League to Seek Sales Tax Exemption on Licensed Motor Vehicles for Cities

Townships have been exempt from the motor vehicle sales tax on vehicles used for road maintenance since 1998, but cities don’t currently have that exemption.
(Published Feb 18, 2014)

In addition to clarifying the sales tax exemption for general city purchases, the League Fiscal Futures Committee adopted a policy supporting an exemption from the motor vehicle sales tax for all city-owned vehicles.

In Minnesota, purchases of licensed motor vehicles are not taxed under the general sales tax but instead taxed under a separate motor vehicle sales tax statute. The sales tax exemption granted to cities and counties in 2013 only covers the general sales and use taxes and, therefore, does not extend to the purchase of motor vehicles that must be licensed.

The purchase of some city vehicles, which do not have to be licensed, are currently exempt from the motor vehicle sales tax. Purchases by cities of marked squad cars, fire trucks, fire support vehicles and ambulances have been exempt from the motor vehicle sales tax for many years.

League staff have met with legislators to discuss this policy, and some have expressed concerns about the impact of a full vehicle exemption on the state Highway User Tax Distribution Fund. However, several legislators have been interested in addressing the incongruence in the motor vehicle sales tax as it applies to certain vehicle purchases by cities as opposed to townships.

Under current law, townships do not pay the 6.5 percent state motor vehicle sales tax on vehicles used exclusively for road maintenance, including snow plows and dump trucks. This exemption has been in place since 1998. However, similar vehicles purchased or leased by cities and counties are subject to the tax.

The township motor vehicle sales tax exemption does not extend to all vehicles. Townships, similar to cities and counties, must pay the motor vehicle sales tax on purchases of most automobiles, vans, or pickup trucks. Sen. Lyle Koenen (DFL-Clara City) has authorized a bill draft to extend the exemption to city purchases of these vehicles. Rep. Jay McNamar (DFL-Elbow Lake) introduced a similar bill when the House released the pre-2014 bill introductions on Jan. 13.

Motor vehicle sales taxes are deposited in the state’s Highway User Tax Distribution Fund for use in maintaining and constructing roads. The bill will likely initially be referred to the Taxes Committee for initial consideration.

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