Nebraska Contractor Taxes and Licensing: Options 1, 2 and 3 Explained
By BRIX Editorial Team · Updated
Nebraska makes every contractor choose how it handles sales tax on building materials: Option 1 (retailer, collects tax on materials), Option 2 (consumer with a tax-paid inventory) or Option 3 (consumer with a tax-free inventory). Separately stated labor to build or repair real property isn't taxed. The state rate is 5.5%, plus local tax.
Key takeaways
- Your contractor option, chosen on your Department of Labor registration, decides whether you collect tax from customers or pay it on materials.
- If you never elect, Nebraska treats you as an Option 1 retailer.
- Labor to repair or replace part or all of a building isn't taxable, but pest control and building cleaning services are.
- All contractors doing business in Nebraska must register with the Nebraska Department of Labor ($40 from August 1, 2026).
- Nebraska's top individual rate is 4.55% for tax year 2026, down from 5.20% in 2025.
Nebraska's contractor options: the decision that sets your sales tax
Nebraska Revenue Regulation 1-017 defines three ways a contractor can be taxed. You make the election on your contractor registration with the Department of Labor, and it controls almost everything else about how you handle sales tax.
| Option | How Nebraska defines it | What it means day to day |
|---|---|---|
| Option 1 | "Taxed as a retailer of building materials with a tax-exempt inventory or a contractor who has not made an election" | Buy materials without tax, then collect sales tax from the customer on the materials you install |
| Option 2 | "The consumer of building materials with a tax-paid inventory" | Pay tax to your supplier when you buy; don't charge the customer tax on materials |
| Option 3 | "The consumer of building materials with a tax-free inventory" | Buy materials without tax, then remit use tax when you pull them for a job |
A contractor that makes no election is "treated as a retailer under Option 1." That surprises people who assumed they'd simply pay tax at the supply house. If you've been paying tax on purchases and not charging customers, check which option your registration actually shows. Ask a CPA which option fits your mix of work before you switch; the regulation sets rules for changing.
Is contractor labor taxable in Nebraska?
Labor on real property generally isn't. The Department of Revenue's FAQ on certain services says "labor charges to repair or replace part or all of the building are not taxable." Under Option 1, contractors "will not normally collect sales tax on separately stated labor charges," but if you bill one combined amount, tax applies to the whole thing. So Option 1 contractors should always split labor and materials on the invoice.
Some services that trades businesses offer are taxable, whatever your option:
- Pest control: "charges for pest control services performed before, during, or after construction are subject to tax."
- Building cleaning: includes "any work done to clean a fixture that has been annexed to real estate," such as furnaces, ducts and drains, and cleanup after a fire or flood.
- Repair of tangible personal property: taxable (repairs to licensed motor vehicles aren't), per the department's information guide on repair services.
That means duct cleaning, drain cleaning and water damage cleanup jobs can carry sales tax even though the same company's repair labor on the building doesn't. Compare that with Iowa, which taxes repair labor itself, or South Dakota, which taxes most services. For the bigger picture, see sales tax on labor vs. materials.
Rates and use tax in Nebraska
"The Nebraska state sales and use tax rate is 5.5% (.055)," according to the Department of Revenue. Local rates change quarterly: there were no changes on October 1, 2026, and on January 1, 2027, Winside adds a 1% local tax while Eagle and Hay Springs go from 1% to 1.5%. Look up an address with the state's sales tax rate finder. Option 2 and 3 contractors, and anyone buying from out-of-state suppliers, should read use tax for contractors.
Contractor registration and licensing in Nebraska
Nebraska's Department of Labor says "all contractors doing business in Nebraska must register," and the fee is "$40.00 effective August 1, 2026." Contractors with employees file an ACORD 25 certificate showing workers' comp coverage, and if that coverage lapses, the contractor comes off the registered list.
| Trade | Agency | License or registration | Official page |
|---|---|---|---|
| All contractors | Nebraska Department of Labor | Contractor registration (also where you elect your sales tax option) | DOL contractor registration |
| Electrical | Nebraska State Electrical Division | Electrical contractor license | Electrical contractor |
| Plumbing, HVAC, roofing, general | No statewide license found; city or county rules apply | Local license or permit where required; check with the local building department | Your local building department |
The State Electrical Division lists a $180 application fee for an electrical contractor license and a license fee of $375 in odd-numbered years or $187.50 in even-numbered years. For a general overview of licensing, see contractor license.
Nebraska income tax in 2026
Nebraska is in the middle of phased rate cuts. The Department of Revenue's rate chronology (revised February 2026) shows tax year 2026 individual brackets of 2.46%, 3.51% and 4.55%, with a top rate of 4.55%, down from 5.20% in 2025. The corporate rate for 2026 is also 4.55%. Most trades owners pay the individual rate on pass-through profit and make quarterly estimated payments; see quarterly estimated taxes for contractors and the quarterly estimated tax calculator.
