SF4787

Purpose

• The bill would add advertising services to Minnesota’s sales tax and broaden the tax base to cover many more services and digital products. It aims to tax a wide range of transactions that involve either services or tangible property, rather than only traditional goods.

Main Provisions (What the bill changes or adds)

• Expands the definition of sale and purchase to include many kinds of transactions, not just the sale of tangible property.
  • Includes the transfer or lease of tangible property, or the license to use property.
  • Includes production, fabrication, printing, or processing of tangible property for a price.
  • Includes the preparation of food for a price.
  • Includes the sale of electricity, gas, water, steam, and related utilities for use in Minnesota.
  • Includes the transfer or grant of a license to use prewritten computer software (including electronic delivery).
  • Includes the sale of specified digital products or the right to use such digital products (see below).
• Taxable services listed in the bill (illustrative categories):
  • Admission to places of amusement, recreation, or athletic events; use of amusement devices; tanning facilities; health clubs and spas; athletic facilities.
  • Lodging and related services at hotels, motels, resorts, campgrounds, etc., including access to telecommunications services.
  • Nonresidential parking services.
  • Memberships in clubs or associations that provide facilities (e.g., sports facilities) to members.
  • Delivery of certain materials (e.g., aggregate materials or certain construction-related deliveries) by a third party.
  • Laundry and dry cleaning services; motor vehicle washing and related services; pest control; cleaning and maintenance; security and alarm services; some detective services; and certain animal-related services (e.g., pet grooming).
  • Lawn care, gardening, tree/shrub care, plant maintenance, and related services (with specific exclusions for certain contracted planting work).
  • Massages (with specific exceptions tied to licensed health care facilities or referrals).
  • Lodging and board/care for animals in kennels (excluding veterinary and horse boarding).
  • Advertising services.
• Digital products and related rights:
  • Includes the sale or granting of the right to use specified digital products or other digital products on a temporary or permanent basis; and treats specified digital products similarly to tangible personal property for tax purposes.
• Telecommunications:
  • Taxable telecommunications services and related ancillary services (e.g., airtime, cellular services, roaming, and other defined telecom services).
• Installation and related charges:
  • Installation charges are taxable if the installation would be subject to sales tax if performed by the item’s seller.
• Vehicle rental:
  • Vehicle rental by a motor vehicle dealer to a customer is taxable if paid for or reimbursed under a service contract.
• Other broad tax bases:
  • The bill taxes the sale of admission privileges to amusements, including all charges included in the admission price unless stated otherwise or the customer can choose to add or decline optional amenities that are not otherwise taxed.
  • The bill taxes the transfer of cannabis products (as defined in Minnesota law) under the sales tax.
• Government and agency transactions:
  • Tax applies to services or tangible property furnished by the United States or Minnesota, its agencies or subdivisions, under applicable conditions.
• Exclusions or exceptions:
  • Services performed by an employee for an employer are not taxable.
  • Services performed by a partnership or association for another partnership or association are not taxable if one entity owns or controls more than 80% of the voting power of the other entity.
  • Some affiliated-group transactions among corporations are not taxable.
• Definitions and scope:
  • The bill provides a broad set of definitions for terms like tangible personal property, sale and purchase, and affiliated groups to apply the tax consistently to the expanded list of taxed items and services.

Notable Changes to Existing Law

• Amends Minnesota Statutes 2024 section 297A.61, subdivision 3, by adding a new subdivision to expand what counts as a sale and purchase and to specify which services and products are taxable.
• Explicitly adds advertising services as taxable.
• Introduces digital products and rights to use digital products into the taxable base, aligning with broader “specified digital products” concepts.
• Adds numerous service categories and kinds of property under the taxable umbrella, significantly broadening what is taxed beyond traditional goods.
• Provides certain protections and exclusions (e.g., employee and certain related-party service transactions remain non-taxable) and clarifies when certain affiliated-group or ownership structures affect taxability.

Potential Implications

• Businesses that provide services or digital products (including advertising, facilities access, cleaning, pet care, device software, telecom, etc.) may become subject to Minnesota sales tax.
• Consumers could see changes in prices for many services and digital products.
• Tax administration would need to manage a broader set of taxable activities and ensure proper tax collection across diverse service categories.

Relevant Terms advertising services; tangible personal property; sale and purchase; transfer of title or possession; lease or license to use; production/fabrication/printing/processing; ready-to-use software; prewritten computer software; digital products; specified digital products; right to use digital products; places of amusement; admission charges; lodging; nonresidential parking; club membership; affiliated group; United States or Minnesota agencies; telecommunications services; installation charges; vehicle rental; service contracts; cannabis product; employee services; partner/ownership thresholds; taxable services; energy (electricity, gas, water, steam); food preparation; cleaning and laundry; pest control; security services; pet grooming; lawn care; massages; animal boarding.