Nebraska Sales Tax Exemptions: Food, Medicine, and Agriculture

Nebraska sales tax exemptions remove the state’s 5.5% sales tax (and any local add-on) from specific goods and specific buyers: groceries for home consumption, prescription drugs and certain medical equipment, machinery used in farming and manufacturing, and purchases made by government entities and qualifying nonprofits.1Nebraska Department of Revenue. Nebraska Sales and Use Tax The exemptions are scattered across dozens of statutes in Chapter 77, and most of them require the buyer to hand the seller a completed exemption certificate at the register. Combined state and local rates can reach 8% in some cities, so knowing what qualifies and how to claim it changes what you pay.2Nebraska Department of Revenue. Local Sales and Use Tax Rates

Food and Groceries

Food and food ingredients sold for home consumption are exempt.3Nebraska Legislature. Nebraska Code 77-2704.24 – Food or Food Ingredients; Exemptions That covers the ordinary grocery cart: fruits, vegetables, meat, eggs, dairy, cereals, cooking oils, bottled water, soft drinks, candy, and chewing gum.4Legal Information Institute. Nebraska Administrative Code 316-1-087 – Food or Food Ingredients Health foods eaten as a meal replacement rather than as a supplement also qualify.

Prepared food and vending machine food are still taxable.3Nebraska Legislature. Nebraska Code 77-2704.24 – Food or Food Ingredients; Exemptions A restaurant meal, a deli sandwich heated before sale, and a bag of chips from a vending machine all fall outside the exemption. Alcoholic beverages, dietary supplements, and tobacco are also excluded regardless of where you buy them.

Prescription Medicine and Medical Equipment

Insulin (with or without a prescription) and prescription drugs for human use are exempt.5Nebraska Legislature. Nebraska Code 77-2704.09 – Insulin; Prescription Drugs; Mobility Enhancing Equipment; Medical Equipment; Exemptions Over-the-counter medications do not qualify unless a practitioner has actually written a prescription for them.

Several categories of medical devices are exempt when sold under a prescription and when they are the type Medicaid would cover:

The Medicaid-coverage test is the detail that catches people out. The item has to be the type Medicaid would cover even if the specific buyer isn’t a Medicaid recipient.6Legal Information Institute. Nebraska Administrative Code 316-1-050 – Medicines and Medical Equipment

Agricultural Purchases

Depreciable machinery and equipment purchased for use in commercial agriculture is exempt, along with net wrap, baling wire, and twine. The statute defines agricultural machinery broadly: anything used directly in cultivating or harvesting crops, raising or caring for animals, protecting livestock health (including fans and climate control equipment inside livestock buildings), and processing agricultural products on a farm or ranch.7Nebraska Legislature. Nebraska Code 77-2704.36 – Agricultural Machinery and Equipment; Net Wrap, Baling Wire, and Twine; Exemption

Repair and replacement parts for qualifying farm equipment fall under a separate exemption.8Nebraska Legislature. Nebraska Code 77-2704.64 – Repair or Replacement Parts for Agricultural Machinery and Equipment Used in Commercial Agriculture; Exemption Animal life, commercial animal feed, agricultural chemicals, seeds, and fertilizers used in commercial production each have their own exemption statute in Chapter 77. The Department of Revenue’s exemptions guide lists each qualifying category with its statute reference.9Nebraska Department of Revenue. Nebraska Sales Tax Exemptions

Manufacturing Machinery and Equipment

Machinery and equipment used directly in manufacturing can be purchased, leased, or rented tax-free.10Legal Information Institute. Nebraska Administrative Code 316-1-107 – Manufacturing Machinery and Equipment The requirement is actual use in the manufacturing process. Office furniture, delivery trucks, and other items tied to general business operations do not qualify even if the buyer is a manufacturer.

Government Entity Purchases

Purchases by the State of Nebraska, its agencies, and its political subdivisions are exempt. The statute names a long list of qualifying units: counties, townships, cities, villages, fire protection districts, airport authorities, drainage and sanitary districts, natural resources districts, public schools, learning communities, and joint entities formed under the Interlocal Cooperation Act, among others.11Nebraska Legislature. Nebraska Code 77-2704.15 – State and Political Subdivision Purchases; Exemption Public educational institutions recognized or established under Chapter 85 also qualify.

One important limit: the exemption does not cover purchases used in the business of furnishing gas, water, electricity, or heat.11Nebraska Legislature. Nebraska Code 77-2704.15 – State and Political Subdivision Purchases; Exemption A municipal utility buying equipment for its electric distribution system still owes sales tax on that purchase.

