Minnesota ~ Sales and Use Tax: Omnibus Tax Bill Enacted With Tax on Accommodations Intermediary Services, New and Expanded Exemptions, and More

Minnesota Gov. Mark Dayton has signed an omnibus tax bill that imposes sales and use tax on accommodations intermediary services, adds and expands exemptions, changes the sourcing of florist sales, adds requirements for ticket resales, authorizes new and increased local taxes, and makes other changes. The bill is part of a budget package agreed upon by the Legislature and the governor to end the government shutdown. Provisions regarding corporate and personal income taxes (TAXDAY, 2011/07/21, S.30), property tax (TAXDAY, 2011/07/21, S.29), and mining tax (TAXDAY, 2011/07/21, S.28) are reported separately.

Accommodations Intermediary Services

Accommodations intermediary services provided in connection with lodging and related services provided by a hotel, rooming house, resort, campground, motel, or trailer camp are subject to tax. Accommodations intermediaries are required to collect sales tax and remit it to the Commissioner of Revenue for services provided in connection with or for lodging located in Minnesota.

“Accommodations intermediary” means any person or entity, other than an accommodations provider, that facilitates the sale of lodging and that charges a room charge to a customer. “Accommodations provider” means any person or entity that furnishes lodging to the general public for compensation.

“Facilitates the sale” includes brokering, coordinating, or in any way arranging for the purchase of or the right to use accommodations by a customer. “Furnishes” includes the sale of use or possession, or the sale of the right to use or possess.

Exemptions

Qualified data centers: Purchases of enterprise information technology equipment and computer software for use in a qualified data center are exempt, effective for sales and purchases made after June 30, 2012, and before July 1, 2042. This exemption applies to enterprise information technology equipment and computer software purchased to replace or upgrade enterprise information technology equipment and computer software in a qualified data center. The tax on such exempt purchases must be imposed and collected and then refunded after June 30, 2013. Only owners of a qualified data center may apply for the refund. If the tax is paid by contractor, subcontractor, or builder, the contractor, subcontractor, or builder must furnish to the owner a statement including the cost of the exempt items and the taxes paid on the items.

Electricity used or consumed in the operation of a qualified data center is exempt, effective for sales and purchases made after June 30, 2012, and before July 1, 2042.

“Qualified data center” means a facility in Minnesota that:

— is comprised of one or more buildings that consist in the aggregate of at least 30,000 square feet, and that are located on a single parcel or on contiguous parcels, where the total cost of construction or refurbishment, investment in enterprise information technology equipment, and computer software is at least $50 million within a 24-month period;

— is constructed or substantially refurbished after June 30, 2012, where “substantially refurbished” means that at least 30,000 square feet have been rebuilt or modified; and

— is used to house enterprise information technology equipment, where the facility has the following characteristics: (a) uninterruptible power supplies, generator backup power, or both; (b) sophisticated fire suppression and prevention systems; and (c) enhanced security. A facility will be considered to have enhanced security if it has restricted access to the facility to selected personnel; permanent security guards; video camera surveillance; an electronic system requiring pass codes, keycards, or biometric scans, such as hand scans and retinal or fingerprint recognition; or similar security features.

In determining whether the facility has the required square footage, the square footage of office space, meeting space, and mechanical and other support facilities is included if the spaces support the operation of enterprise information technology equipment.

For purposes of this exemption, “enterprise information technology equipment” means computers and equipment supporting computing, networking, or data storage, including servers and routers. The term includes cooling systems, cooling towers, and other temperature control infrastructure; power infrastructure for transformation, distribution, or management of electricity used for the maintenance and operation of a qualified data center, including exterior dedicated business-owned substations, backup power generation systems, battery systems, and related infrastructure; and racking systems, cabling, and trays that are necessary for the maintenance and operation of the qualified data center.

A qualified data center may claim these exemptions for purchases made either within 20 years of the date of its first purchase qualifying for the exemption for of enterprise information technology equipment and computer software, or by June 30, 2042, whichever is earlier.

Sales to towns: Sales to towns are exempt, effective for sales and purchases made after September 30, 2011. The exemption does not apply to goods or services purchased by a town that are generally provided by a private business, provided that the purchases would be taxable if made by a private business engaged in the same activity. “Goods or services generally provided by a private business” include goods or services provided by liquor stores, gas and electric utilities, golf courses, marinas, health and fitness centers, campgrounds, cafes, and laundromats. “Goods or services generally provided by a private business” do not include housing services, sewer and water services, wastewater treatment, ambulance and other public safety services, correctional services, chore or homemaking services provided to elderly or disabled individuals, road and street maintenance, or lighting.

Emergency response vehicles: The lease by a licensed ambulance service of a motor vehicle that is equipped and specifically intended for emergency response or for providing ambulance services is exempt from sales and use tax, effective for sales and purchases made after September 30, 2011. Previously, this exemption applied only to the lease of a motor vehicle used as an ambulance.

In addition, the purchase by a licensed ambulance service of a motor vehicle that is equipped and specifically intended for emergency response or for providing ambulance services is exempt from motor vehicle sales tax, effective July 21, 2011. Previously, this exemption applied only to the purchase of a motor vehicle used as an ambulance.

Water used for fire protection: Water used directly in providing public safety services by an organized fire department, fire protection district, or fire company providing fire protection services to the state or a political subdivision is exempt, effective retroactively for sales and purchases made after June 30, 2007. However, no refunds may be made for amounts already paid on water purchased between June 30, 2007, and January 30, 2010.

