Tom Woessner, Audit Manager

Sales & Use Tax Division Tom Woessner, Audit Manager April 30, 2009

Current Events • Minnesota – Wisconsin Collaboration Project. • Governor’s Executive Order dated January 13, 2009. • MN & WI agencies must identify potential service arrangements. • Goals: Cost savings and operating efficiencies.

Current Events • Proposed Collaborations: • WI Tax Refund Interception Program (offset refunds for income tax debtors who have debt in one state but reside in another. • Exchange information on residency and homestead status. • Share best-practices in tax administration, auditing, taxpayer education, scanning and imaging, correspondence workflow, etc. • Collaborate on the use of information technology. • Share information on cigarette & tobacco tax systems.

Current Events • Proposed Collaborations: • Joint audit projects involving registration of boats. • Reciprocal audit referrals from border areas. • Share information on high-dollar cross border purchases. • Team up on audits of large businesses, share best practices. • Share economic forecasts and key tax studies. • Share best practices for recruiting and hiring. • List continues to grow.

Current Events • Mankato imposed a 0.5% tax on food and beverages sold at restaurants or places of refreshment and a 0.5% tax on entertainment beginning 04-01-09. • http://www.taxes.state.mn.us/taxes/sales/other_supporting_content/Mankato_general_notice.pdf • Worthington imposed a 0.5% sales and use tax on 04-01-09. • http://www.taxes.state.mn.us/taxes/sales/other_supporting_content/Worthington_general_notice.pdf • See Fact Sheet 164 & 164S for other local taxes.

Current Events • Sales tax increase effective July 1. • The Sales tax rate will increase to 6.875% beginning July 1, 2009. • The funds will be used to protect our drinking water sources; protect, enhance, and restore our wetlands, prairies, forests, and fish, game, and wildlife habitat; preserve our arts and cultural heritage; support our parks and trails; and protect, enhance, and restore our lakes, rivers, streams and groundwater. • See Sales Tax Newsletter 2008.

Where to get information? Web address: www.taxes.state.mn.us Sales & Use tax assistance: 651-296-6181 Business registration: 651-282-5225 Withholding: 651-282-9999 Business Education Group: 651-297-4213 TDD ( Minnesota Relay): 651-297-5353

Where to get information? • What’s Available on the DOR website? • Sales & Use Tax Newsletters • Sales & Use Tax Forms & Instructions • Sales Tax Rate Calculator • Tax Information: • Sales & Use Tax Fact Sheets • Revenue Notices • Law Change Bulletins • And much more! • www.taxes.state.mn.us

Areas of Interest

Areas of Interest • Border state sales tax differences.

Areas of Interest • Border state sales tax differences. *Except 6 month residential heating, industrial and agricultural production.

Areas of Interest • Local governments: • Local governments include Minnesota and non-Minnesota counties, cities, townships, local municipalities, and most local government instrumentalities, political subdivisions, commissions, special districts, and government boards. • Most sales and purchases by local governments are taxed using general guidelines. • See Fact Sheet 142, Sales to Government

Areas of Interest • Local governments: • Specific exemptions apply to local governments. • To claim exemption, the local government must give the seller a fully completed Certificate of Exemption, Form ST3, and use the applicable exemption code. • Local taxes. • Local governments are exempt from local general sales or use taxes. However, they must pay other types of local taxes, such as restaurant, liquor or lodging taxes. • See Fact Sheet 142, Sales to Government

Areas of Interest • Use Tax for local governments: • Sales tax is generally charged by the seller at the time of sale. However, if the seller does not charge Minnesota sales tax on equipment, supplies, or other taxable items, and no exemption applies, the local government must pay Minnesota state use tax. • Report state use tax on the cost of the item purchased when you electronically file your sales and use tax return. • See Fact Sheet 146, Use Tax for Businesses.

Areas of Interest • When do you charge Use Tax vs. Sales Tax? • Use tax complements and is similar to the sales tax. • Use tax and sales tax rates are identical. • Use tax is based on your cost of taxable purchases. • Use tax may be due when you bring items into MN. • Use tax may be due when items are taken out of inventory for a taxable use. • Use tax is also due if a seller does not charge Minnesota sales tax on taxable items. • Local use tax may also be due. • See Fact Sheet 164, Local Sales and Use Taxes.

