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DIVERSIFIED TELECOM SERVS. v. STATE

Cite as 306 Neb. 834

Diversified Telecom Services, Inc., a corporation 

organized under the laws of the State of 

Nebraska, appellant, v. State of Nebraska, 

Nebraska Department of Revenue, and 

Tony Fulton, Tax Commissioner of the 

State of Nebraska, appellees.

___ N.W.2d ___

Filed August 14, 2020. No. S-19-883.

1. Administrative Law: Judgments: Appeal and Error. When reviewing 

an order of the district court under the Administrative Procedure Act 

for errors appearing on the record, the inquiry is whether the decision 

conforms to the law, is supported by competent evidence, and is neither 

arbitrary, capricious, nor unreasonable.

2. Administrative Law: Statutes: Appeal and Error. The interpretation 

of statutes and regulations presents questions of law, in connection with 

which an appellate court has an obligation to reach an independent conclusion irrespective of the decision made by the court below.

3. Statutes: Appeal and Error. An appellate court will not resort to 

interpretation to ascertain the meaning of statutory words that are plain, 

direct, and unambiguous.

4. Statutes: Legislature: Intent. A collection of statutes pertaining to a 

single subject matter are in pari materia and should be conjunctively 

considered and construed to determine the intent of the Legislature, so 

that different provisions are consistent, harmonious, and sensible.

5. Taxation. There is no double taxation unless both taxes are of the same 

kind and have been imposed by the same taxing entity, for the same taxing period, for the same taxing purpose, and upon the same property or 

the same activity, incident, or subject matter.

6. ____. Unless it is unreasonable, confiscatory, or discriminatory, double 

taxation is not unconstitutional or prohibited, although it is the court’s 

policy to guard against it.

Nebraska Supreme Court Online Library

www.nebraska.gov/apps-courts-epub/

09/04/2020 09:09 AM CDT
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7. Taxes: Words and Phrases. A tax is confiscatory if it is established 

that it is so high as to effectively prohibit a taxpayer from engaging in a 

particular business.

8. Taxation: Statutes: Legislature: Intent. The Legislature may enact 

laws that result in double taxation, and if it does, it is a valid exercise of 

the taxing power, and if the plain meaning of a statute results in double 

taxation, courts will enforce the Legislature’s intent.

9. Taxes: Sales: Property. The legal incidence of a sales tax falls upon 

the purchaser, because it is a tax upon the privilege of buying tangible 

personal property.

10. Equal Protection. In an equal protection challenge, when a fundamental 

right or suspect classification is not involved, the act is a valid exercise 

of police power if the act is rationally related to a legitimate governmental purpose.

11. Equal Protection: Statutes: Proof. The party attacking a statute as violative of equal protection has the burden to prove that the classification 

violates the Equal Protection Clause.

Appeal from the District Court for Lancaster County: Kevin 

R. McManaman, Judge. Affirmed.

Andrew C. Pease and Thomas E. Jeffers, of Crosby Guenzel, 

L.L.P., for appellant.

Douglas J. Peterson, Attorney General, and L. Jay Bartel for 

appellees.

Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke, 

Papik, and Freudenberg, JJ.

Heavican, C.J.

INTRODUCTION

The Nebraska Department of Revenue (Department) issued 

a sales tax deficiency assessment to Diversified Telecom 

Services, Inc. (Diversifed). Diversified filed a petition for 

redetermination, which was denied by the Tax Commissioner 

(Commissioner). Diversified appealed to the district court, 

which affirmed the decision of the Commissioner.

On appeal, Diversified’s primary argument is that the district 

court erred in agreeing with the Department that Diversified 
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must pay sales or use tax on building materials purchased by 

Diversified and also must remit sales tax when it bills its customers for the same building materials once those materials are 

annexed to real property in the course of Diversified’s “furnishing, installing, or connecting” of mobile telecommunications services under Neb. Rev. Stat. § 77-2701.16(2)(e) (Supp. 

2019). This appeal requires the interpretation of Neb. Rev. 

Stat. § 77-2701.10(2) (Reissue 2018) and § 77-2701.16(2)(e). 

We affirm.

