# Nebraska Contractor Taxes and Licensing: Options 1, 2 and 3 Explained

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.

**Nebraska contractor options under Reg-1-017**

| 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 |

_Quotes from Nebraska Department of Revenue Reg-1-017, checked 2026-10-19. The regulation includes more detail on switching options and annexation._

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](https://www.brix.so/taxes/iowa), which taxes repair labor itself, or [South Dakota](https://www.brix.so/taxes/south-dakota), which taxes most services. For the bigger picture, see [sales tax on labor vs. materials](https://www.brix.so/learn/sales-tax-on-labor-vs-materials).

> **Example: a $6,000 furnace replacement under each option (illustrative)**
>
> Equipment and materials are $3,800 and labor is $2,200, billed separately.
>
> **Option 1:** the contractor bought the furnace tax-free and charges the customer sales tax on the $3,800. No tax on the $2,200 of labor.
>
> **Option 2:** the contractor paid tax on the $3,800 at purchase and charges the customer no sales tax.
>
> **Option 3:** the contractor bought tax-free, then owes use tax on the $3,800 when the furnace goes into the job, and charges the customer no sales tax.
>
> A separate duct cleaning on the same visit would be a taxable building cleaning service.

## 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](https://www.brix.so/learn/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.

**Nebraska contractor licensing by trade**

| 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](https://dol.nebraska.gov/LaborStandards/Contractors) |
| Electrical | Nebraska State Electrical Division | Electrical contractor license | [Electrical contractor](https://electrical.nebraska.gov/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 |

_Checked 2026-10-19. Omaha, Lincoln and other cities set their own trade licensing rules._

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](https://www.brix.so/learn/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](https://www.brix.so/learn/quarterly-estimated-taxes-for-contractors) and the [quarterly estimated tax calculator](https://www.brix.so/tools/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](https://www.brix.so/learn/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.

> **This is not tax advice**
>
> Your option election has real consequences for cash flow and audits. Work through it with a CPA who knows Nebraska contractors, and contact the Nebraska Department of Revenue for written guidance on your situation.

BRIX lets you split labor and materials on every quote and invoice and syncs the totals to QuickBooks, which matters for Option 1 contractors who only charge tax on materials. BRIX doesn't choose your option or file returns.

- [Quotes and estimates](https://www.brix.so/features/quotes-estimates): Builds accurate quotes on site and follows up on every open estimate.
- [Invoicing and payments](https://www.brix.so/features/invoicing-payments): Turns finished jobs into invoices and politely chases unpaid ones until the money is in your account.
- [QuickBooks sync](https://www.brix.so/integrations/quickbooks): Syncs customers, invoices and payments with QuickBooks so the books match the jobs.

### Nearby state guides

- [Kansas](https://www.brix.so/taxes/kansas): Residential vs. commercial labor
- [Iowa](https://www.brix.so/taxes/iowa): Repair labor taxable
- [South Dakota](https://www.brix.so/taxes/south-dakota): Contractor's excise tax
- [Missouri](https://www.brix.so/taxes/missouri): Labor untaxed

## 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?](https://www.brix.so/learn/sales-tax-on-labor-vs-materials)
- [What Is Use Tax for Contractors?](https://www.brix.so/learn/use-tax-for-contractors)
- [What Is a Contractor License?](https://www.brix.so/learn/contractor-license)
- [What Is Workers' Compensation Insurance?](https://www.brix.so/learn/workers-compensation)
- [Quarterly Estimated Taxes for Contractors: How They Work in 2026](https://www.brix.so/learn/quarterly-estimated-taxes-for-contractors)
- [Quarterly Estimated Tax Calculator for Self-Employed Contractors (2026)](https://www.brix.so/tools/quarterly-estimated-tax-calculator)
- [Kansas Contractor Taxes and Licensing: Residential vs. Commercial Labor](https://www.brix.so/taxes/kansas)
- [Iowa Contractor Taxes and Licensing: Repair Labor, Registration and Income Tax](https://www.brix.so/taxes/iowa)
- [South Dakota Contractor Taxes: Excise Tax, Taxed Services and No Income Tax](https://www.brix.so/taxes/south-dakota)
- [Self-Employment Tax Calculator (2026)](https://www.brix.so/tools/self-employment-tax-calculator)

## Sources

- [Nebraska Department of Revenue — Reg-1-017, Contractors](https://revenue.nebraska.gov/legal/regs/salestax/1-017.html) (checked 2026-10-19)
- [Nebraska Department of Revenue — Sales tax on certain services FAQs](https://revenue.nebraska.gov/about/frequently-asked-questions/sales-tax-certain-services-faqs) (checked 2026-10-19)
- [Nebraska Department of Revenue — Information Guide 6-418, repair services](https://revenue.nebraska.gov/sites/revenue.nebraska.gov/files/doc/info/6-418.pdf) (checked 2026-10-19)
- [Nebraska Department of Revenue — Sales and use tax](https://revenue.nebraska.gov/businesses/sales-and-use-tax) (checked 2026-10-19)
- [Nebraska Department of Revenue — Local sales and use tax rates](https://revenue.nebraska.gov/businesses/local-sales-and-use-tax-rates) (checked 2026-10-19)
- [Nebraska sales tax rate finder](https://gis.ne.gov/rev/SalesTaxFinder) (checked 2026-10-19)
- [Nebraska Department of Labor — Contractor registration](https://dol.nebraska.gov/LaborStandards/Contractors) (checked 2026-10-19)
- [Nebraska State Electrical Division — Electrical contractor](https://electrical.nebraska.gov/electrical-contractor) (checked 2026-10-19)
- [Nebraska Department of Revenue — Income tax rate chronology, table 4-607 (Rev. 2-2026)](https://revenue.nebraska.gov/sites/default/files/doc/research/chronology/4-607table1.pdf) (checked 2026-10-19)

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Written by BRIX Editorial Team. Last updated 2026-10-19. General information, not tax, legal or financial advice.
Canonical: https://www.brix.so/taxes/nebraska