Focus on New Laws: Sales Tax Exemption for Joint Powers Entities and Special Districts

The exemption, which will reduce the cost of most purchases, took effect on Jan. 1, 2017.
(Published Jan 9, 2017)

The sales tax exemption for purchases made by joint powers entities and special taxing districts—which was delayed for a year in a last-minute amendment to the 2015 K-12 finance bill—finally took effect on Jan. 1, 2017.

This exemption is identical to the exemption for cities and counties that has been in place for the past several years.

Entities included in the exemption
More specifically, the law expands the sales tax exemption to the following:

  • Instrumentalities of home rule or statutory cities, counties, and townships.
  • Joint powers boards or organizations as defined in Minnesota Statutes, section 471.59.
  • Economic development authorities.
  • Housing and redevelopment authorities.
  • Port authorities.
  • Special districts defined under Minnesota Statutes, section 6.465.
  • Special taxing districts defined under Minnesota Statutes, section 275.066.

Under this law, most purchases for these entities will be exempt from the sales tax.

Except for certain purchases that remain taxable (see below), the exemption generally applies to the purchase of items needed by local governments to provide goods and services, including items such as computers, paper, printers, furniture, etc. Please note that the sales tax exemption does not apply to sales made by joint powers and special districts, unless the purchaser is exempt.

To make exempt purchases, the joint powers entity or special district must provide the seller with a completed Form ST3, Certificate of Exemption at the time of purchase.

Certain purchases remain taxable
The expanded sales tax exemption for special districts and joint powers entities mirrors the exemption that was granted to cities and counties in 2013, which includes a defined list of goods and services that remain taxable. One category of non-exempt purchases relates to municipal operations that offer a service also provided by private businesses that are not generally tax-exempt, including:

  • Liquor stores
  • Gas and electric utilities
  • Golf courses
  • Marinas
  • Campgrounds
  • Cafes
  • Laundromats
  • Solid waste hauling
  • Solid waste recycling
  • Landfills

In addition to purchases for certain uses listed above, certain additional types of purchases and purchases under certain circumstances also remain taxable, including:

  • Purchases of construction materials for buildings or facilities that are not principally used by the local government.
  • Construction materials and supplies purchased by a contractor or subcontractor under a lump-sum contract (although construction materials purchased directly by an exempt entity are exempt, and purchases made under arrangements with a purchasing contractor—where materials and labor are separately bid and a contractor is designated as a purchasing agent—are also exempt).
  • Purchases of lodging, prepared food, candy, soft drinks, and alcoholic beverages.
  • Leases of motor vehicles.
  • Purchases of motor vehicles (which are generally subject to the motor vehicle sales tax).
  • Purchases subject to other taxes, such as solid waste management tax or petroleum tax.
  • Purchases made by an employee that are reimbursed by the local government.

Accounting for exempt and non-exempt purchases
As a reminder, when an item is being purchased for both exempt and non-exempt purposes, the entity will have to develop a method for allocating between purchases used to provide exempt services and those used to provide non-exempt services. The Minnesota Department of Revenue (DOR) has given flexibility in allocating sales tax, stating that an entity must “use a reasonable method of allocation and keep business records that clearly identify how [it] determined the tax.”

For more information on the local government sales tax exemption, review:

Read the current issue of the Cities Bulletin

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