BACKGROUND

The facts are largely undisputed. Diversified builds, maintains, repairs, and removes mobile telecommunication towers 

and equipment. Specifically, Diversified erects towers, builds 

lines and antennas, and installs roads and fences for wireless tower sites. At some sites, Diversified’s work includes 

installing backup generators attached to concrete foundations, 

the purpose of which is to allow the telecommunications 

tower to operate during a power outage. At all relevant times, 

Diversified has been an “Option 2” contractor. This means that 

under § 77-2701.10(2), it pays sales tax or use tax as a consumer when it purchases building materials. Counsel explained 

at the hearing before the district court the advantage of being 

an Option 2 contractor, in that “it allows them to keep a taxpaid inventory. . . . [A]nd so this reduces the management 

cost and accounting cost and record-keeping that’s required of 

keeping a tax-free inventory and then determining where all the 

building materials went and the local tax and regulations that 

apply there.”

Following an audit, a sales tax deficiency assessment in the 

amount of $138,237.49 was issued to Diversified on March 11, 

2016, finding tax owed of $117,969.15, plus $8,471.34 in interest and $11,797 in penalties. Diversified sought a redetermination of that deficiency.

A hearing was held on the petition for redetermination in 

May 2018. The Department offered no evidence at that hearing; Diversified offered the testimony of both Diversified’s 
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director of operations and an individual who worked for the 

management company tasked with Diversified’s accounting and bookkeeping. The parties stipulated to the admission 

of certain documents, primarily consisting of Diversified’s 

invoices and photographs that corresponded to transactions for 

which, following its audit, the Department found additional 

taxation was owed.

The record also includes correspondence between the 

Department and Capital Tower & Communications, Inc. 

(Capital), a sister corporation to Diversified. Correspondence 

from 2008 shows that the Department and Capital discussed 

whether Capital was subject to the tax set forth in § 77-2701.16. 

The Department concluded that it was, and further noted that 

Capital’s status as an Option 2 contractor did not entitle it to a 

credit or deduction for sales tax paid for materials.

In an order issued in January 2019, the Commissioner 

denied the petition for redetermination, except with respect to 

certain items stipulated to by the parties and not at issue in this 

appeal. Specifically, under § 77-2701.16(2), the Commissioner 

found that Diversified owed taxes on gross income from 

providing, installing, constructing, servicing, or removing 

property used in conjunction with mobile telecommunications 

services. The Commissioner disagreed with Diversified and 

found that certain things (notably, backup generators) were 

used in conjunction with providing mobile telecommunications services.

Diversified appealed to the district court. Following 

a hearing, the district court affirmed the decision of the 

Commissioner. The district court reasoned that the plain language of § 77-2701.16 applied to Option 2 contractors under 

§ 77-2701.10 and that such a taxing structure did not constitute double taxation. In addition, the district court found that 

Diversified failed to show that the Department assessed tax 

for property not used in conjunction with “telecommunications 

services” and failed to show that the Department incorrectly 

calculated Diversified’s tax liability.
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ASSIGNMENTS OF ERROR

On appeal, Diversified assigns that the district court erred in 

(1) affirming the Commissioner’s order finding that Diversified 

must pay sales or use tax on building materials purchased by 

Diversified and must also remit sales tax on gross receipts 

earned from the “furnishing, installing, or connecting” of 

mobile telecommunications services; (2) finding that the 

Department’s assessment of sales or use tax on Diversified, 

both when it purchased building materials and when it billed 

its customers for the construction using said materials, was 

not double taxation; (3) finding that the challenged building materials used by Diversified to which the Department 

assessed sales or use tax were used in conjunction with the 

“furnishing, installing, or connecting” of mobile telecommunications services; (4) finding that Diversified did not show 

that the Department incorrectly calculated Diversified’s tax 

liability; and (5) finding that the Department’s disparate treatment of Option 2 contractors like Diversified versus “Option 

1” contractors under §§ 77-2701.10(1) and 77-2701.16 did 

not violate the Equal Protection Clause of the Nebraska or 

U.S. Constitution.

STANDARD OF REVIEW

Under Neb. Rev. Stat. § 84-918(3) (Reissue 2014), an order 

of the district court “may be reversed, vacated, or modified for 

errors appearing on the record.”

