Up-Front Sales Tax Exemption on Purchase of Capital Equipment Starting July 1, 2015
The 2014 Minnesota Legislative session passed a law that makes the purchase/lease of equipment used in Minnesota in the manufacturing process exempt from Minnesota sale/use tax effective on purchases beginning July 1, 2015.
Previously, the State required businesses to pay the sales/use tax on the purchase, and then had to file a Capital Equipment Refund Claim (Form ST-11) to get the money refunded. Minnesota now joins most of the other states that have the exemption up-front, on the purchase.
To purchase the qualifying equipment exempt from Minnesota sales tax, the purchaser must present a signed exemption certificate (ST3) indicating it is qualifying capital equipment. Until the effective date of July 1, 2015, the purchaser must pay the applicable sales/use tax and then file the refund claim. If you pay sales/use tax on equipment purchased after June 30, 2015, you may either request a refund from the vendor, or request a refund from the State.
Capital Equipment Refund Claims are allowed to be filed twice in a calendar year. You generally have 3 ½ years from when the tax was paid to file a refund claim.
This refund opportunity also applies to businesses other than “manufacturers”. Any business may qualify for a refund of sales tax paid on equipment used primarily to make a product that will be ultimately sold at retail. For example, a hardware store may claim a refund for a key-making machine – the key-making machine qualifies as capital equipment even though the main business of a hardware store is not manufacturing.
Capital equipment means machinery and equipment purchased or leased, and used in Minnesota by the purchaser or lessee primarily for manufacturing, fabricating, mining, or refining tangible personal property to be sold ultimately at retail if the machinery and equipment are essential to the integrated production process of manufacturing, fabricating, mining, or refining. Capital equipment also includes machinery and equipment used primarily to electronically transmit results retrieved by a customer of an on-line computerized data retrieval system.
Capital equipment includes:
- Machinery and equipment used to operate, control, or regulate the production equipment;
- Machinery and equipment used for research and development, design, quality control, and testing activities;
- Environmental control devices that are used to maintain conditions such as temperature, humidity, light, or air pressure when those conditions are essential to and are part of the production process;
- Materials and supplies used to construct and install machinery or equipment;
- Repair and replacement parts, including accessories, whether purchased as spare parts, repair parts, or as upgrades or modifications to machinery or equipment;
- Delivery and installation charges for qualifying equipment;
- Materials used for foundations that support qualifying machinery or equipment;
- Materials used to construct and install special purpose buildings used in the production process; and
- Ready-mixed concrete trucks where the ready-mixed concrete is mixed as part of the delivery process.
Capital equipment does NOT include:
- Farm machinery, aquaculture and logging equipment;
- Motor vehicles taxed under MN Statute 297B (vehicles for road use);
- Building materials that become part of a general building structure or that are an addition, repair, improvement or alteration to real property;
- Machinery or equipment used in the transportation, transmission or distribution of petroleum liquefied gas, natural gas, steam or water through pipes, lines, tanks, or mains;
- Telecommunications equipment and wire, cable, fiber, poles, or conduit used to provide telecommunications services;
- Machinery or equipment used in restaurants to furnish, prepare, or serve prepared food;
- Machinery or equipment used to provide taxable services such as laundry and dry cleaning services, motor vehicle washing and cleaning services, building cleaning, maintenance and extermination services, detective and security services, pet grooming services, lawn care services, and lodging and pet care services;
- Machinery or equipment used for nonproduction purposes (such as office equipment); and
- Any other item that is not essential to the integrated process of manufacturing, fabricating, mining, or refining;
Copeland Buhl & Company can help you file a refund claim if you have qualifying purchases, or can help you complete the ST3 to give to your vendors.