Point-of-purchase credit sought

Although equipment purchased by a manufacturing company is exempt from sales tax, it is paid at the point of purchase and paperwork must then be submitted to the state for a refund. In recent years, some of these refunds have been delayed because of the state’s cash flow issues and budget problems.

Rep. Mike Benson (R-Rochester) sponsors HF633 that would do away with the refund and simply make the purchases tax exempt at the point of purchase. The House Taxes Committee held the bill over March 1 for possible omnibus bill inclusion.

There was bipartisan agreement that the change is needed; the question is how to pay for the change.

“For those small businesses that are least able to support the float time, in a time of economic downturn when creating jobs and increasing productivity are most critical to our economy, we are using their refund to carry the government,” said Rep. Jenifer Loon (R-Eden Prairie).

Benson said that because of the current deficit, the bill would become effective with purchases made after June 30, 2013.

The cost to the state in fiscal year 2014 would be approximately $1 million and $51,900 in fiscal year 2015. A portion of the refunds paid each year reflects sales tax paid in previous years as businesses have three-and-a-half years from the date of purchase or lease to file a refund claim.

Rep. Melissa Hortman (DFL-Brooklyn Park) said she has supported similar bills over the years, but she questioned the wisdom of binding a future Legislature to paying for the bill. “The cost to pay for this exemption is relevant. Banking on future economic growth is not realistic. … Hope is not a payment mechanism,” she said.

David Radziej, president of Printing Industry of Minnesota, Inc., said that sales tax on a single piece of equipment is often thousands of dollars, and the delay in payment can create a significant drain on small manufacturers’ cash flow.

A companion, SF480, sponsored by Sen. John Sterling Howe (R-Red Wing), has been referred to the Senate Taxes Committee.