2013-2014 Minnesota Sales and Use Tax Changes
The 2013 Minnesota legislature passed a number of laws that expanded the sales tax base, mainly on businesses. Here is a review of those that were effective in 2013 and those that are scheduled to be effective in 2014. Now is a good time to review how you are treating these items.
Repair and Maintenance Services Purchased by Businesses: Effective July 1, 2013, repair and maintenance labor on certain business equipment and machinery is subject to Minnesota sales and use tax. This includes electronic and precision equipment, and commercial and industrial machinery and equipment.
Electronic and precision equipment includes electronic devices, computers, monitors, copy machines, printers, televisions, sound systems, communications equipment, medical equipment, scientific instruments, etc. Labor to repair electronic and precision equipment that is attached to real property is construction labor, which is exempt.
Commercial and industrial machinery and equipment includes commercial refrigerators and freezers, farm equipment and machinery, freight elevators, manufacturing and production equipment, mechanical cleaning equipment (floor sweepers, washers, scrubbers, etc.), restaurant equipment, heavy machinery (front-end loaders, cranes, bulldozers, back hoes, skid steers, forklifts, etc.), etc. Labor to repair commercial and industrial machinery and equipment that is attached to real property is taxable.
Some examples of repairs and maintenance that remain exempt include work on HVAC systems that are part of an office building, irrigation system at an office building, light fixtures in a warehouse, motor vehicles, office furniture, and fixtures.
Optional maintenance contracts to repair and maintain equipment and machinery are taxable. Extended warranty contracts that cover future, unexpected repair costs are exempt.
This tax is only on repairs and maintenance of business property. If the expense would not be deductible as a business expense, then it is likely not taxable.
Digital Products: Starting July 1, 2013, products transferred electronically are subject to sales tax, including digital books, digital audiovisual works, digital audio works, e-greeting cards, and online video and computer games. This includes music or movie downloads, cell phone ringtones, e-books, and online games. Digital textbooks and instructional materials for use in a course of study at a school, college, university, or private career school remain exempt.
Durable Medical Equipment Sales: The definition of durable medical equipment exemption has been expanded to include repair and replacement parts which are for single-patient use, and to include accessories and supplies required for the effective use of durable medical equipment and prosthetic devices. All drugs and medical devices paid for or reimbursed by Medicare and Medicaid are exempt. The exemption requirement that the medical equipment must be for home use is still in place, with the exception of the new exemption for Medicare and Medicaid reimbursements. These were effective July 1, 2013.
Nursing Homes and Boarding Care Homes: Effective July 1, 2013, most purchases by qualifying nursing homes or boarding care facilities are exempt. To qualify, the nursing home must be licensed by the state, a boarding care facility must be certified as a nursing facility under federal law, the facility must be exempt under 501(c)(3), and the facility is either certified to participate in the federal medical assistance program or certifies to the Commissioner of Revenue that it does not discharge residents for inability to pay.
Sales to Cities and Counties: Starting January 1, 2014, cities and counties are exempt from sales and use tax on purchases to provide certain government services. Examples include lawn care, tree, brush, and stump removal services, office and telephone equipment and services, and road and bridge maintenance. The local government must give a completed ST3, exemption certificate, to the seller of the services.
Business Storage and Warehousing Services: Starting April 1, 2014, business-related storage and warehousing services will be subject to sales and use tax. This does not apply to self-service storage, refrigerated storage or electronic data storage, nor does it apply when the storage is provided by a parent company or affiliate group, or is an isolated or occasional transaction. The tax only applies to storage and warehouse rental that is deductible by a business on its income tax return. Storage rentals to individuals who do not deduct as a business expense are not taxable.
Upfront Capital Equipment Exemption: Effective for sales and purchases on and after September 1, 2014, Minnesota will have an exemption for the purchase of equipment and replacement parts for equipment that is essential to the manufacturing process. Previously, the item was taxable on purchase but eligible for a refund by filing a refund form. This exemption does not apply to newly taxable repair labor (see above).
Other Changes that were signed into law during the 2013 legislative session include adding Amazon-type affiliated nexus, allowing an allocation based on multiple points of use, cigarette and car rental tax hikes, clarification of taxation of prepared food when both a restaurant and a to-go counter, fees on prepaid wireless phones and calling cards, taxation on the gifting of motor vehicles between non-family members, and others.
Repeal Coming? There has been some discussion that the 2014 legislature will consider repealing the business warehousing and business repair taxes. Stay tuned….
If you have any questions, please contact our office.