[1] When reviewing an order of the district court under 

the Administrative Procedure Act for errors appearing on the 

record, the inquiry is whether the decision conforms to the law, 

is supported by competent evidence, and is neither arbitrary, 

capricious, nor unreasonable. 1

[2] The interpretation of statutes and regulations presents 

questions of law, in connection with which an appellate court 

1 Tyson Fresh Meats v. State, 270 Neb. 535, 704 N.W.2d 788 (2005).
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has an obligation to reach an independent conclusion irrespective of the decision made by the court below. 2

ANALYSIS

On appeal, Diversified argues that the district court erred in 

agreeing with the Department that Diversified must both pay 

sales or use tax on building materials purchased by Diversified 

and also remit sales tax on gross receipts earned in the “furnishing, installing, or connecting” of mobile telecommunications services, even though Diversified used the previously 

taxed building materials to perform work for its customers. 

Diversified argues that this appeal presents a conflict between 

§ 77-2701.10(2) and § 77-2701.16(2)(e).

Relevant Law.

Section 77-2701.10 defines

[c]ontractor or repairperson [to] mean[] any person 

who performs any repair services upon property annexed 

to, or who annexes building materials to, real estate, 

including leased property, and who, as a necessary and 

incidental part of performing such services, annexes 

building materials to the real estate being so repaired or 

annexed or arranges for such annexation.

Under § 77-2701.10, a contractor may opt to be taxed as the 

retailer or as the consumer of building materials. Option 1 

contractors are taxed as retailers 3; Option 2 and “Option 3” 

contractors are taxed as consumers. 4 The Department is not 

permitted to “prescribe any requirements . . . restricting any 

person’s election.” 5 A contractor can change its status with permission of the Commissioner. 6

2 Bridgeport Ethanol v. Nebraska Dept. of Rev., 284 Neb. 291, 818 N.W.2d 

600 (2012).

3 § 77-2701.10(1).

4 § 77-2701.10(2) and (3).

5 § 77-2701.10.

6 Id.
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In addition to sales tax on building goods, gross income 

from installing or connecting mobile telecommunications services is also taxable under Neb. Rev. Stat. § 77-2703 (Reissue 

2018) and § 77-2701.16(2)(e). Section 77-2703(1) imposes 

a sales or use tax on gross receipts of “any person involved 

in the connecting and installing of the services” defined in 

§ 77-2701.16(2).

As relevant to this appeal, § 77-2701.16(2)(e) defines gross 

receipts as

[t]he gross income received from the provision, installation, construction, servicing, or removal of property used 

in conjunction with the furnishing, installing, or connecting of any public utility services specified in subdivision 

(2)(a) or (b) of this section . . . except when acting as a 

subcontractor for a public utility, this subdivision does 

not apply to the gross income received by a contractor 

electing to be treated as a consumer of building materials under subdivision (2) or (3) of section 77-2701.10 for 

any such services performed on the customer’s side of the 

utility demarcation point.

The Nebraska Administrative Code specifically deals with 

Option 2 contractors in the area of telephone, cable satellite 

services, and other utilities, including mobile telecommunications services. It provides:

017.06E(1) Option 2 contractors who install, construct, 

service, repair, replace, upgrade, or remove outlets, wire, 

cable, satellite dishes or receivers, or any other property 

for telephone, telegraph, cable, satellite services, and 

mobile telecommunications services must collect sales tax 

as follows:

017.06E(1)(a) Option 2 contractors must collect sales 

tax on the total amount charged when working on the 

service provider’s side of the demarcation point (i.e., 

the general distribution system) whether the property is 

annexed or remains tangible personal property.

017.02E(1)(b) Option 2 contractors must collect 

sales tax on the total amount charged when acting as a 
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subcontractor for a telephone, telegraph, or mobile telecommunications service provider on the customer’s side 

of the demarcation point.

017.02E(1)(c) Except as provided in subsection 

017.06E(1)(b), Option 2 contractors will not collect sales 

tax when working on the customer’s side of the demarcation point.

017.02E(1)(d) Option 2 contractors will not collect 

sales tax on labor charges for installing or connecting gas, 

electricity, sewer, and water services.

