SF5077

Purpose

• This bill makes changes to Minnesota’s sales and use tax rules. It repeals certain tax exemptions related to admissions and athletic seating, broadens how many goods and services are treated as taxable retail sales, clarifies how bundled transactions are taxed, adds new record-keeping rules, and provides funding for safe harbor shelters and housing grants.

Main provisions

• Repeal of certain exemptions

  • Repeals the exemption for preferred athletic facility seating and amenities included with admissions. This means those seats or amenities could become taxable, rather than exempt.
  • Repeals exemptions related to season tickets for collegiate events (removing a prior tax exemption for these items).

• Expanded and clarified retail sale definitions

  • Recasts and adds items that count as a retail sale for sales tax purposes, covering:
  • Purchases of tangible personal property and certain services that are not resale in the normal course of business.
  • Property owned by the seller but used or leased out for others, or held for lease.
  • Building materials, supplies, and equipment bought for building or repairing real property, including when installed.
  • Installation-related sales (e.g., carpeting, shrubbery, trees, and similar items installed by the seller or a contractor) treated as a sale of real property improvements.
  • Prizes and promotional items as retail sales.
  • Property used in providing services (including items given as promotions) and property used in lawful gambling or state lottery.
  • Machines or devices used to furnish goods or services (including coin-operated devices), not treated as sales for resale.
  • Leases and conditional sales, with specific timing rules for when a lease or conditional sale constitutes a retail sale.
  • Specified digital products and other digital products sold to end users (with different treatment for digital codes that grant subsequent access).
  • Payments to certain utilities or cooperatives as “contributions in aid of construction” treated as not being a retail sale (i.e., those payments fund real property improvements rather than being taxable sales).

• Bundled transactions

  • A bundled sale is generally treated as a retail sale if any bundled product is taxable.
  • Carve-outs exist for certain items (e.g., telecommunication services, ancillary services, Internet access, audio/video programming services, and certain exempt rights like season tickets or licenses to collegiate events), provided the seller keeps books identifying how much of the price is attributable to each distinct product.
  • Books and records must be kept in the regular course of business (not created solely for tax purposes) and must clearly identify the taxable vs. nontaxable portions of the price for the distinct products in the bundle.

• Digital products

  • Selling specified digital products or other digital products to an end user is a retail sale.
  • If a digital code is sold that relates to those products, the subsequent receipt or access to the product is not a separate retail sale.

• Motor vehicle repair

  • The sale of motor vehicle repair paint and materials is treated as a retail sale.
  • Shops must either separately state each item on the invoice or use an industry-standard method (based on labor hours and a rate) to determine the value of paint and materials used in the repair, with specific rules for invoicing.

• Real property improvements and contributions

  • Payments to utilities or cooperatives as a contribution in aid of construction are not retail sales; these payments are treated as contracts for improvements to real property.

Significant changes to existing law

• Tax exemptions repealed: The exemption for preferred athletic seating/amenities and the exemption for season tickets to collegiate events are eliminated, expanding what is taxable.
• Tax base and administration: The definitions of what counts as a retail sale are broadened to cover more types of goods, services, and installations; the treatment of bundled transactions is clarified to prevent under-collection of tax when multiple products are sold together.
• Record-keeping requirements: Sellers must maintain detailed books and records to show how much of a bundled price applies to each distinct product, helping determine the taxable portion.
• Digital products: Clarified treatment of digital products and digital access codes for tax purposes.
• Vehicle repairs: Clearer rules for invoicing repairs that separate tax on paint/materials from labor or provide a reasonable method to determine tax on those items.
• Real property improvements: Clarified that some payments related to improvements funded by utilities or cooperatives are not taxable retail sales.
• Funding for shelters/housing: Allocates money to support safe harbor shelters and housing grants.

How it could affect taxpayers

• People purchasing tickets with seating or amenities that were previously exempt may see those items become taxable.
• Bundled purchases that include taxable and nontaxable items will require price components to be identified to determine taxability.
• Digital product purchases and access codes may have different tax treatment than before.
• Businesses selling repairs or providing installation services may need to adjust invoicing to separate taxable paint/material charges from labor, or use the prescribed method to calculate taxable amounts.

Relevant exemptions and sections being repealed or amended: exemptions for preferred athletic facility seating and admission amenities; exemptions for season tickets to collegiate events; and changes to 297A.61, 297A.67, and 297A.68 as described.

Relevant terms - retail sale - sales tax - bundled transaction - distinct and separately identifiable products - installation - real property improvement - building materials - carpeting and floor coverings with installation - shrubbery, plants, trees with installation - prizes and promotional items - gaming equipment and devices - end user - digital products and digital codes - telecommunication service - Internet access - audio or video programming service - season tickets (collegiate events) - cooperative electric association - public utility - contribution in aid of construction - end user - invoice separation / itemization - industry standard practices

If you’d like, I can tailor this summary to a specific audience (e.g., students, business owners, or taxpayers) or expand any of the sections with concrete examples.