HF 2017

as introduced - 89th Legislature (2015 - 2016) Posted on 03/24/2015 12:28am

A bill for an act
relating to taxation; sales and use; repealing the tax on digital products; amending
Minnesota Statutes 2014, sections 297A.61, subdivisions 3, 4, 38; 297A.668,
subdivisions 1, 2, 6a, 7; 297A.669, subdivision 14a; repealing Minnesota Statutes
2014, section 297A.61, subdivisions 50, 51, 52, 53, 54, 55, 56.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2014, section 297A.61, subdivision 3, is amended to read:

Subd. 3.

Sale and purchase.

(a) "Sale" and "purchase" include, but are not limited
to, each of the transactions listed in this subdivision. In applying the provisions of this
chapter, the terms "tangible personal property" and "retail sale" include the taxable
services listed in paragraph (g), clause (6), items (i) to (vi) and (viii), and the provision
of these taxable services, unless specifically provided otherwise. Services performed by
an employee for an employer are not taxable. Services performed by a partnership or
association for another partnership or association are not taxable if one of the entities owns
or controls more than 80 percent of the voting power of the equity interest in the other
entity. Services performed between members of an affiliated group of corporations are not
taxable. For purposes of the preceding sentence, "affiliated group of corporations" means
those entities that would be classified as members of an affiliated group as defined under
United States Code, title 26, section 1504, disregarding the exclusions in section 1504(b).

(b) Sale and purchase include:

(1) any transfer of title or possession, or both, of tangible personal property, whether
absolutely or conditionally, for a consideration in money or by exchange or barter; and

(2) the leasing of or the granting of a license to use or consume, for a consideration
in money or by exchange or barter, 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.

(d) Sale and purchase include the preparing for a consideration of food.
Notwithstanding section 297A.67, subdivision 2, taxable food includes, but is not limited
to, the following:

(1) prepared food sold by the retailer;

(2) soft drinks;

(3) candy;

(4) dietary supplements; and

(5) all food sold through vending machines.

(e) A sale and a purchase includes the furnishing for a consideration of electricity,
gas, water, or steam for use or consumption within this state.

(f) A sale and a purchase includes the transfer for a consideration of prewritten
computer software whether delivered electronically, by load and leave, or otherwise.

(g) A sale and a purchase includes the furnishing for a consideration of the following
services:

(1) the privilege of admission to places of amusement, recreational areas, or athletic
events, and the making available of amusement devices, tanning facilities, reducing
salons, steam baths, health clubs, and spas or athletic facilities;

(2) lodging and related services by a hotel, rooming house, resort, campground,
motel, or trailer camp, including furnishing the guest of the facility with access to
telecommunication services, and the granting of any similar license to use real property in
a specific facility, other than the renting or leasing of it for a continuous period of 30 days
or more under an enforceable written agreement that may not be terminated without prior
notice and including accommodations intermediary services provided in connection with
other services provided under this clause;

(3) nonresidential parking services, whether on a contractual, hourly, or other
periodic basis, except for parking at a meter;

(4) the granting of membership in a club, association, or other organization if:

(i) the club, association, or other organization makes available for the use of its
members sports and athletic facilities, without regard to whether a separate charge is
assessed for use of the facilities; and

(ii) use of the sports and athletic facility is not made available to the general public
on the same basis as it is made available to members.

Granting of membership means both onetime initiation fees and periodic membership
dues. Sports and athletic facilities include golf courses; tennis, racquetball, handball, and
squash courts; basketball and volleyball facilities; running tracks; exercise equipment;
swimming pools; and other similar athletic or sports facilities;

(5) delivery of aggregate materials by a third party, excluding delivery of aggregate
material used in road construction; and delivery of concrete block by a third party if the
delivery would be subject to the sales tax if provided by the seller of the concrete block.
For purposes of this clause, "road construction" means construction of:

(i) public roads;

(ii) cartways; and

(iii) private roads in townships located outside of the seven-county metropolitan area
up to the point of the emergency response location sign; and

(6) services as provided in this clause:

(i) laundry and dry cleaning services including cleaning, pressing, repairing, altering,
and storing clothes, linen services and supply, cleaning and blocking hats, and carpet,
drapery, upholstery, and industrial cleaning. Laundry and dry cleaning services do not
include services provided by coin operated facilities operated by the customer;

(ii) motor vehicle washing, waxing, and cleaning services, including services
provided by coin operated facilities operated by the customer, and rustproofing,
undercoating, and towing of motor vehicles;

(iii) building and residential cleaning, maintenance, and disinfecting services and
pest control and exterminating services;

