Road maintenance and construction tax exemptions could expand

If you see a snowplow today — and, if you live in Minnesota, there’s a good chance that you will — you may ask who bought that. And you might assume that the government entity responsible for clearing the roads didn’t have to pay sales tax on the purchase. But there’s a good possibility it did.

That’s because towns and townships don’t have to pay sales tax on road maintenance vehicles, but cities and counties do. HF702 would change that. Sponsored by Rep. Chris Swedzinski (R-Ghent), it would expand to all cities, towns and counties the sales tax exemption for road maintenance vehicles like snowplows, which cost about $180,000 to $190,000 and can require about $11,000 in sales tax.

On Tuesday, the House Taxes Committee laid the bill over for possible omnibus bill inclusion. A companion bill, SF877, sponsored by Sen. Gary Dahms (R-Redwood Falls), has been referred to the Senate Transportation Finance and Policy Committee.

The Department of Revenue estimates the change would bring the state $2.3 million less revenue annually in Fiscal Years 2020 and 2021.

Similarly, you may assume that cities, towns and counties don’t have to pay tax when purchasing building materials for public buildings or infrastructure. They don’t have to, but many actually do because there’s so much red tape involved in the process of receiving exemptions that they decide it’s easier to just pay sales tax.

Two identical bills also laid over by the committee would streamline the process, making the tax on all such purchases refundable. HF670, sponsored by Rep. Mike Freiberg (DFL-Golden Valley), and the Swedzinski-sponsored HF779 would provide a sales tax exemption for building and construction materials and supplies bought by a contractor for a government project.  

“I have one school district in my district that has seen over a $100,000 hit,” Swedzinski said, advocating the change “so local property taxes aren’t going into paying state sales tax.”

The Senate companion to HF670 is  SF901, sponsored by Sen. Ann Rest (DFL-New Hope). It has been referred to the Senate Taxes Committee. There is no Senate companion to HF779.

The Department of Revenue estimates the change would reduce state revenues by between $29 million and $31 million annually between Fiscal Years 2020 and 2023.

“Let us remember where this comes from,” said Rep. Greg Davids (R-Preston). “In the 1991 tax bill compromise, cities and counties were begging for this tax, because the alternative was that they’d lose all their local government aid.”

The solution was to have local sales taxes pay for local government services. “We’ve been whittling away at this since, with bills exempting ambulances and fire trucks and now we’re trying for equipment,” Davids said. “…We’re having government tax government and that’s not good tax policy.”