017.06E(2) Option 2 contractors must pay sales tax 

or remit use tax on all of their purchases of wire, cable, 

outlets, and other property used to install or construct 

telephone, telegraph, cable, satellite services, and mobile 

telecommunications services. 7

Option 2 Contractor Taxed 

Under § 77-2701.16.

In its first assignment of error, Diversified argues that it is 

entitled to a credit or deduction for the sales tax it has already 

paid on the building materials used in its work for customers 

and that the district court erred in finding otherwise.

Diversified argues that there is a conflict between 

§ 77-2701.10(2), allowing it to pay sales tax as a consumer, 

and § 77-2701.16(2)(e), requiring it to pay tax on the gross 

receipts it earned in the “furnishing, installing, or connecting” 

of mobile telecommunications services using those previously 

taxed goods. We find no conflict.

[3,4] The principles of law regarding the interpretation of 

statutory language are familiar. An appellate court will not 

resort to interpretation to ascertain the meaning of statutory 

words that are plain, direct, and unambiguous. 8 A collection of 

statutes pertaining to a single subject matter are in pari 

7 316 Neb. Admin. Code, ch. 1. § 017.06E (2017).

8 Shelter Mut. Ins. Co. v. Freudenburg, 304 Neb. 1015, 938 N.W.2d 92 

(2020).
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materia and should be conjunctively considered and construed 

to determine the intent of the Legislature, so that different provisions are consistent, harmonious, and sensible. 9

Together, § 77-2703(1) and § 77-2701.16(2) apply to “any 

person involved in [the] connecting and installing” of mobile 

telecommunications services. There is an exemption for the 

gross income of certain Option 2 and Option 3 contractors 

in § 77-2701.16(2)(e); that exemption is applicable to “services performed on the customer’s side of the utility demarcation point.”

We observe that Diversified does not assert on appeal that 

any of its services were performed on the customer’s side of 

the demarcation point, and thus this exception is not applicable 

to Diversified. We further note that the very existence of this 

exception shows that Option 2 contractors were intended to be 

taxed under both §§ 77-2701.10 and 77-2701.16.

First, the enactment of this exception shows that the 

Legislature considered the interplay between Option 2 contractors and the tax on gross receipts and, at least implicitly, 

rejected an exemption as to the utility’s side of the demarcation point. Moreover, if, as claimed by Diversified, all Option 

2 contractors were entitled to a credit or deduction, the exception provided would be meaningless. A court must attempt to 

give effect to all parts of a statute, and if it can be avoided, 

no word, clause, or sentence will be rejected as superfluous 

or meaningless. 10

Our conclusion is reinforced by the Department’s regulations, which provide that an Option 2 contractor pay a sales 

tax on its purchase of “wire, cable, outlets, and other property 

used to install or construct . . . mobile telecommunications 

services.” 11 Agency regulations properly adopted and filed 

9 Id.

10 Id.

11 316 Neb. Admin. Code, ch. 1, § 017.06E(2).
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with the Nebraska Secretary of State have the effect of statutory law. 12

We find that the plain meaning of these statutes is clear 

and that Diversified is not entitled to the credit it seeks. 

Diversified’s first assignment of error is without merit.

Double Taxation.

Diversified next contends that the taxation under 

§§ 77-2701.10 and 77-2701.16 constitutes impermissible double taxation. We reject this contention.

[5] We begin with a brief examination of the concept of 

double taxation in Nebraska. We have held that “[t]here is no 

‘double taxation’ unless both taxes are of the same kind and 

have been imposed by the same taxing entity, for the same 

taxing period, for the same taxing purpose, and upon the same 

property or the same activity, incident, or subject matter.” 13

[6-8] Still, “unless it is unreasonable, confiscatory, or discriminatory, double taxation is not unconstitutional or prohibited, although it is [the court’s] policy to guard against it.” 14

We have held that a tax is confiscatory if it is established that 

it is so high as to effectively prohibit a taxpayer from engaging in a particular business. 15 Otherwise, “the Legislature may 

enact laws that result in double taxation and if it does it is a 

valid exercise of the taxing power,” 16 and if the plain meaning 

of a statute results in double taxation, courts will enforce the 

Legislature’s intent. 17

12 In re Application No. OP-0003, 303 Neb. 872, 923 N.W.2d 653 (2019).

13 Anthony, Inc. v. City of Omaha, 283 Neb. 868, 884, 813 N.W.2d 467, 480 

(2012).