Minnesota State High School League events: The exemption for tickets or admissions to regular season school games, events, and activities, and to games, events, and activities sponsored by the Minnesota State High School League is extended to July 1, 2015, effective retroactively for sales and purchases made after June 30, 2011. The exemption had expired on July 1, 2011.

Ring tones: Ring tones are exempt, effective for sales and purchases made after September 30, 2011. The exemption of ring tones updates Minnesota’s conformity with the Streamlined Sales and Use Tax (SST) Agreement.

Ore, metal, and mineral production materials: Mill liners, grinding rods, and grinding balls that are substantially consumed in the production of taconite or other ores, metals, or minerals are exempt when sold to or stored, used, or consumed by persons taxed under the in-lieu or net proceeds provisions of Ch. 298, effective for sales and purchases made after September 30, 2011. Previously, this exemption was available only for taconite production materials.

Sourcing of Florist Sales

Effective for sales and purchases made after September 30, 2011, florist sales are sourced as follows:

— When a Minnesota retailer takes a florist sales order directly from a customer, regardless of whether the customer is physically present in Minnesota when placing the order, and delivers the items to the customer or a third person either within or outside Minnesota, and regardless of the delivery method, the florist sale is sourced according to general destination sourcing rules.

— When one retailer transmits a florist sales order to another retailer of florist sales through a floral network service or floral delivery association, whether by telephone, telegraph, Internet, or other means of communication, the florist sale is sourced to the location of the retailer who originally takes the order from the customer and accepts payment.

For purposes of these sourcing provisions, “florist sales” means sales at retail of flowers, wreaths, floral bouquets, potted plants, hospital baskets, funeral designs, seeds, nursery seedling stock, trees, shrubs, plants, sod, soil, bulbs, sand, rock, and all other floral or nursery products.

Ticket Resales

Resellers of admission tickets are required to charge tax on the total amount for which the ticket is resold, effective for sales and purchases made after September 30, 2011. “Ticket reseller” means a person who purchases admission tickets to a sporting event, theater, musical performance, or place of public entertainment or amusement of any kind; resells admission tickets to such events; and is registered to collect sales and use tax.

When a ticket reseller who purchased a ticket from a seller who is in the business of selling tickets resells the ticket, the following rules apply.

— If the ticket reseller did not use a fully completed exemption certificate to claim the exemption from tax for resale, but instead paid tax on the original purchase, then the ticket reseller may do one of the following: (a) seek a refund of that tax, or (b) pass through to the purchaser the amount of the tax the ticket reseller paid on the original purchase, by giving the purchaser credit for the Minnesota state and local tax paid by the ticket reseller on the ticket reseller’s original purchase of the ticket. Credit for the tax cannot exceed either the sales tax paid on the original price of the ticket or the sales tax charged by the ticket reseller to the final purchaser.

— If the ticket reseller did not pay tax on the original purchase, tax is due on the full amount of the ticket when resold, without a credit given to the final purchaser.

— The ticket reseller must retain records documenting the price and tax paid by the ticket reseller when purchasing the ticket, and the price and tax collected when the ticket reseller resells the ticket.

When a ticket reseller who purchased a ticket from a seller who is not in the business of selling tickets resells the ticket, the following rules apply.

— The ticket reseller may credit its purchaser an amount equal to the tax the ticket reseller would have paid its seller had the seller been registered to collect tax on its sale of the ticket to the ticket reseller. Credit for the tax cannot exceed either the sales tax paid on the original price of the ticket or the sales tax charged by the ticket reseller to the final purchaser. The original purchase price of the ticket is presumed to be the face amount of the ticket.

— If no tax was paid on the original purchase, tax is due on the full amount of the ticket when resold, without a credit given to the ticket reseller’s purchaser.

— The ticket reseller must retain records documenting the price and tax paid by the ticket reseller when purchasing the ticket, and the price and tax collected when the ticket reseller resells the ticket.

Local Taxes

Local sales taxes must be approved by voters before the governing body of a local subdivision requests legislative approval of the tax.

The following local tax changes are authorized.

— The city of Cloquet is authorized to impose a sales and use tax at a rate up to 0.5%, subject to approval of voters at a general election. Cloquet is also authorized to impose a motor vehicle excise tax of up to $20 per motor vehicle.

— The city of Fergus Falls is authorized to impose a sales and use tax at a rate up to 0.5%, as approved by voters at the November 2, 2010 general election.

— The city of Hermantown is authorized to increase its sales tax from 0.5% to 1%, if the increase is approved by voters at a general election held before December 31, 2012.

— The city of Hutchinson is authorized to impose a sales and use tax at a rate up to 0.5%, as approved by voters at the November 2, 2010 general election. Hutchinson is also authorized to impose a motor vehicle excise tax of up to $20 per motor vehicle.

— The city of Lanesboro is authorized to impose a sales and use tax at a rate up to 0.5%, as approved by voters at the November 2, 2010 general election.

— The city of Marshall is authorized to impose a sales and use tax at a rate up to 0.5%, subject to approval of voters at a general election held by July 21, 2013. In addition, the time period for voter approval in Marshall of a previously authorized local food and lodging tax is extended so the city can hold a vote on this tax at the same time it holds a vote on the sales and use tax.

— The city of Medford is authorized to impose a sales and use tax at a rate up to 0.5%, subject to approval of voters at the next general election.

— The city of Rochester is authorized to extend its current 0.5% sales tax to December 31, 2012, so it does not expire before a referendum to further extend the tax is held at the 2012 general election.

Ch. 7 (H.F. 20), Laws 2011, 1st Special Session, effective July 21, 2011, except as noted

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

All stories by: Wolters Kluwer Tax and Accounting