Change is coming!

The days of filing sales tax refund claims for capital equipment refunds are numbered as upfront exemption will make such refund claims unnecessary next month (effective July 1, 2015). This means businesses will need to be mindful of their qualifying purchases in real time so exemption certificates are issued right away. This change was originally scheduled to become effective on September 1, 2014 but lawmakers delayed the effective date until July 1, 2015.

Overview of Capital Equipment Refunds

Buying or leasing qualifying capital equipment for use in Minnesota primarily for an integrated production process related to manufacturing, fabricating, mining, or refining tangible personal property will typically qualify for a capital equipment refund claim. Repair or replacement parts also generally qualify. While your company must pay sales or use tax up front at the time of purchase, sales or use tax can be recouped by filing a refund claim. For refund purposes, the State of Minnesota requires equipment be used for qualifying activities at least 50% of the time.

Industries and businesses that qualify for refunds

Some industries clearly have an integrated production process while other qualifying businesses may not be so obvious. Here are some examples of businesses that often perform activities qualifying for at least some capital equipment sales tax refunds:

  • Photographers

  • Retail stores with equipment for production activities such as fabricating keys

  • Newspaper publisher

  • Wood products fabricator

  • Meat packer

  • Bakery

  • Foundry

  • Industrial machinery manufacturer

  • Packaging

Indirect impact: Distributors and Exemption Forms

Certain industries, which have never qualified for capital equipment refunds, will be indirectly impacted when the upfront exemption becomes effective. For example, distributors of manufacturing equipment and related parts will soon receive exemption certificates from many of their Minnesota customers. A communication from the Minnesota Department of Revenue indicated the exemption form should indicate 'Capital Equipment' as the reason code. Distributors will need to maintain these exemption forms with their records and cease collecting sales tax from their newly exempt customers. The exemption forms will become essential audit support, so care should be taken to establish a tracking and retention policy.

How to file a refund claim

In order to obtain a refund, your business must file a capital equipment refund claim on Form ST11. A company is allowed to file no more than two capital equipment refund claims per calendar year, so you’ll need to track qualifying purchases and file combined refund claims. While claims can’t be filed every day, don’t allow your business to get too far behind as there is a time limit. Qualifying refund claims must be filed within three and one-half years from the month following the month of the invoice date or within one year of the date of an order assessing liability (if the liability has been paid in full), whichever is longer.