Bill to Simplify Local Government Sales Tax Exemption for Public Safety Facilities Construction Materials

March 8, 2021

Project-specific public safety exemption bills have also been introduced.

HF 1503 (Rep. Greg Davids, R-Preston) would provide a streamlined process for local governments to receive the sales tax exemption on public safety construction project materials initially purchased by a contractor. The House Taxes Committee considered and laid over the bill last week.

Under current law, when construction materials for a local government project are purchased by a contractor, the local government must follow a challenging process to secure a tax exemption. If enacted, HF 1503 would save local units of government an estimated $4.4 million per year on the construction of public safety facilities.

Simplified process proposed

Under HF 1503, a contractor purchasing materials for a public safety facility constructed for a city would pay the sales tax. Then the city could file for a refund of the tax with the Department of Revenue, based upon documentation of the material purchases.

This process would allow the Department of Revenue to continue to enforce the collection of sales tax on taxable purchases, while allowing the local government to receive the benefit of the exemption.

Many cities forego the exemption on construction materials because the process to get it is so cumbersome and adds considerable risk and potential cost to the contracting process. Under current law (Minnesota Statutes, section 297A.70) and rule (Minnesota Rules 8130.1200), in order for cities, counties, towns, and school districts to receive the sales tax exemption for building, construction, or reconstruction materials, supplies, and equipment used in public projects, they must:

  • Separately bid labor and materials.
  • Designate the contractor as a legal purchasing agent on behalf of the local unit of government.
  • Assume the liability for damages caused by defective materials or delivery delays.

General construction sales tax exemption

The League has been working to generally simplify the process for the past several years, and a general construction simplification sales tax exemption bill (HF 768, Rep. Chris Swedzinski, R-Ghent, and SF 216, Sen. Jason Rarick, R-Pine City), has been heard in the House and Senate Taxes committees.

It is estimated this proposed exemption would save local governments a total of more than $70 million in the first full year of implementation.

Project-specific bills

In addition to this bill, seven project-specific public safety facility exemption bills have been introduced that would follow the same refund process. Another eight bills have been introduced for specific local government projects including public works and school district projects.

The specific public safety facility projects are:

For more background information on this topic, read a previous article

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