SF4425

Purpose

• The bill aims to adjust Minnesota’s sales and use tax rules by amending how sales and purchases are defined and which services are taxable. It would repeal two existing statutory subsections and reorganize which items and services are considered part of the tax base. A key change is that a broad set of services, including lawn care services, would be treated as taxable under the sales tax framework.

Main Provisions

• Definitions and scope of sale and purchase:
  • The bill broadens what counts as a “sale and purchase” to include numerous services and digital products, and it clarifies that these rules apply to both tangible personal property and certain services.
  • It includes the transfer or licensing of tangible personal property, including leases and licenses to use property for 30 days or more in some cases.
  • It covers the production, fabrication, printing, or processing of tangible personal property for consumers who provide materials.
  • It includes the sale of prewritten computer software (whether delivered physically or electronically).
  • It explicitly lists a wide array of taxable services, including admission to places of amusement, lodging, parking (nonresidential), club/association memberships with access to facilities, and various recreational or athletic facilities.
  • It includes delivery of certain materials by third parties, and specific conditions around road construction material delivery.
  • It includes laundry/dry cleaning, motor vehicle cleaning, building cleaning and pest control, security services, pet grooming, and lawn care services (fertilizing, mowing, spraying, sprigging, garden maintenance, pruning, etc.), with certain stated exceptions.
  • It covers telecommunications services and related services, installation charges, and rental of vehicles by dealers (including service-contract reimbursements).
  • It includes the sale of specified digital products or other digital products (on a temporary or permanent basis) and notes that, where tangible personal property is used in the bill, the same provisions apply to digital products unless specified otherwise.
  • It includes the sale of cannabis products, as defined by statute, when transferred for consideration.
• Specific service and category clarifications:
  • Admits that services provided in connection with admission to entertainment, lodging, and clubs have taxed components unless specifically exempted.
  • It covers various forms of health-related or animal-related lodging/board services (with exceptions noted for veterinary services, horse boarding, etc.).
  • It confirms that certain services are not taxable or are exempt in particular contexts (e.g., services performed by employees for an employer remain non-taxable).

Significant Changes to Existing Law

• Repeals:
  • Repeals Minnesota Statutes 2024 sections 297A.67 subdivision 25 and 297A.68 subdivision 40, removing or altering prior exemptions or provisions linked to those sections (exact effects depend on the original text of those repeals).
• Tax base expansion:
  • Adds a broad list of services to the taxable base, with lawn care services explicitly enumerated as taxable.
  • Explicitly includes digital products and certain digital services in the tax base, aligning them with other taxable offerings.
  • Expands the scope of what counts as “sale and purchase” to include installation services, certain vehicle rentals, and telecom/pay-TV services, under the same tax framework.
• Definitions and cross-references:
  • Clarifies that the term “tangible personal property” also applies to specified digital products for tax purposes, unless otherwise stated.
  • Maintains existing tax principles such as non-taxability of services performed by employees for employers, while applying the broader tax base to other service providers.
  • Adds detailed definitions and exceptions to ensure certain subcontracted or contracted services are treated consistently with the broader tax base.
• Compliance and administration:
  • The bill structures the tax base to encompass a wide range of everyday services and digital products, potentially increasing tax collection and shaping compliance for businesses that provide these services.

Relevant note on lawn care: - The bill explicitly includes lawn care fertilizing, mowing, spraying, sprigging, garden maintenance, tree/shrub maintenance, and related activities as taxable services under the defined scope of sale and purchase.

Practical Implications

• For consumers: More services could be taxed under Minnesota’s sales tax, including common lawn care and related maintenance services.
• For businesses: Expanded tax obligations may require registration, collection, and remittance for a broader set of services, plus potential administrative adjustments to billing practices.
• For lawmakers and taxpayers: The repeal of certain sections and the broad expansion of the tax base will influence revenue projections and the interpretation of what counts as taxable.

Relevant Terms - sale and purchase - tangible personal property - taxable services - lawn care (fertilizing, mowing, spraying, sprigging, garden maintenance, pruning) - lawn care services - prepaid and postpaid digital products - specified digital products - installation - telecommunications services - pay television services - nonresidential parking - admission to places of amusement - lodging and related services - club membership or access to facilities - delivery of materials by third parties - cannabis product (as taxable) - repeal of sections 297A.67 subdivision 25 and 297A.68 subdivision 40 - electronic/digital products in tax base - construction-related services (e.g., shrubbery installation exclusion in certain contracts) - tax base expansion vs. exemptions - Minnesota Statutes 2024 section 297A.61 subdivision 3 - affiliated group provisions (for tax purposes) - services performed by employees (non-taxable)