Minnesota Capital Equipment Sales Tax Exemption Now in Effect

Published On: 10th July 2015

From the internet

The time is here when Minnesota businesses will be able to purchase capital equipment that is exempt from sales tax.

This new exemption went into effect July 1, 2015.

Since the 1980s, it has been a requirement in Minnesota for businesses that purchase capital equipment to pay sales tax. However, the procedure when making these purchases was for the business to file a Minnesota refund claim so they would receive a refund for the sales tax that they paid. Businesses were not allowed to file more than two claims annually with the Minnesota Department of Revenue.

In 2013, the Legislature enacted an upfront sales tax exemption for qualifying capital equipment purchases. The exemption was supposed to go into effect September 1, 2014. However, the change was temporarily delayed until July 1, 2015.

Now instead of filing a Form ST3 after the purchase, businesses will submit the now updated form to the vendor making the sale. Vendors can then use the exemption certificate to avoid having to collect sales tax on capital equipment purchases. If the business does pay sales tax on such a purchase, they can still use the former method of obtaining a sales tax refund. The form that will be used for this is a Form ST-11.

In Minnesota, capital equipment is defined as equipment and machinery that is leased or purchased, and used in the mining, manufacturing, fabricating, or mining businesses. Computerized data retrieval systems are also included in this because that equipment is used to transmit specific bits of data that are essential to a business’s operations.

There are exclusions as to what equipment is considered “capital equipment.” These equipment types can include equipment that is used to receive or store raw materials, building materials that become part of a structure, other pieces of equipment not used in refining, fabricating, mining, and manufacturing.

This change is going to benefit many businesses in Minneapolis, St. Paul, and throughout the Twin Cities. For years, businesses have asked the legislature to allow an upfront sales tax exemption on their capital equipment purchases. This removes a burden from businesses, as well as helps those businesses that will now no longer need to finance their sales tax payments on large purchases. Many businesses in the past have had to finance the sales tax payment and then wait until they receive the refund to pay off the loan. Being that only two refund claims could be filed annually, it could be a while before they could make these payoffs, thus increasing their financial liabilities when, in all reality, an upfront sales tax exemption can relieve that liability.