HF4738

Purpose

• Reorganize Minnesota sales and use tax rules by repealing certain exemptions and clarifying what counts as a retail sale.
• Remove the exemption for preferred athletic facility seating and related amenities that come with admissions.
• Provide funding for safe harbor shelter and housing grants.

Main Provisions

• Repeal of exemptions
  • Repeals the exemption for preferred athletic facility seating and amenities included with the privilege of admissions.
  • Repeals Minnesota Statutes sections 297A.67 subdivisions 35 and 38, and 297A.68 subdivision 46.1.7 (removing existing exemptions tied to those provisions).
• Retail sale definitions and rules (amendment to 297A.61 subd. 4)
  • Defines retail sale to include:
  • Sales of tangible personal property for most purposes (not resale in the ordinary course of business).
  • Sales of services listed in the statute.
  • Sales of property used by the owner to lease to others or to lease efforts (real property/intended use changes are treated as retail sales for resale purposes).
  • Sales of master computer software used to make copies for sale or lease.
  • Sales of building materials, supplies, and equipment to owners, contractors, subcontractors, or builders for erection, alteration, repair, or improvement of real property (including installation-related sales such as carpeting, flooring, shrubs/trees with installation—these are treated as retail, not resale, when installation is included).
  • Sales of items awarded as prizes, and sales of property used in providing services (including promotional items).
  • Sales of property used in lawful gambling or the State Lottery, including promotional items.
  • Sales of machines, equipment, or devices that are used to furnish, provide, or dispense goods or services (e.g., coin-operated devices).
  • Leases trigger a retail sale when lease payments become due (with special treatment for certain motor vehicles if applicable, e.g., ownership transfer timing and exceptions for heavy trucks and short-term rentals).
  • Contingent sales (sales under a conditional agreement) count as a retail sale upon transfer of title or possession.
  • Bundled transactions
  • A bundled sale is generally a single retail sale when multiple products are sold together, but there are exceptions. If one product is a telecommunication service, ancillary service, Internet access, or audio/video programming service, and if the seller maintains books/records that identify the price attributable to each distinct product, the bundled components can be treated separately (not part of the bundle) for tax purposes.
  • Requirements for keeping records: books/records must be maintained in the regular course of business and identify taxable and nontaxable portions; cannot rely solely on tax-focused records.
• Specific rules for bundled transactions and record-keeping (Section 3)
  • The bill outlines how to allocate tax when bundles include taxable and nontaxable components and when separate pricing can justify excluding components from a bundle.
  • Provides detailed guidance on the treatment of motor vehicle repair paint and materials, including invoicing options and industry-standard allocation methods. It also clarifies that the rule does not apply to wholesale transactions at auto auction facilities.
• Digital products
  • Sales of specified digital products or other digital products to an end user are treated as retail sales, with a special rule that when a digital code relates to those products, subsequent receipt/access is not a retail sale.
• Payments to utilities
  • A payment made to a cooperative electric association or public utility as a contribution in aid of construction is treated as a contract for improvement to real property and not a retail sale.
• Other provisions
  • A sale of certain digital products and related access rules.
  • Clarifications around the treatment of season tickets and other exemptions in bundled scenarios.
  • Repeals and related amendments are intended to adjust how sales tax applies to athletic seating, digital products, and certain service/property combinations.

Notable Changes and Impacts

• Tax treatment change
  • The exemption for preferred athletic facility seating and amenities tied to admissions will be repealed, likely increasing taxable sales in sports/entertainment contexts.
• Definitions expanded and clarified
  • The definition of a retail sale is broadened to cover more types of property, services, and installation activities (e.g., flooring, landscaping) as taxable when included in real-property improvement.
• Bundled transactions clarified
  • Taxes may be allocated to distinct products within bundles if the seller maintains proper, verifiable books and records identifying each component’s price.
• Digital products and access
  • Some digital product transactions are treated as retail sales, while access after a digital code purchase may not be a separate retail sale.
• Installations and improvements
  • Installations-included sales (like carpeting or landscaping) are treated as real-property improvement, not resale, for tax purposes.
• Public funding for housing-related needs
  • The bill appropriates money to support safe harbor shelters and housing grants, directing state resources to homelessness and housing stability efforts.

Potential Implications

• Businesses selling athletic seating with admissions may see higher tax collection on those items.
• Services and installation-based sales (flooring, landscaping) could become fully taxable where previously exempt or treated differently.
• Entities dealing with bundled offerings may need robust pricing records to separately identify components for tax purposes.
• Public-private funding for shelters/housing could increase support for homelessness initiatives.

Relevant Terms - retail sale - sales tax / use tax - bundled transaction - telecommunication service - Internet access - audio or video programming service - season tickets to collegiate events - preferred athletic facility seating - amenities included with admissions - promotional items - prizes - installation - real property improvement - building materials, supplies, equipment - carpeting and floor coverings - shrubbery, plants, trees, landscaping with installation - motor vehicle repair paint and materials - end user - digital products - digital codes - contribution in aid of construction - cooperative electric association - public utility - records/books and records - allocation method - resale (sale for resale) - contingent sale - commercial lease (retail sale triggers)