Thursday, April 16, 2015

Research Q of the Week: Good Tax News for Cities (4/16)

Question: When does a city have to pay state sales tax on purchases?
Answer: It is rare to get good tax-related news. But, that’s just what the State Legislature gave cities in 2014. It amended state law to provide that statutory and home rule charter cities are exempt from paying sales tax on many goods and services. City purchases of inputs used to provide the following types of services qualify for the exemption:

•    Administration of housing programs
•    Ambulance and public safety services
•    Aquatic facilities
•    Cemeteries
•    Chore and homemaking services for the elderly
•    Correctional services
•    Farmer’s markets
•    Health and fitness centers
•    Housing facilities
•    Ice arenas
•    Licensing services
•    Local festivals and fairs
•    Municipal airports
•    Public transit
•    Recreational and athletic facilities
•    Road and street maintenance and lighting
•    Sewer and water services
•    Wastewater treatment services

In order to purchase items required to provide these services without having to pay sales tax, the city must complete a Form ST3, Certificate of Exemption and provide it to the seller at the time of purchase.

Some examples of goods and services that cities can throw in the shopping cart free from sales tax include:

•    Cleaning and maintenance of buildings
•    Lawn care and tree removal services
•    Construction equipment that is not licensed for road use
•    Most firefighting, police, and emergency equipment including repair parts, accessories, protective gear, fuel, foam, water, etc. (This exemption does not apply to motor vehicles, but another sales tax exemption may apply to some emergency vehicles.)
•    Office supplies, computers, software, printers, furniture, etc.
•    Vehicles that are not licensed for road use, such as aircraft, snowmobiles, and watercraft
•    Road-building materials and the delivery of aggregate materials
•    Utilities, chemicals, and fuels

However, not everything a city purchases qualifies for the sales tax exemption. Purchases by cities to provide the following goods and services remain taxable:

•    Gas and electric utilities
•    Liquor stores
•    Golf courses
•    Solid waste hauling
•    Solid waste recycling
•    Landfills
•    Marinas
•    Campgrounds
•    Cafes
•    Laundromats

For more information on the state sales tax exemption for cities see Minnesota Revenue’s Sales Tax Fact Sheet 176 Local Government – Cities, Counties, and Townships.

Written by James Monge. Contact the League's Research and Information Service staff by emailing, or by calling (651) 281-1200 or (800) 925-1122.

This blog post conveys general information. It’s not legal advice. Please check with your city attorney before acting on this information.

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