(iv) detective, security, burglar, fire alarm, and armored car services; but not
including services performed within the jurisdiction they serve by off-duty licensed peace
officers as defined in section 626.84, subdivision 1, or services provided by a nonprofit
organization or any organization at the direction of a county for monitoring and electronic
surveillance of persons placed on in-home detention pursuant to court order or under the
direction of the Minnesota Department of Corrections;

(v) pet grooming services;

(vi) lawn care, fertilizing, mowing, spraying and sprigging services; garden planting
and maintenance; tree, bush, and shrub pruning, bracing, spraying, and surgery; indoor
plant care; tree, bush, shrub, and stump removal, except when performed as part of a land
clearing contract as defined in section 297A.68, subdivision 40; and tree trimming for
public utility lines. Services performed under a construction contract for the installation of
shrubbery, plants, sod, trees, bushes, and similar items are not taxable;

(vii) massages, except when provided by a licensed health care facility or
professional or upon written referral from a licensed health care facility or professional for
treatment of illness, injury, or disease; and

(viii) the furnishing of lodging, board, and care services for animals in kennels and
other similar arrangements, but excluding veterinary and horse boarding services.

(h) A sale and a purchase includes the furnishing for a consideration of tangible
personal property or taxable services by the United States or any of its agencies or
instrumentalities, or the state of Minnesota, its agencies, instrumentalities, or political
subdivisions.

(i) A sale and a purchase includes the furnishing for a consideration of
telecommunications services, ancillary services associated with telecommunication
services, and pay television services. Telecommunication services include, but are
not limited to, the following services, as defined in section 297A.669: air-to-ground
radiotelephone service, mobile telecommunication service, postpaid calling service,
prepaid calling service, prepaid wireless calling service, and private communication
services. The services in this paragraph are taxed to the extent allowed under federal law.

(j) A sale and a purchase includes the furnishing for a consideration of installation if
the installation charges would be subject to the sales tax if the installation were provided
by the seller of the item being installed.

(k) A sale and a purchase includes the rental of a vehicle by a motor vehicle dealer
to a customer when (1) the vehicle is rented by the customer for a consideration, or (2)
the motor vehicle dealer is reimbursed pursuant to a service contract as defined in section
59B.02, subdivision 11.

deleted text begin (l) A sale and a purchase includes furnishing for a consideration of specified digital
products or other digital products or granting the right for a consideration to use specified
digital products or other digital products on a temporary or permanent basis and regardless
of whether the purchaser is required to make continued payments for such right. Wherever
the term "tangible personal property" is used in this chapter, other than in subdivisions 10
and 38, the provisions also apply to specified digital products, or other digital products,
unless specifically provided otherwise or the context indicates otherwise.
deleted text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
June 30, 2015.
new text end

Sec. 2.

Minnesota Statutes 2014, section 297A.61, subdivision 4, is amended to read:

Subd. 4.

Retail sale.

(a) A "retail sale" means:

(1) any sale, lease, or rental of tangible personal property for any purpose, other than
resale, sublease, or subrent of items by the purchaser in the normal course of business
as defined in subdivision 21; and

(2) any sale of a service enumerated in subdivision 3, for any purpose other than
resale by the purchaser in the normal course of business as defined in subdivision 21.

(b) A sale of property used by the owner only by leasing it to others or by holding it
in an effort to lease it, and put to no use by the owner other than resale after the lease or
effort to lease, is a sale of property for resale.

(c) A sale of master computer software that is purchased and used to make copies for
sale or lease is a sale of property for resale.

(d) A sale of building materials, supplies, and equipment to owners, contractors,
subcontractors, or builders for the erection of buildings or the alteration, repair, or
improvement of real property is a retail sale in whatever quantity sold, whether the sale is
for purposes of resale in the form of real property or otherwise.

(e) A sale of carpeting, linoleum, or similar floor covering to a person who provides
for installation of the floor covering is a retail sale and not a sale for resale since a sale of
floor covering which includes installation is a contract for the improvement of real property.

(f) A sale of shrubbery, plants, sod, trees, and similar items to a person who provides
for installation of the items is a retail sale and not a sale for resale since a sale of
shrubbery, plants, sod, trees, and similar items that includes installation is a contract for
the improvement of real property.

(g) A sale of tangible personal property that is awarded as prizes is a retail sale and
is not considered a sale of property for resale.

(h) A sale of tangible personal property utilized or employed in the furnishing or
providing of services under subdivision 3, paragraph (g), clause (1), including, but not
limited to, property given as promotional items, is a retail sale and is not considered a
sale of property for resale.

