HF3381

Purpose

• This bill modifies the nonprofit sales tax exemption to include a new exemption for prepared foods purchased by eligible nonprofit organizations when the food is used or distributed in carrying out the organization’s charitable, religious, or educational mission.

Main provisions

• Eligibility for exemption (amended section 297A.70, subdivision 4):
  • Groups exempt under the existing rules, including corporations, societies, associations, foundations, or institutions organized and operated exclusively for charitable, religious, or educational purposes if the item is used in performing those functions.
  • Senior citizen or disability groups that meet specific criteria (membership mainly aged 55+, or persons with a physical disability; organized exclusively for recreation and other nonprofit purposes not including housing; no private gain; 501(c) exemption).
  • Organizations that qualify for an exemption for memberships under the related subdivision.
  • Charitable purposes include maintenance of a cemetery owned by a religious organization.
• Exclusions (items that remain non-exempt under paragraph b):
  • Building materials and related costs for contractors under lump-sum or fixed-price contracts for construction, alteration, or repair.
  • Construction materials for buildings or facilities that will not be used principally by the tax-exempt entity.
  • Lodging.
  • Prepared foods, candy, soft drinks, taxable cannabis products, and alcoholic beverages (with a wine exemption for sacramental use by religious groups or as allowed under other provisions).
  • Leasing of motor vehicles (with specific vehicle types and use cases that must primarily transport goods or beneficiaries, not employees, for the organization’s exempt purpose).
• Special exception for prepared food (paragraph e):
  • Notwithstanding the general exclusions, a sale of prepared food is exempt if purchased by an eligible exempt organization and the prepared food is distributed by the organization in the performance of its exempt purpose.
• Other clarifications:
  • A limited liability company can qualify if it has a sole member that would qualify for the exemption and the items purchased would qualify.
  • The bill defines “charitable purpose” to include cemetery maintenance.

Significant changes to existing law

• Expands an exemption to cover prepared foods purchased by eligible nonprofits when used or distributed in service of their exempt mission.
• Continues to exclude lodging, most cannabis and alcoholic products, most construction-related materials for contractors, and other non-mission uses from exemption.
• Adds flexibility for LLCs with a sole qualifying member to receive the exemption.
• Broadens the definition of charitable purposes to explicitly include cemetery maintenance.

Implications to watch

• Nonprofit organizations may see sales tax savings on prepared foods used directly in mission-related activities or distributed to clients/participants as part of those activities.
• Nonprofit operations involving meals, nutrition programs, or distribution of prepared foods may need to document how purchases support exempt purposes to qualify for the exemption.

Relevant Terms - nonprofit exemption, exemption, prepared food, prepared foods, candy, soft drinks, taxable cannabis products, alcoholic beverages, wine, sacramental, charitable purpose, cemetery maintenance, 501(c), senior citizen group, subdivision, Minnesota Statutes 297A.70, lease of motor vehicle, lump-sum contract, guaranteed maximum price, construction materials, tax-exempt entities, LLC, sole member, exempt purpose, distributed by the organization.