Minnesota – Application of Sales and Use Tax to Transitional Sales

SALT Report 2880 – The Minnesota Department of Revenue issued guidance regarding the application of sales and use taxes to transitional sales for various product and service areas. The publication reflects the sales tax rate changes that became effective July 1, 2013.

Repair Services Purchased by a Business

Lump sum payments for services that began prior to July 1 and end after July 1are subject to the 6.875% general rate sales tax in addition to any applicable local taxes.  The tax applies to the total billed amount.

Separately stated charges for services that began prior to July 1 and end after July 1, only the services performed on and after July 1 will be subject to the 6.875% general rate sales tax and any applicable local taxes.

Maintenance Agreements

Contracts entered into and paid for prior to July 1 – Maintenance contracts to repair and maintain equipment that were not taxable prior to July 1 will remain exempt if they were paid for by July 1.

Contracts that require payments be made on or after July 1 will be subject to the 6.875% general rate sales tax in addition to any applicable local taxes.

Telecommunications Equipment

Tangible personal property ordered prior to July 1, but delivered on or after July 1 will be subject to the 6.875% general rate sales tax and any applicable local taxes, because title to the property does not transfer to the purchaser until delivery is made.

Leases payments for tangible personal property that were due prior to July 1 remain exempt if the property or digital good was exempt prior to July 1.  However, the 6.875% general rate sales tax and any applicable local taxes will apply to lease payments due on or after July 1.

Digital Products

The following examples apply to digital products ordered before July 1:

If a digital product is ordered prior to July 1, but title or possession does not transfer to the purchaser and it is not first used until on or after July 1, the sale will be subject to the 6.875% general rate sales tax plus any applicable local taxes.

If a digital product is ordered prior to July 1 and possession transfers to the purchaser, or its first use is before July 1, then the sale may not be subject to the 6.875% general rate sales tax and any applicable local taxes.

Lease payments for tangible personal property due prior to July 1 will remain exempt, if the property or digital good was exempt prior to July 1.  However, the 6.875% general rate sales tax and any applicable local taxes will apply to lease payments due on or after July 1.

Construction Contracts

In the case of a pre-existing construction contract or bid, the contractor can take an exemption on certain services and items that became taxable on July 1. The exemption only applies to the change in tax on those items or services if they are purchased during the transition period of July 1, 2013 – December 31, 2013.

To claim the exemption, the contractor must provide the seller with Form ST3, Certificate of Exemption. The contractor should use Code N, “exemption from state tax increase for construction contract” in the “Reason for exemption” section.

In the case of a construction contract, the contractor must be able to verify that a written lump sum, or fixed price, construction contract was in effect prior to July 1, 2013.  Additionally, the contract cannot allocate any monies for future taxes; and the contractor must provide the seller with a copy of any contract in which an exemption will be claimed.  All deliveries must be made before January 1, 2014.

For construction bids, all building materials or services must be used pursuant to a bid that was submitted and accepted prior to July 1, 2013. The bid cannot be withdrawn, modified or changed without forfeiting a bond; and the contractor must provide the seller a copy of the bid in which an exemption will be claimed. All deliveries must be made before January 1, 2014.

For Further Information

Minnesota Department of Revenue – Transitional Sales