HF4716

Purpose

• Create a sales and use tax exemption for construction materials used on certain public capital projects, funded in whole or in part by the state or local governments, and establish a mechanism to refund that tax to the entities involved.

Main Provisions

• Exemption scope: Materials, supplies, and equipment purchased by a contractor, subcontractor, or builder and used in the construction, reconstruction, repair, maintenance, or improvement of eligible capital projects financed by the state or local governments are exempt from sales and use tax.
• Tax treatment and refunds: The tax is collected as if the normal rates apply, and then refunded in the same manner used for other public projects.
• Timing of refunds: Refunds for eligible purchases will not be issued until after June 30, 2026.
• Eligible capital projects: Projects that are subject to specific state capital project statutes (16A.642, 16A.695, or 16A.86) and that receive a direct appropriation or grant from state money via a bill enacted in 2026.
• Define public entities: Applies to the state of Minnesota and local governments (as defined in Minnesota Statutes section 297A.70, subdivision 1, paragraph d, clause 2).

How It Works

• For eligible projects, the project’s construction materials are treated as exempt from sales tax upfront, with the tax refunded afterward to align with the project’s funding and refund processes.
• The refund process mirrors the method used for other projects described in Minnesota law (as referenced by existing statutes on refunds).
• The refunds are funded from the state’s general fund and handled by the commissioner of revenue.

Eligibility and Eligible Projects

• Projects must be capital projects that receive direct state appropriation or grant money in a 2026 bill.
• Projects must meet the definitions and thresholds set by the referenced capital project statutes (16A.642, 16A.695, 16A.86).

Funding and Appropriation

• An appropriation from the general fund is provided to pay the refunds.
• The commissioner of revenue handles the refunds to eligible contractors/subcontractors/builders and related entities after the required date.

Significant Changes to Law

• Introduces a targeted sales tax exemption for construction materials on designated public capital projects.
• Creates a dedicated refunds pathway and timing, delaying refunds until after June 30, 2026.
• Ties eligibility to capital projects receiving direct state funding in 2026, and to the statutory definitions of eligible local governments and projects.
• Requires a general fund appropriation to cover the refund costs.

Relevant Terms - sales and use tax exemption - construction materials - contractors, subcontractors, builders - eligible capital project - public entities (state of Minnesota, local governments) - direct appropriation or grant - 2026 bill enacted - 16A.642, 16A.695, 16A.86 - 297A.62, 297A.75 - June 30, 2026 - commissioner of revenue - general fund appropriation - Minnesota Statutes section 297A.70 (local governments)