Bill looks to build a better tax exemption on public construction projects

If a tax exemption is too onerous to use, will anyone take advantage of it?

Rep. Chris Swedzinski (R-Ghent) says that’s the case for many local governments and nonprofits, and he has introduced legislation aimed at simplifying an existing tax break.

HF531 would ease the process of taking advantage of a state sales tax exemption on building materials used directly by counties, cities, school districts and nonprofits like public care facilities and libraries, by allowing those public agencies to claim the exemption under lump sum contracts for building projects.

Rep. Chris Swedzinski, left and Patrick Hynes, intergovernmental relations counsel with the League of Minnesota Cities, testify in support of a bill that would modify construction materials exemption provisions for contractors. Photo by Andrew VonBank.

Current law requires local governments and exempt nonprofits to purchase the tax-free materials under a separate contract. That, testifiers said during Tuesday’s House Government Operations and Elections Policy Committee meeting, increases costs to the purchasers and raises liability issues in the case of a construction failure.

Approved by the committee, the bill now heads to the House Taxes Committee. A companion, SF532, sponsored by Sen. Ann Rest (DFL-New Hope), awaits action by the Senate Taxes Committee.

The legislation is intended “to rectify what I feel kind of what the intent of the law is,” Swedzinski said, “but it’s not matching up with what’s happening on the street.”

Eligible applicants pay the tax at the time building materials are purchased, under the exemption, and then apply for a refund from the state.

Patrick Hynes, intergovernmental relations counsel for the League of Minnesota Cities, said the building material tax exemptions, as it stands, is so complicated that many entities don’t claim it.

“Cities just don’t do it because there’s just so much risk involved,” he said.