Areas of Interest • Explain what is taxable and what is not: What’s Taxable? 297A.61Subd. 3. [SALE AND PURCHASE.] (a) "Sale" and "purchase" include, but are not limited to, each of the transactions listed in this subdivision. (b) Sale and purchase include any transfer of title or possession, or both, of tangible personal property, whether absolutely or conditionally, and the leasing of or the granting of a license to use or consume, for a consideration, tangible personal property, other than a manufactured home used for residential purposes for a continuous period of 30 days or more. (c) Sale and purchase include the production, fabrication, printing, or processing of tangible personal property for a consideration for consumers who furnish either directly or indirectly the materials used in the production, fabrication, printing, or processing.

Areas of Interest • Explain what is taxable and what is not: What’s Taxable? Note: This list is very general. See related fact sheets for complete details.

Areas of Interest • Explain what is taxable and what is not: • What’s Not Taxable? • Items exempt by law • Seller does not have to prove why tax wasn’t charged. • Items exempt with an exemption certificate • Requires a fully completed exemption certificate at the time of sale. • Form ST3, Certificate of Exemption, is used to claim exemption. • a “single-purchase” certificate for just one transaction • a “blanket certificate” applies to future purchases.

Areas of Interest • Explain what is taxable and what is not: What’s Not Taxable? Note: This list is very general. See related fact sheets for complete details.

Areas of Interest • Explain what is taxable and what is not: Example – labor or real property vs. equipment • Listed separately or lump sum • Installation labor: • Setting an item into position, or to connect, adjust or program it for use. • Installation charges by the seller are taxable. • Installation charges by a third party are taxable if installed item is taxable when sold. • See Fact Sheet 152, Labor.

Areas of Interest • Explain what is taxable and what is not: Example – labor or real property vs. equipment • Listed separately or lump sum • Fabrication labor • Makes or creates a product or alters an existing product into a new or changed product. • Fabrication labor is taxable. • Customer provided materials for the products that will be created or altered is taxable. • See Fact Sheet 152, Labor.

Areas of Interest • Explain what is taxable and what is not: • Repair labor: • Labor to restore an item so that it can be used for its original purpose. • Separately stated charges for repair labor are not taxable. • If the material and labor charges are lumped together, the entire charge is taxable. • See Fact Sheet 152, Labor.

Areas of Interest • Explain what is taxable and what is not: • Construction labor: • If an item becomes a permanent attachment to real property, installation labor is not taxable - improvement to real property. • Items that generally stay with the building when it is sold to another party. Examples include hot water heaters, furnaces, garage doors, doors, windows, gutters, roof, carpet, and deck. • See Fact Sheet 128, Contractors.

Areas of Interest • Special city sales taxes. • St. Cloud imposes a 1% tax on liquor and food sold at restaurants and “places of refreshment” located within the city limits. • Minneapolis lodging tax is 3%. • Rochester lodging tax is 4%. • St. Paul lodging tax is 3%. • Minneapolis Downtown liquor tax. The 3% liquor tax applies to retail on-sales of alcoholic beverages, including wine and 3.2 beer, sold at licensed on-sale liquor establishments such as bars, hotels, motels, restaurants, and clubs in the downtown Minneapolis taxing area.

Areas of Interest • Special city sales taxes. • MinneapolisDowntown restaurant tax. A 3% restaurant tax applies to food and beverages sold by restaurants, caterers or “places of refreshment” in the downtown Minneapolis taxing area. • Minneapolis 3% entertainment tax applies to: • • admission fees; • • the use of amusement devices and games; • • food, drinks and merchandise sold in public places during live performances; • • short-term lodging within the city limits. • See Fact Sheet 164 & 164S for other local taxes.

Areas of Interest • Federal tax on phone bills. • The taxable amount includes all charges for optional and associated services, such as: • call forwarding • call waiting • caller ID • custom calling features connection and disconnect charges • demand charges • detailed billing charges • directory assistance charges • FCC fees • fixed or basic monthly charges • franchise fees • hookup fees • line charges • local telephone number portability charges • minimum charges • one-time charges • priority

Areas of Interest • Federal tax on phone bills. • calling • reconnection fees • service charges • standby fees • surcharges • TDD charges • universal service fees • voice mail/messaging • Note: Federal excise tax directly imposed on the customer is not included in the base price subject to sales tax if it is separately stated on the customer’s bill. • See Fact Sheet 119, Telecommunication Services.

