For purchases made after June 30, 2015, Minnesota businesses will be able to purchase capital equipment exempt from sales tax.

Background

Since the 1980s, Minnesota has required businesses who purchase capital equipment to first pay sales tax on these purchases and then to file a refund claim with the Minnesota Department of Revenue to receive back the sales tax that they had paid.1 Businesses can file no more than two capital equipment refund claims a year with the Department.2

Minnesota enacted legislation in 2013, which originally granted an upfront exemption for qualifying capital equipment purchases made after August 31, 2014 from the sales tax. In 2014, the effective date of this legislation was temporarily delayed so that businesses will now be able to exempt the purchase of capital equipment made after June 30, 2015 from sales tax.3

The Department has revised Form ST3, Certificate of Exemption, to specifically add an exemption category for the purchase of capital equipment. Effective for purchases made after June 30, 2015, businesses should furnish a completed Form ST3 to their vendors who sell them capital equipment. Vendors can then rely on this exemption certificate to no longer charge sales tax on these purchases. If a business does pay sales tax on a capital equipment purchase that is made after June 30, 2015, they can still use the current refund claim process and file a Form ST-11 to claim a refund of this tax.

Qualifying Capital Equipment

Minnesota law defines capital equipment as machinery and equipment purchased or leased, and used in Minnesota by the purchaser or lessee primarily for manufacturing, fabricating, mining, or refining tangible personal property to be sold ultimately at retail if the machinery and equipment are essential to the integrated production process of manufacturing, fabricating, mining, or refining. Capital equipment also includes machinery and equipment used primarily to electronically transmit results retrieved by a customer of an on-line computerized data retrieval system.4

Some of the more common items that are included in the definition of capital equipment are:

  • machinery and equipment used to operate, control, or regulate the production equipment;
  • repair and replacement parts, including accessories, whether purchased as spare parts, repair parts, or as upgrades or modifications to machinery or equipment; and
  • delivery and installation charges for qualifying equipment.5

Some of the more common items that are excluded from the definition of capital equipment are:

  • machinery or equipment used to receive or store raw materials;
  • building materials that become part of a general building structure or that are an addition, repair, improvement or alteration to real property; and
  • other items not essential to the integrated process of manufacturing, fabricating, mining or refining.6

Commentary

For many years, Minnesota businesses have requested the state legislature to allow an upfront sales tax exemption for the purchase of capital equipment. This change will provide welcome relief to businesses who will no longer have the administrative burden of assembling the required information in order to be able to file for a refund of sales tax amounts which they had paid. This change also provides financial relief to businesses who will no longer need to finance the payment of sales tax on large purchases and then wait for the Department to refund them the money since only two refund claims could be filed in a year.

Footnotes

1 See MINN. STAT. § 297A.75,

2 Id.

3 See Ch. 143 (H.F. 677), Laws 2013, and Ch. 150 (H.F. 1777), Laws 2014, which amended existing MINN. STAT. § 297A.68, Subd. 5.

4 MINN. STAT. § 297A.68, Subd. 5(a).

5 A full list of included items is contained in MINN. STAT. § 297A.68, Subd. 5(b).

6 A full list of excluded items is contained in MINN. STAT. § 297A.68, Subd. 5(c).

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