Workers' comp for Nebraska contractors
The Nebraska Workers' Compensation Court oversees the system. For contractors, the practical rule is the registration link: if you have employees, the Department of Labor requires proof of coverage to stay registered. For who must carry coverage and the exemptions for sole proprietors and partners, check with the court. Background: workers' compensation.
Local taxes in Nebraska
Cities and some counties levy local sales and use tax on top of the 5.5% state rate, and those rates can change at the start of any quarter. Under Option 1 you charge the rate for the job location; under Options 2 and 3 you pay or accrue tax on your purchases. Check the Department of Revenue's local rate page each quarter.
Nearby state guides
Frequently asked questions
What are Option 1, 2 and 3 contractors in Nebraska?
Option 1 contractors are retailers of building materials and collect tax from customers. Option 2 contractors pay tax on materials when buying them. Option 3 contractors buy tax-free and remit use tax when materials go into a job. You elect on your Department of Labor registration.
What happens if I never chose a contractor option in Nebraska?
Nebraska treats a contractor that hasn't made an election as an Option 1 retailer. That means you're expected to collect sales tax on the materials you install. Check your registration and talk to a CPA if that's not how you've been operating.
Is labor taxable in Nebraska?
Labor to repair or replace part or all of a building isn't taxable. Option 1 contractors don't normally charge tax on separately stated labor, but a single combined charge is taxable in full. Pest control and building cleaning services are taxable.
Is duct cleaning taxable in Nebraska?
Building cleaning is taxable in Nebraska, and it includes cleaning fixtures annexed to real estate, such as furnaces, ducts and drains. Confirm the details for your service with the Department of Revenue.
Do Nebraska contractors need to register?
Yes. All contractors doing business in Nebraska must register with the Nebraska Department of Labor. The fee is $40 from August 1, 2026. Electricians also need a license from the State Electrical Division.
What is Nebraska's income tax rate for 2026?
For tax year 2026, Nebraska's individual brackets are 2.46%, 3.51% and 4.55%, with a top rate of 4.55%. The corporate rate is also 4.55%. Figures are from the Department of Revenue's rate chronology.
Related
- Do Contractors Charge Sales Tax on Labor or Materials?Do contractors charge sales tax on labor, materials or both? The main state models, with California, Texas, New York, Washington and Florida rules.
- What Is Use Tax for Contractors?Use tax explained for trades businesses: out-of-state material orders, resale certificate misuse, tools and equipment, and how to track and report it.
- What Is a Contractor License?What a contractor license is, when you need one, and how six states set dollar thresholds, bonds and insurance, with links to each licensing board.
- What Is Workers' Compensation Insurance?When contractors must carry workers' compensation, how employee thresholds differ by state, and how premiums are calculated from payroll and class rates.
- Quarterly Estimated Taxes for Contractors: How They Work in 20262026 estimated tax due dates, who has to pay, the 90%/100%/110% safe harbors and how to size each payment, with a worked contractor example.
- Quarterly Estimated Tax Calculator for Self-Employed Contractors (2026)Free 2026 quarterly estimated tax calculator for self-employed contractors. See your safe-harbor payment, each due date, and what to set aside.
- Kansas Contractor Taxes and Licensing: Residential vs. Commercial LaborKansas taxes commercial remodel and repair labor but not residential or new construction labor. PECs, roofer registration and more.
- Iowa Contractor Taxes and Licensing: Repair Labor, Registration and Income TaxIowa taxes repair labor but not new construction or remodeling labor. Contractor registration, trade licenses, the 3.8% 2026 income tax and workers' comp.
- South Dakota Contractor Taxes: Excise Tax, Taxed Services and No Income TaxSouth Dakota charges a 2% contractor's excise tax on realty improvement contracts and taxes most services. No income tax, trade licenses and workers' comp.
- Self-Employment Tax Calculator (2026)Free 2026 self-employment tax calculator for contractors. See your Social Security and Medicare tax, the deductible half, and what to save monthly.
Sources
- Nebraska Department of Revenue — Reg-1-017, Contractors (checked October 19, 2026)
- Nebraska Department of Revenue — Sales tax on certain services FAQs (checked October 19, 2026)
- Nebraska Department of Revenue — Information Guide 6-418, repair services (checked October 19, 2026)
- Nebraska Department of Revenue — Sales and use tax (checked October 19, 2026)
- Nebraska Department of Revenue — Local sales and use tax rates (checked October 19, 2026)
- Nebraska sales tax rate finder (checked October 19, 2026)
- Nebraska Department of Labor — Contractor registration (checked October 19, 2026)
- Nebraska State Electrical Division — Electrical contractor (checked October 19, 2026)
- Nebraska Department of Revenue — Income tax rate chronology, table 4-607 (Rev. 2-2026) (checked October 19, 2026)