Purpose

This bill would expand Minnesota’s sales tax base by adding a new subdivision to the tax statute. It aims to tax a wide range of additional services (including advertising services) as part of sales and purchases, and to include digital products and certain other items under the tax. It also clarifies some definitions and exemptions that apply to how these taxes are collected.

Main Provisions

• Broad expansion of what counts as a sale and purchase:
  • The bill adds numerous services to be taxable, in particular the following categories:
  • Admission to places of amusement, recreation areas, or athletic events.
  • Lodging and related services at hotels, motels, resorts, campgrounds, etc., including access to telecommunication services in the facility.
  • Nonresidential parking services.
  • Memberships in clubs or organizations that provide access to sports or athletic facilities.
  • Delivery of certain materials (e.g., aggregate materials) and related road-construction materials (with specific road-construction definitions and exceptions).
  • Laundry and dry cleaning; motor vehicle washing and related services; building cleaning, pest control, and related services.
  • Detective, security, burglar alarm, and armored car services (with certain exceptions for off-duty officers and some nonprofit or county-related monitoring).
  • Pet grooming; lawn care and landscaping; tree/shrub maintenance; related services.
  • Massages (with specified health-care facility or professional referral exceptions).
  • Lodging and care for animals (kennels and similar arrangements) excluding veterinary services.
  • Advertising services.
  • Telecommunications services and related ancillary services.
  • Installation services (taxed if the installation would be taxable if provided by the seller of the item).
  • Rental of vehicles by motor vehicle dealers (including service-contract-based reimbursements).
  • Specified digital products or other digital products, or the right to use them (taxed regardless of ongoing payment obligations).
  • The transfer of the right to use tangible personal property or the related property transfer, including certain digital-derived rights.
  • The sale of cannabis products (as taxable goods).
• Digital and other modern formats:
  • Specified digital products are included, and the right to use digital products on a temporary or permanent basis is taxable.
• Government and agency transactions:
  • Purchases from the United States or Minnesota or its agencies, instrumentalities, or political subdivisions are included as taxable when applicable.
• Existing exemptions and clarifications preserved or noted:
  • Services performed by an employee for an employer remain non-taxable.
  • Services between partnerships or associations with dominant ownership (80% voting power) are non-taxable.
  • Services between members of an affiliated group of corporations remain non-taxable.
  • Certain security-related and monitoring services provided under specific circumstances may be exempt (e.g., off-duty licensed peace officers or specified nonprofit/county arrangements).
• Pricing concepts and definitions:
  • The bill reinforces existing definitions of sale and purchase to cover the expanded set of taxable services and goods.
  • In some cases, the price for licensing or access to use facilities or property can be taxed, even when it’s framed as a membership or licensing arrangement.

Notable Changes to Existing Law

• Significantly broadens the tax base to include a wide array of services that were previously non-taxable, with advertising services highlighted as taxable.
• Adds digital products and the right to use digital products to the taxed category, including both temporary and permanent rights to use such products.
• Requires installation charges to be taxed when the installation would be taxed if performed by the seller.
• Brings cannabis products into the taxable category as a taxable good.
• Maintains certain exemptions and clarifications for particular service scenarios (e.g., employee-provided services, certain intercompany services, and some government or nonprofit arrangements).

Potential Implications

• Consumers and businesses that purchase the listed services or digital products could see higher tax collection on those transactions.
• Service sectors (e.g., advertising, lodging, laundry, pet care, landscaping, security, and entertainment) would be directly affected.
• Tax administration would need to apply the expanded rules to a broader set of transactions, including digital goods and mixed-service offerings.

Relevant Terms - sale and purchase - tangible personal property - retail sale - taxable services - advertising services - lodging - admission to places of amusement - nonresidential parking - club membership - digital products - specified digital products - right to use - installation - telecommunications services - vehicle rental - service contract - cannabis product - aggregate materials - road construction - laundry and dry cleaning - motor vehicle washing - pest control - detective security - armored car services - pet grooming - lawn care - massages - kennels / animal boarding - affiliated group of corporations - employee-provided services - government agencies / subdivisions - health care facility exceptions - health care professional referrals - interim / permanent rights - service intermediation and delivery - installation charges - tax base expansion - Minnesota Statutes 2024 297A.61 subdivision 3