(i) A sale of tangible personal property used in conducting lawful gambling under
chapter 349 or the State Lottery under chapter 349A, including, but not limited to, property
given as promotional items, is a retail sale and is not considered a sale of property for resale.

(j) a sale of machines, equipment, or devices that are used to furnish, provide, or
dispense goods or services, including, but not limited to, coin-operated devices, is a retail
sale and is not considered a sale of property for resale.

(k) In the case of a lease, a retail sale occurs (1) when an obligation to make a lease
payment becomes due under the terms of the agreement or the trade practices of the
lessor or (2) in the case of a lease of a motor vehicle, as defined in section 297B.01,
subdivision 11, but excluding vehicles with a manufacturer's gross vehicle weight rating
greater than 10,000 pounds and rentals of vehicles for not more than 28 days, at the time
the lease is executed.

(l) In the case of a conditional sales contract, a retail sale occurs upon the transfer of
title or possession of the tangible personal property.

(m) A sale of a bundled transaction in which one or more of the products included
in the bundle is a taxable product is a retail sale, except that if one of the products
is a telecommunication service, ancillary service, Internet access, or audio or video
programming service, and the seller has maintained books and records identifying through
reasonable and verifiable standards the portions of the price that are attributable to the
distinct and separately identifiable products, then the products are not considered part of a
bundled transaction. For purposes of this paragraph:

(1) the books and records maintained by the seller must be maintained in the regular
course of business, and do not include books and records created and maintained by the
seller primarily for tax purposes;

(2) books and records maintained in the regular course of business include, but are
not limited to, financial statements, general ledgers, invoicing and billing systems and
reports, and reports for regulatory tariffs and other regulatory matters; and

(3) books and records are maintained primarily for tax purposes when the books
and records identify taxable and nontaxable portions of the price, but the seller maintains
other books and records that identify different prices attributable to the distinct products
included in the same bundled transaction.

(n) A sale of motor vehicle repair paint and materials by a motor vehicle repair or
body shop business is a retail sale and the sales tax is imposed on the gross receipts from the
retail sale of the paint and materials. The motor vehicle repair or body shop that purchases
motor vehicle repair paint and motor vehicle repair materials for resale must either:

(1) separately state each item of paint and each item of materials, and the sales price
of each, on the invoice to the purchaser; or

(2) in order to calculate the sales price of the paint and materials, use a method
which estimates the amount and monetary value of the paint and materials used in
the repair of the motor vehicle by multiplying the number of labor hours by a rate of
consideration for the paint and materials used in the repair of the motor vehicle following
industry standard practices that fairly calculate the gross receipts from the retail sale of
the motor vehicle repair paint and motor vehicle repair materials. An industry standard
practice fairly calculates the gross receipts if the sales price of the paint and materials used
or consumed in the repair of a motor vehicle equals or exceeds the purchase price paid
by the motor vehicle repair or body shop business. Under this clause, the invoice must
either separately state the "paint and materials" as a single taxable item, or separately state
"paint" as a taxable item and "materials" as a taxable item. This clause does not apply to
wholesale transactions at an auto auction facility.

deleted text begin (o) A sale of specified digital products or other digital products to an end user with
or without rights of permanent use and regardless of whether rights of use are conditioned
upon payment by the purchaser is a retail sale. When a digital code has been purchased that
relates to specified digital products or other digital products, the subsequent receipt of or
access to the related specified digital products or other digital products is not a retail sale.
deleted text end

deleted text begin (p) deleted text end new text begin (o) new text end A payment made to a cooperative electric association or public utility as a
contribution in aid of construction is a contract for improvement to real property and
is not a retail sale.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
June 30, 2015.
new text end

Sec. 3.

Minnesota Statutes 2014, section 297A.61, subdivision 38, is amended to read:

Subd. 38.

Bundled transaction.

(a) "Bundled transaction" means the retail sale
of two or more products when the products are otherwise distinct and identifiable, and
the products are sold for one nonitemized price. As used in this subdivision, "product"
includes tangible personal property, services, new text begin and new text end intangibles, deleted text begin and digital goods, including
specified digital products or other digital products, deleted text end but does not include real property or
services to real property. A bundled transaction does not include the sale of any products
in which the sales price varies, or is negotiable, based on the selection by the purchaser of
the products included in the transaction.

(b) For purposes of this subdivision, "distinct and identifiable" products does not
include:

(1) packaging and other materials, such as containers, boxes, sacks, bags, and
bottles, wrapping, labels, tags, and instruction guides, that accompany the retail sale of the
products and are incidental or immaterial to the retail sale. Examples of packaging that are
incidental or immaterial include grocery sacks, shoe boxes, dry cleaning garment bags,
and express delivery envelopes and boxes;

(2) a promotional product provided free of charge with the required purchase of
another product. A promotional product is provided free of charge if the sales price of
another product, which is required to be purchased in order to receive the promotional
product, does not vary depending on the inclusion of the promotional product; and

(3) items included in the definition of sales price.