14 Id.

15 See, e.g., Waste Connections of Neb. v. City of Lincoln, 269 Neb. 855, 697 

N.W.2d 256 (2005).

16 Stephenson School Supply Co. v. County of Lancaster, 172 Neb. 453, 463, 

110 N.W.2d 41, 47 (1961).

17 See Kappa Ethanol v. Board of Supervisors, 285 Neb. 112, 825 N.W.2d 

761 (2013).
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The Department contends that two different activities 

are subject to tax here: the first is the sales or use tax on 

Diversified’s purchase of building materials, and the second is 

the sales tax on the gross receipts from the “furnishing, installing, or connecting” of mobile telecommunications services. 

The Department also points out that Diversified failed to collect a sales tax from its customers as it was permitted to do.

[9] We agree that Diversified is not subject to double taxation in this case. In reaching this decision, we find our prior 

decision in Anthony, Inc. v. City of Omaha 18 instructive. There, 

we discussed the legal incidence of a sales tax and of an occupation tax. We explained that the legal incidence of a sales tax 

falls upon the purchaser, because it is a tax upon the privilege 

of buying tangible personal property. 19

That concept is helpful here. In the first instance, Diversified 

purchased building goods and voluntarily, and for business reasons, elected to pay a sales tax as a consumer of those building 

goods. 20 Thus, that sales tax is part of Diversified’s purchase 

price and it is the obligation of the retailer of those goods to 

remit the tax to the State. 21 As to the second instance, the sales 

tax on Diversified’s gross receipts, the position of the parties is different. Diversified is no longer the consumer; rather, 

Diversified’s customers are the consumers. The sales tax is part 

of the purchase price, and it is Diversified’s obligation to remit 

the tax to the State.

Given these distinct scenarios, this situation presents no 

double taxation. While on a superficial level Diversified appears 

to pay sales tax in each instance, a closer examination shows 

that is not the case. As to the first transaction, Diversified is the 

entity being taxed. But in the second, Diversified’s customer 

is the entity being taxed. Double taxation exists when “both 

18 Anthony, Inc. v. City of Omaha, supra note 13.

19 Id.

20 See § 77-2701.10(2) and (3).

21 See § 77-2701.10(1).
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taxes are . . . for the same taxing period, for the same taxing 

purpose, and upon the same property or the same activity, incident, or subject matter.” 22 That is not the case here, and thus 

there is no double taxation presented.

Given the results of the audit in this case, it seems apparent 

that Diversified did not charge its customers the full amount 

of the tax owed. This failure does not change the fact that the 

incidence of the unpaid tax was on the customer, while the 

obligation to remit the tax belonged to Diversified.

There is no merit to Diversified’s second assignment of error.

Connecting of Mobile 

Telecommunications 

Services.

Diversified next assigns that the district court erred in finding that certain portions of the deficiency determination—

specifically electrical services, gaslines, concrete pads, and 

backup generators—were not used in conjunction with the 

“furnishing, installing, or connecting” of mobile telecommunications services. Diversified primarily argues that it relied on 

2008 correspondence from the Department when it did not collect sales tax on the now-challenged items, with the exception 

of the backup generators. And the Department suggests that the 

audit was conducted in keeping with that advice, citing a 2015 

letter indicating as much.

We turn first to the generators and the gaslines that power 

them. Diversified argues that cellular towers are fully functional without the generators and that the generators only 

provide backup power in the event of the failure of commercial power. As such, Diversified contends generators 

were not used in conjunction with the “furnishing, installing 

or connecting” of mobile telecommunications services. The 

Department disagrees.

22 Anthony, Inc. v. City of Omaha, supra note 13, 283 Neb. at 884, 813 

N.W.2d at 480.
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Section 77-2701.16(2)(e) provides that taxable gross receipts 

include “gross income received from the provision, installation, construction, servicing, or removal of property used in 

conjunction with the furnishing, installing, or connecting” of 

mobile telecommunications services. The term “in conjunction 

with” is not defined by statute, but the dictionary defines it to 

mean “in combination with” or “together with.” 23

Using this general definition, we agree with the State’s position that the generators were installed “in conjunction with” 

the “furnishing, installing, or connecting” of mobile telecommunications services. While a generator and its fuel may not 

be critical to the usual operation of mobile telecommunications services, those items are necessary to the uninterrupted

operation of such a service. We therefore find that generators 

and fuel are used to furnish mobile telecommunications services within the meaning of § 77-2701.16 and that taxation 

was appropriate.

