Minnesota State Manufacturing Exemptions
Minnesota: Manufacturing Capital Equipment Exemption
In the state of Minnesota, there is a sales and use tax exemption for capital equipment that is essential to the manufacture, refining, mining or fabrication of tangible personal property intended to be ultimately sold for retail. To be eligible for this sales and use tax exemption, businesses must change raw materials in form, composition, or condition during the course of production into a new article of tangible personal property. This exemption can be found under MN Statute 297A.68, Subdivision 5 – Capital Equipment.
Although the net effect of the Minnesota Capital Equipment sales and use tax exemption results in capital equipment not being subject to Minnesota sales and use tax, sales tax must initially be imposed and collected as if the general rate applies. Once the sales tax is remitted to Minnesota, qualifying businesses are entitled to make a refund claim with the state of Minnesota to recover sales tax paid on capital equipment that fits the description provided in MN Statute 297A.68, Subdivision 5. In many respects, the procedures associated with the Minnesota Capital Equipment exemption are administered the same way as Canadian GST and Canadian HST input tax credits.
For the purposes of the Minnesota Capital Equipment sales and use tax exemption, the Minnesota Department of Revenue defines “equipment” as the “independent devices or tools separate from machinery but essential to an integrated production process, including computers and computer software, used in operating, controlling, or regulating machinery and equipment; and any subunit or assembly comprising a component of any machinery or accessory or attachment parts of machinery, such as tools, dies, jigs, patterns, and molds.”
Some examples of capital equipment that can qualify for this sales and use tax exemption are:
1. Machinery used or required to operate, control, or regulate production equipment;
2. Materials and supplies necessary to construct and install machinery;
3. Certain repair and replacement parts;
4. Materials used for foundations that support machinery;
5. Machinery and equipment used for research and development, design, quality control and testing;
6. Environmental control devices essential to the production process;
7. Certain types of ready-mix concrete equipment;
It is important to note that not all assets that are capitalized for accounting purposes are considered to be capital equipment for the intent of this exemption. Additionally, capital equipment does not include:
a. Motor vehicles;
b. Machinery or equipment used to receive or store raw materials;
c. Building materials, except under strict circumstances;
d. Machinery or equipment used for non-production purposes;
e. Machinery or equipment installed as an improvement to real property;
f. Machinery and equipment used by restaurants in furnishing, preparing or serving prepared foods;
g. any other items of machinery or equipment that is not essential to the integrated process of manufacturing, fabricating, mining or refining.
To be considered valid, Minnesota Capital Equipment sales and use tax refund claims must be filed within 42 months of the original invoice date.
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