(c) For purposes of this subdivision, the term "one nonitemized price" does not
include a price that is separately identified by product on binding sales or other supporting
sales-related documentation made available to the customer in paper or electronic form
including but not limited to an invoice, bill of sale, receipt, contract, service agreement,
lease agreement, periodic notice of rates and services, rate card, or price list.

(d) A transaction that otherwise meets the definition of a bundled transaction is
not a bundled transaction if it is:

(1) the retail sale of tangible personal property and a service and the tangible
personal property is essential to the use of the service, and is provided exclusively in
connection with the service, and the true object of the transaction is the service;

(2) the retail sale of services if one service is provided that is essential to the use or
receipt of a second service and the first service is provided exclusively in connection with
the second service and the true object of the transaction is the second service;

(3) a transaction that includes taxable products and nontaxable products and the
purchase price or sales price of the taxable products is de minimis; or

(4) the retail sale of exempt tangible personal property and taxable tangible personal
property if:

(i) the transaction includes food and food ingredients, drugs, durable medical
equipment, mobility enhancing equipment, over-the-counter drugs, prosthetic devices,
or medical supplies; and

(ii) the seller's purchase price or sales price of the taxable tangible personal property is
50 percent or less of the total purchase price or sales price of the bundled tangible personal
property. Sellers must not use a combination of the purchase price and sales price of the
tangible personal property when making the 50 percent determination for a transaction.

(e) For purposes of this subdivision, "purchase price" means the measure subject to
use tax on purchases made by the seller, and "de minimis" means that the seller's purchase
price or sales price of the taxable products is ten percent or less of the total purchase
price or sales price of the bundled products. Sellers shall use either the purchase price
or the sales price of the products to determine if the taxable products are de minimis.
Sellers must not use a combination of the purchase price and sales price of the products
to determine if the taxable products are de minimis. Sellers shall use the full term of a
service contract to determine if the taxable products are de minimis.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
June 30, 2015.
new text end

Sec. 4.

Minnesota Statutes 2014, section 297A.668, subdivision 1, is amended to read:

Subdivision 1.

Applicability.

The provisions of this section apply regardless of the
characterization of a product as tangible personal property deleted text begin , a digital good, deleted text end or a service;
but do not apply to telecommunications services or the sales of motor vehicles. These
provisions only apply to determine a seller's obligation to pay or collect and remit a sales
or use tax with respect to the seller's sale of a product. These provisions do not affect the
obligation of a seller as purchaser to remit tax on the use of the product.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
June 30, 2015.
new text end

Sec. 5.

Minnesota Statutes 2014, section 297A.668, subdivision 2, is amended to read:

Subd. 2.

Sourcing rules.

(a) The retail sale, excluding lease or rental, of a product
shall be sourced as required in paragraphs (b) through (f).

(b) When the product is received by the purchaser at a business location of the seller,
the sale is sourced to that business location.

(c) When the product is not received by the purchaser at a business location of the
seller, the sale is sourced to the location where receipt by the purchaser or the donee
designated by the purchaser occurs, including the location indicated by instructions for
delivery to the purchasers or the purchaser's donee, known to the seller.

(d) When paragraphs (b) and (c) do not apply, the sale is sourced to the location
indicated by an address for the purchaser that is available from the business records of
the seller that are maintained in the ordinary course of the seller's business, when use of
this address does not constitute bad faith.

(e) When paragraphs (b), (c), and (d) do not apply, the sale is sourced to the location
indicated by an address for the purchaser obtained during the consummation of the sale,
including the address of a purchaser's payment instrument if no other address is available,
when use of this address does not constitute bad faith.

(f) When paragraphs (b), (c), (d), and (e) do not apply, including the circumstance
where the seller is without sufficient information to apply the previous paragraphs, then
the location is determined by the address from which tangible personal property was
shipped, from which deleted text begin the digital good or deleted text end the computer software delivered electronically
was first available for transmission by the seller, or from which the service was provided. deleted text begin
For purposes of this paragraph, the seller must disregard any location that merely provided
the digital transfer of the product sold.
deleted text end

(g) For purposes of this subdivision, the terms "receive" and "receipt" mean taking
possession of tangible personal property, making first use of services, or taking possession
or making first use of deleted text begin digital goods or deleted text end the computer software delivered electronically,
whichever occurs first. The terms receive and receipt do not include possession by a
carrier for hire on behalf of the purchaser.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
June 30, 2015.
new text end

Sec. 6.

