| Sales Tax 7% (State 5.5% and City 1.5%) |
+ 7.39
|
(remit to Nebraska Department of Revenue)
|
|
$ 112.89
|
||
| Lodging Tax Calculation | ||
| Gross Receipts |
$105.50
|
|
| Lodging Tax 5% (State 1% and County 4%) |
+ 5.28
|
(remit to Nebraska Department of Revenue)
|
|
$ 110.78
|
||
The customer’s bill should show:
| Hotel Room Rate |
$ 100.00
|
| Occupation Tax |
5.50
|
| State and Local Sales Tax |
7.39
|
| State and County Lodging Tax |
+ 5.28
|
| Total |
$ 118.17
|
The hotel may itemize the occupation tax on the room charge, but is NOT allowed to add the occupation tax rate to the sales and lodging tax rates and charge its customers one flat rate. See the Lodging Tax Information Guide for additional information.
Example 3 - Sales of Alcohol
Sales Tax Regulation, 1-040 Sales of Alcoholic Beverages Consumed on the Premises, allows a licensed alcoholic liquor retailer to include the sales tax in the sales price of beverages and snack foods consumed on the premises. If a bar owner in a city with a 2.5% occupation tax on food and beverage sales includes the sales tax in the sales price of these items, the occupation tax must be added to the sales price before determining the sales tax amount.
| Cost of a pitcher of beer |
$ 9.12
|
|
| Occupation Tax (2.5%) |
+ 0.23
|
(remit to City)
|
| Subtotal |
$ 9.35
|
|
| Sales Tax (State 5.5% and City 1.5%) |
+ 0.65
|
(remit to Nebraska Department of Revenue)
|
| Total |
$ 10.00
|
|
The customer’s bill should show:
| Pitcher of beer |
$ 10.00
|
If you have any questions about the implementation or payment of occupation taxes, and not the calculation of sales taxes, please direct them to the city imposing the particular occupation tax. Some of the cities recently imposing new occupation taxes and their phone numbers are:
- Fremont Finance Department at 402-727-2626;
- Grand Island City Treasurer at 308-385-5444, ext. 169;
- Kearney Finance Department at 308-233-3213;
- Lincoln City Treasurer at 402-441-7457; and
- Omaha City Finance Department at 402-444-6263 and 402-444-5472.