Areas of Interest • Explain taxable services and labor. • The following services are taxable. • 112 Building Cleaning and Maintenance (for commercial and residential buildings) • 113 Motor Vehicle Towing, Washing, Rust proofing • 114 Detective and Security Services • 119 Telecommunication Services • 120 Laundry and Dry Cleaning Services • 121 Lawn and Garden Care, Tree and Bush Service, Landscaping • 122 Pet Grooming, Boarding, and Care Services • 162 Massages (not medically authorized) • 166 Parking Services

Areas of Interest • Refund of sales/use taxes paid. • Capital equipment: • Equipment used for manufacturing, fabricating, mining or refining tangible items to be sold ultimately at retail; electronically transmitting results retrieved by a customer of an on-line computerized data-retrieval system; or for generating electricity or steam to sell at retail. • You may file only two capital equipment refund claims per year. • Use Form ST11, Capital Equipment Refund Claim. • See Fact Sheet 103, Capital Equipment and Sales & Use Tax Instruction Booklet.

Areas of Interest • Refund of sales/use taxes paid. • Purchaser refunds: • To claim a refund of sales tax paid to a vendor in error. • You may file only two purchaser refund claims per year. • To qualify, you must be registered to report sales or use tax and the total amount requested on each refund claim must be over $500 in tax. • Use Form ST11-PUR, Purchaser Sales Tax Refund Claim. • See Sales & Use Tax Instruction Booklet.

Areas of Interest • Refund of sales/use taxes paid. • Amended Return • The procedures for amending Minnesota sales and use tax filings changed in December 2008. You no longer are required to calculate the difference between amounts originally reported and the correct amounts. You will be prompted to enter the corrected amounts instead. • To amend a sales and use tax return, go to our website at www.taxes.state.mn.us and click “Login to e-File Minnesota” on the e-Services menu, which leads you to our secure site for the department’s filing and paying system.

Areas of Interest • Refund of sales/use taxes paid. • Amended Return • If your amended return shows: • No tax due and no refund, you will receive a confirmation number with the date and time you filed. • A refund, indicate whether you want us to mail you a check or deposit your refund directly into your bank account. If you choose direct deposit, enter your bank routing and account numbers. Do not take credit for the overpayment on other returns. Click “Continue” to file your return.

Areas of Interest • Refund of sales/use taxes paid. • Amended Return • If your amended return shows: • An amount due, select “Pay electronically with this return” and enter your banking information to schedule your electronic payment at this time. • If you are not required to make electronic payments, you can call our office and ask that we send you a payment voucher. File your amended return electronically and send us your check along with the payment voucher.

Areas of Interest • Sales to Tribal Governments and individual tribal members. • Sales to tribal governments: • All eleven tribal governments and any businesses owned by the tribal governments may buy or lease goods, services, and vehicles either on or off the reservation for their own use exempt from sales tax. • A purchase order, payment voucher, or work order showing the tribal government is the purchaser, or an exemption letter to the tribal government from DOR is sufficient evidence of exemption. • See Fact Sheet 160, Indians.

Areas of Interest • Sales to Tribal Governments and individual tribal members. • Sales to individual tribal members: • Sales made off the reservation to an individual Indian are taxable. • Sales made on a reservation are subject to sales tax only if the DOR has entered into an agreement with the tribal government. • See Fact Sheet 160, Indians.

Areas of Interest • Capital equipment (definition) and leases. • Capital equipment means machinery and equipment purchased or leased, and used in Minnesota by the purchaser or lessee primarily for manufacturing, fabricating, mining, or refining tangible personal property to be sold ultimately at retail if the machinery and equipment are essential to the integrated production process of manufacturing, fabricating, mining, or refining. • Capital equipment includes machinery and equipment used primarily to electronically transmit results retrieved by a customer of an on-line computerized data retrieval system. • See Fact Sheet 103, Capital Equipment.

