Department of Revenue Updates Local Government Sales Tax Exemption Documents

The new publications are designed to help cities prepare for the exemption, which starts on Jan. 1, 2014.
(Published Nov 25, 2013)

The Minnesota Department of Revenue (DOR) released two new documents to assist cities with implementation of the new sales tax exemption for local government purposes. Neither of the documents change DOR’s interpretation of the scope of the exemption, but they should clarify earlier versions and provide necessary documentation for cities to claim the exemption.

The League has been advocating that the DOR interpret the law to apply the exemption to purchases made by joint powers entities. The DOR has not accepted the League’s interpretation, and continues to state that such purchases are not exempt. The League and other local government groups will continue to work to ensure that the full scope of the sales tax exemption is realized.

Sales Tax Fact Sheet 176 (pdf) explains the sales tax exemptions that apply to local governments. The fact sheet has been updated multiple times since the passage of the local government sales tax exemption in May. The changes are intended to clarify how the exemption applies to purchases made pursuant to joint powers agreements and by joint powers entities.

The new language in Fact Sheet 176 clarifies that purchases made by a city pursuant to a joint powers agreement are exempt. For example, if the building official of City A provides inspection services to City B under a joint powers agreement, all purchases made by City A for those services are exempt. However, if four cities create a separate joint powers entity to provide police protection for their citizens (e.g., South Lake Minnetonka Police Department), those purchases are not exempt.

The fact sheet also clarifies that purchases made pursuant to a joint powers agreement with other exempt entities includes agreements with school districts. Previous versions only listed counties and townships as exempt entities.

The Certificate of Exemption (Form ST-3) (pdf) must be filled out and provided to the seller of the exempt goods in order for a city to claim the exemption. The ST-3 form may already be familiar to cities who have previously claimed specific sales tax exemptions on items such as firefighter equipment or body armor for police officers. The revised document now contains instructions on how to claim the general sales tax exemption.

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