Updated Sales Tax Exemption Information Available

The League of Minnesota Cities continues to seek clarity on the new law to assist cities with budgeting for 2014.
(Published Aug 5, 2013)

The 2013 Legislature enacted a sales tax exemption for many of the currently taxable purchases of cities and counties. Although the sales tax exemption is effective for purchases made on or after Jan. 1, 2014, many cities are in the process of refining their upcoming 2014 budgets, and the League has been receiving many calls and questions on the application of the exemption.

League staff have been forwarding these questions to the Department of Revenue (DOR), whose staff are revising their online materials to include answers to these questions. The League has also updated its sales tax exemption FAQs document to reflect resolved and unresolved issues. Many of the questions the League has received on the new sales tax exemption focus on the status of purchases made by joint powers agreements and joint powers entities, and on what constitutes “a good or service generally provided by a private business” that would not be eligible for the exemption.

According to recent information from the DOR, purchases made through joint powers agreements and joint powers entities will not be exempt. The DOR materials state that in order to receive the exemption, the purchase must be made directly by the respective city, county, or town. To claim this exemption, the local government must provide a fully completed Form ST3, Certificate of Exemption, to the seller. Exactly how the new law applies to purchases through joint powers agreements and entities remains unclear, and the League will continue to work with the DOR to clarify the tax status of such purchases.

The other major unresolved area involves the definition of “goods and services generally provided by a private business” that will not become exempt on Jan. 1, 2014. This language was originally enacted by the Legislature in 2011 when townships were granted the sales tax exemption and was intended to prevent municipal enterprise operations from having a tax advantage over private businesses. However, that provision has not been interpreted because townships rarely are involved in such purchases.

We are waiting for specific responses from the DOR on the status of purchases made for ice arenas, cultural and arts centers, heritage centers, performing arts centers, historical societies, senior citizen centers, and other similar municipal facilities. In the meantime, please review these documents for information currently available from the Department of Revenue and the League of Minnesota Cities.

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