Areas of Interest • Rental equipment vs. hired equipment. • Subd. 14a. Lease or rental. • (a) "Lease or rental" means any transfer of possession or control of tangible personal property for a fixed or indeterminate term for consideration. A lease or rental may include future options to purchase or extend. • (b) Lease or rental does not include: • (1) a transfer of possession or control of property under a security agreement or deferred payment plan that requires the transfer of title upon completion of the required payments;

Areas of Interest • Rental equipment vs. hired equipment. • (2) a transfer of possession or control of property under an agreement that requires the transfer of title upon completion of required payments and payment of an option price does not exceed the greater of $100 or 1% of the total required payments; or • (3) providing tangible personal property along with an operator for a fixed or indeterminate period of time. A condition of this exclusion is that the operator is necessary for the equipment to perform as designed. For the purpose of this subdivision, an operator must do more than maintain, inspect, or set up the tangible personal property.

Areas of Interest • Sales of inventory items; salvage or used items sold. • Government agencies are not considered to be a trade or business since all of their activities are conducted to further a public purpose. • If the agency makes sales of surplus equipment or other tangible personal property on a regular basis these sales are, and always have been, taxable. • See Fact Sheet 132, Occasional Sales of Business Equipment & Goods.

Areas of Interest • Exemption certificates. • Minnesota Statutes section 297A.665, provides that all sales are presumed to be taxable and that the burden is on the retailer to prove that the item is being purchased for resale or is otherwise exempt from tax under Minnesota Statutes chapter 297A. Minnesota Statutes section 297A.72, subdivision 1, provides that for sales and purchases occurring after December 31, 2001, a fully completed exemption certificate conclusively relieves the retailer from collecting and remitting the tax if taken from the purchaser at the time of sale.

Areas of Interest • Exemption certificates. • A fully completed exemption certificate must include the following: • Purchaser’s name and address. • Purchaser’s type of business. • Purchaser’s signature. • Purchaser’s MN tax ID number or ID issued by another state or FEIN or driver’s license or other valid state-issued ID number. • Reason for exemption. • See Sales Tax Newsletter 2008.

Areas of Interest • Point of sale. • What rules determine whose sales tax to charge? • Charge the sales tax that applies in your taxing jurisdiction when the customer picks up the product or service at your location. • Charge sales tax based on where the product is shipped or the service is provided to the customer. • If neither applies, charge sales tax based on the address you have for the customer.

Areas of Interest • Special fuel taxes and Power Take-off tax refunds. • General rules: • Tax paid on gasoline or special fuel used to operate a power takeoff unit (PTO) or auxiliary engine fueled from the same supply tank as the highway vehicle is refundable. The refund claim is based on only the fuel consumed by the PTO or auxiliary engine. Fuel consumed during idling time is not eligible for refund. • See Fact Sheet 400, Power Take-off Refunds

Areas of Interest • Special fuel taxes and Power Take-off tax refunds. • Petroleum tax: • Most fuel used for highway purposes is subject to petroleum tax. • This includes motor fuel (gasoline or diesel fuel, also called “special fuel”) used in all licensed motor vehicles. • It also includes fuel for motorboats, all-terrain vehicles, aircraft, and most snowmobiles. • When you buy gasoline from a pump at a gas station, the price already includes petroleum tax (both state and federal). • See Fact Sheet 400, Power Take-off Refunds

Areas of Interest • Special fuel taxes and Power Take-off tax refunds. • Sales or use tax: • Sales or use tax is due on petroleum products used for non-highway purposes. • Generally, sales or use tax applies to fuel used in construction activities or for heating commercial buildings. • The amount subject to use tax includes the cost of the fuel, federal petroleum tax, the Petrofund “clean-up” fee, and any inspection fees imposed. Use tax is due for the period when the refund or credit is received. • See Fact Sheet 400, Power Take-off Refunds

Areas of Interest • Sales tax on fuel surcharges. • Generally, sales or use tax applies to fuel used in construction activities or for heating commercial buildings. • The amount subject to use tax includes the cost of the fuel, federal petroleum tax (which is a tax imposed at the wholesale level) the Petrofund “clean-up” fee, and any inspection fees imposed.

Tom Woessner, Audit Manager