Diversified also argues that the Department wrongly assessed 

tax on electrical services and concrete pads. Diversified argues 

that these items were not “in conjunction with” the “furnishing, installing, or connecting” of mobile telecommunications services, and also that it had not collected any tax, 

because the Department indicated in 2008 that these items 

were not taxable.

We reject both contentions. We have compared the 

Department’s audit, the 2008 and 2015 letters, Diversified’s 

invoices, and the testimony offered at the hearing. We conclude 

that the Department did conduct the audit in accordance with 

the parameters of the 2008 and 2015 correspondence.

Moreover, we agree with the Department and the district 

court that the items identified by the Department as being 

subject to taxation—specifically, the installation and removal 

of electrical equipment and the installation of concrete pads 

23 “In conjunction with,” Merriam-Webster.com, https://www.merriam-webster.

com/dictionary/in%20conjunction%20with (last visited Aug. 5, 2020).
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for equipment mounting—following the audit were all used 

“in conjunction with” the “furnishing, installing, or connecting” of mobile telecommunications services.

This assignment of error is without merit.

Calculation of Tax Liability.

Diversified argues the district court erred in concluding 

that it did not show the Department incorrectly calculated 

its tax liability. Diversified claims the evidence showed that 

all of its records for the audit period were available to the 

Department and that the Department therefore erred in estimating its deficiency based on the 2014 tax year. Diversified 

asserts that the district court “twisted the language [of the 

Nebraska Administrative Code] into placing an affirmative 

duty and evidentiary burden on the taxpayer to prove that there 

were not any missing records.” 24

But as we view the record, the issue is not that Diversified 

did not provide access to the Department at the time of the 

audit, but that Diversified now challenges that deficiency 

without offering documentation to prove its assertion that 

the Department’s determination was wrong. It is a problem 

with the record as provided to the district court and to this 

court, not a problem with the documentation provided to the 

Department. In other words, Diversified would like us to conclude that it gave proper access to the Department and that the 

Department erred in its determination, without providing the 

court the documentation necessary to prove the determination 

was wrong.

There is no merit to this assignment of error.

Equal Protection.

Finally, Diversified assigns that the Department’s misapplication of this tax scheme violates its right to equal protection. Diversified argues that the Department’s position effectively requires it to operate as an Option 1 contractor, in 

24 Replacement brief for appellant at 31.
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violation of the portion of § 77-2701.10 that prohibits the 

Department from restricting a taxpayer’s election under that 

section. Diversified further argues that its rights were infringed 

upon, because it is not permitted to retroactively elect Option 1 

status. We reject these claims.

[10,11] In an equal protection challenge, when a fundamental right or suspect classification is not involved, the act is a 

valid exercise of police power if the act is rationally related 

to a legitimate governmental purpose. 25 The party attacking a 

statute as violative of equal protection has the burden to prove 

that the classification violates the Equal Protection Clause. 26

As an initial matter, we find that Diversified has not met 

its burden to show that the classification in question was not 

rationally related to a legitimate governmental purpose.

Moreover, as we have found above, the Department was correct in its application of these statutes. And we find no State 

action with respect to the tax consequences of an Option 1 

versus Option 2 election. While the taxing scheme enacted by 

the Legislature might make operating as an Option 2 contractor less advantageous, there is nothing that forces a change in 

election by Diversified. Nor does Diversified direct us to any 

authority which might suggest that a less advantageous business outcome due to a taxation structure is equivalent to the 

Department or the State action requiring a taxpayer to adopt a 

particular election under our tax laws.

Finally, we observe that Diversified was notified in 2008 

that acting as an Option 2 contractor would result in the tax 

consequences it now challenges.

There is no merit to this assignment of error.

CONCLUSION

The decision of the district court affirming the Department’s 

deficiency determination is affirmed.

Affirmed.

25 Waste Connections of Neb. v. City of Lincoln, supra note 15.

26 Id.