15 Minute Advocate: Clarification on Sales Tax Exemption for Local Governments

The bills are expected to be heard around March 11; contact your legislators this week.
(Published Mar 3, 2014)

1. Get Informed.
This week, bills to clarify the city and county sales tax exemption were introduced in the Minnesota House and Senate.

Expand to other local government entities
The first set of bills are SF 1860/HF 2422 (Sen. Ann Rest, DFL-New Hope, and Rep. Mike Freiberg, DFL-Golden Valley). The bills would specifically add joint powers entities and other instrumentalities of government, such as housing and redevelopment authorities, economic development authorities, and port authorities, to the list of entities eligible for the sales tax exemption.

Narrow definition of goods and services
In addition, these bills would narrow the definition of “goods and services generally provided by a private business” to the current specific list that includes liquor stores, gas and electric utilities, golf courses, marinas, health and fitness centers, campgrounds, cafes, and laundromats.

The League’s policies call for a repeal of the “goods and services generally provided by a private business” exclusion, but after meeting with the Senate Taxes Committee chairs, they urged that the bills to be introduced attempt to limit the exclusion to those services specifically listed in current law. This change would eliminate interpretations by the Department of Revenue that would require the sales tax be paid on purchases for occasional meeting room rentals, park equipment, and even the rental of lawn mowers used to mow ball fields.

Construction contracts and materials
The second set of bills, SF 1862/HF 2423, authored by Sen. Rest and Rep. John Lesch (DFL-St. Paul), would simplify the process by which a city could secure an exemption for materials used in a construction project.

Under current law, cities must bid labor and materials separately, designate a contractor to be a purchasing agent on behalf of the city, and assume the risk of loss on the materials purchased.

The Department of Revenue’s rules are generally viewed as outdated, and the implementation process of how to receive the sales tax exemption is extremely complicated. As a result, many local units of government opt to pay the tax rather than navigate the complicated and cumbersome process. These bills would repeal the outdated rules and allow cities, school districts, counties, and townships to claim the tax exemption on construction materials through the same process they claim the exemption on any other materials.

2. Take Action.
City officials are strongly encouraged to contact their senators and representatives as soon as possible to support the passage of SF 1860/HF 2422 and SF 1862/HF 2423. The Senate Tax Reform Division is expected to hear these bills as early as March 11.

Thank legislators for their work last year in renewing the state and local partnership with granting the sales tax exemption to cities and counties. Share specific examples of how your city and your residents can benefit from these clarifications.

3. Stay Involved.
Stay tuned to League resources for more information:

Read the current issue of the Cities Bulletin

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