Nonprofit Organizations

A separate statute exempts purchases by qualifying nonprofits: those created exclusively for religious purposes, those serving the blind, accredited private colleges and universities with a primary campus in Nebraska, and nonprofit private K-12 schools.12Nebraska Legislature. Nebraska Code 77-2704.12 – Nonprofit Religious, Service, Educational, or Medical Organization; Exemption; Purchasing Agents

Healthcare nonprofits get detailed treatment. When they hold the required license under the Health Care Facility Licensure Act, the following facility types qualify:

  • Hospitals and health clinics (when hospital-owned to reduce healthcare costs, or when receiving federal Public Health Service funds)
  • Skilled nursing facilities, nursing facilities, and intermediate care facilities
  • Assisted-living facilities
  • Intermediate care facilities for persons with developmental disabilities
  • Home health agencies, hospice services, and respite care services
  • Mental health and substance use treatment centers
  • Centers for independent living

These organizations are exempt only on purchases used at the licensed facility or purchases necessary to maintain the license.13Legal Information Institute. Nebraska Administrative Code 316-1-090 – Nonprofit Organizations A nonprofit hospital buying supplies for its gift shop would not get the exemption on those items. Nonprofits certified by the state to provide community-based services for developmental disabilities or behavioral health also qualify.12Nebraska Legislature. Nebraska Code 77-2704.12 – Nonprofit Religious, Service, Educational, or Medical Organization; Exemption; Purchasing Agents

What Isn’t Exempt That People Assume Is

A few categories catch buyers off guard. Digital products delivered electronically are generally taxable in Nebraska: digital music, audiobooks, ringtones, movies, TV shows, music videos, digital books, and codes that grant a right to obtain any of those.14Nebraska Department of Revenue. Revenue Ruling 01-11-3 Video games, electronic greeting cards, periodicals, newspapers, magazines, and chat rooms are carved out of those taxable definitions.

Over-the-counter medications without a prescription, prepared restaurant food, vending machine snacks, alcohol, and tobacco all remain taxable even though they sit next to exempt items on store shelves. Being a manufacturer, farmer, or nonprofit doesn’t exempt you across the board either: the exemption follows the item and its use, not the buyer.

How to Claim an Exemption With Form 13

To buy tax-free in Nebraska, the buyer completes the Nebraska Resale or Exempt Sale Certificate (Form 13) and gives it to the seller at the time of purchase.15Nebraska Department of Revenue. Nebraska Resale or Exempt Sale Certificate – Form 13 The form is a PDF download from the Department of Revenue.

A fully completed resale certificate needs four things: identification of both the purchaser and seller along with the purchaser’s type of business, the purchaser’s Nebraska sales tax permit number, the signature of an authorized person, and the date.16Nebraska Department of Revenue. Nebraska Resale or Exempt Sale Certificate – Completed Example Exempt organizations and government entities use Section B of the form to identify their exempt status. Either way, you have to check the correct reason: resale, exempt organization purchase, agricultural use, or another qualifying category. An incomplete form is effectively useless. Most sellers will refuse it rather than risk liability for the uncollected tax.

Nebraska belongs to the Streamlined Sales Tax Agreement, so sellers also accept the Streamlined Sales Tax Exemption Certificate in place of Form 13.17Streamlined Sales Tax Governing Board. Exemptions If you’re registered to collect sales tax in Nebraska, put your Nebraska tax ID number on the streamlined certificate. If you’re registered in another state but not Nebraska, you can use that state’s ID number instead.

Seller Recordkeeping

A properly completed exemption certificate is conclusive proof that the sale was exempt or for resale.18Nebraska Legislature. Nebraska Code 77-2703 – Sales and Use Tax; Tax Commissioner; Enforcement Without it, the burden of proving a sale wasn’t taxable falls on the seller.

Sellers must keep copies of all exemption certificates for at least three years from the date the record was created.19Nebraska Legislature. Nebraska Code 77-2711 – Sales and Use Tax; Tax Commissioner; Enforcement; Records; Retain Those records are subject to inspection during a state audit. If the seller can’t produce the certificate, the state can hold the seller liable for the unpaid tax plus penalties and interest.

Use Tax When No Sales Tax Was Charged

When you buy something for use in Nebraska and the seller doesn’t charge sales tax, you owe use tax at the same combined state and local rate. This happens most often with online purchases from out-of-state sellers without a Nebraska collection obligation, purchases from private parties, and items brought back from lower-tax states.

Individuals report and pay use tax in one of two ways: on line 41 of the Nebraska Individual Income Tax Return (Form 1040N), or on a separate Nebraska and Local Individual Use Tax Return (Form 3).20Nebraska Department of Revenue. Nebraska Individual Use Tax If the item was used in a city or county that adds a local tax, the local portion is due on top of the 5.5% state rate.

Penalties for Misusing an Exemption

Misusing an exemption certificate to avoid tax on purchases that don’t actually qualify shifts the tax liability back to the buyer and can trigger additional scrutiny of the buyer’s other transactions.18Nebraska Legislature. Nebraska Code 77-2703 – Sales and Use Tax; Tax Commissioner; Enforcement A seller who willfully understates the amount on which sales tax is due on a vehicle, motorboat, or similar titled property faces a $1,000 penalty per occurrence, and refusing to furnish the required certified statement for those transactions is a misdemeanor carrying a fine of $25 to $100. Retailers that collect sales tax from customers but fail to remit it owe the unpaid tax plus interest and penalties calculated from the due date, and they forfeit the 2.5% collection allowance on the first $3,000 remitted each month if they violate any Department of Revenue rule or directive.