Minnesota Statutes 2014, section 297A.668, subdivision 6a, is amended to read:

Subd. 6a.

Multiple points of use.

(a) Notwithstanding the provisions of subdivisions
2 and 3, a business purchaser that has not received authorization to pay the tax directly to
the commissioner may use an exemption certificate indicating multiple points of use if:

(1) the purchaser knows at the time of its purchase of deleted text begin a digital good, deleted text end computer
software delivered electronically, or a service that the good or service will be concurrently
available for use in more than one taxing jurisdiction; and

(2) the purchaser delivers to the seller the exemption certificate indicating multiple
points of use at the time of purchase.

(b) Upon receipt of the fully completed exemption certificate indicating multiple
points of use, the seller is relieved of the obligation to collect, pay, or remit the applicable
tax and the purchaser is obligated to collect, pay, or remit the applicable tax on a direct
pay basis. The provisions of section 297A.665 apply to this paragraph.

(c) The purchaser delivering the exemption certificate indicating multiple points
of use may use any reasonable but consistent and uniform method of apportionment
that is supported by the purchaser's business records as they exist at the time of the
consummation of the sale.

(d) The purchaser shall provide the exemption certificate indicating multiple points
of use to the seller at the time of purchase.

(e) A purchaser that has received authorization to pay the tax directly to the
commissioner is not required to deliver to the seller an exemption certificate indicating
multiple points of use. A purchaser that has received authorization to pay the tax directly
to the commissioner shall follow the provisions of paragraph (c) in apportioning the tax
due on deleted text begin a digital good, deleted text end computer software delivered electronically, or a service that will be
concurrently available for use in more than one taxing jurisdiction.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
June 30, 2015.
new text end

Sec. 7.

Minnesota Statutes 2014, section 297A.668, subdivision 7, is amended to read:

Subd. 7.

Advertising and promotional direct mail.

(a) Notwithstanding other
subdivisions of this section, the provisions in paragraphs (b) to (e) apply to the sale of
advertising and promotional direct mail. "Advertising and promotional direct mail" means
printed material that is direct mail as defined in section 297A.61, subdivision 35, the
primary purpose of which is to attract public attention to a product, person, business, or
organization, or to attempt to sell, popularize, or secure financial support for a person,
business, organization, or product. "Product" includes tangible personal property deleted text begin , a digital
product transferred electronically, deleted text end or a service.

(b) A purchaser of advertising and promotional direct mail may provide the seller
with one of the following:

(1) a fully completed exemption certificate as described in section 297A.72
indicating that the purchaser is authorized to pay any sales or use tax due on purchases
made by the purchaser directly to the commissioner under section 297A.89;

(2) a fully completed exemption certificate claiming an exemption for direct mail; or

(3) information showing the jurisdictions to which the advertising and promotional
direct mail is to be delivered to recipients.

(c) In the absence of bad faith, if the purchaser provides one of the exemption
certificates indicated in paragraph (b), clauses (1) and (2), the seller is relieved of all
obligations to collect, pay, or remit the applicable tax and the purchaser is obligated to pay
or remit the tax on any transaction involving advertising and promotional direct mail to
which the certificate applies. The purchaser shall source the sale to the jurisdictions to
which the advertising and promotional direct mail is to be delivered to the recipients of
the mail, and shall report and pay any applicable tax due.

(d) If the purchaser provides the seller information showing the jurisdictions to
which the advertising and promotional direct mail is to be delivered to recipients, the seller
shall source the sale to the jurisdictions to which the advertising and promotional direct
mail is to be delivered and shall collect and remit the applicable tax. In the absence of
bad faith, the seller is relieved of any further obligation to collect any additional tax on
the sale of advertising and promotional direct mail where the seller has sourced the sale
according to the delivery information provided by the purchaser.

(e) If the purchaser does not provide the seller with any of the items listed in
paragraph (b), the sale shall be sourced under subdivision 2, paragraph (f). Nothing in
this paragraph limits a purchaser's obligation for sales or use tax to any state to which the
direct mail is delivered.

(f) This subdivision does not apply to printed materials that result from developing
billing information or providing any data processing service that is more than incidental
to producing the printed materials, regardless of whether advertising and promotional
direct mail is included in the same mailing.

(g) If a transaction is a bundled transaction that includes advertising and promotional
direct mail, this subdivision applies only if the primary purpose of the transaction is the sale
of products or services that meet the definition of advertising and promotional direct mail.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
June 30, 2015.
new text end

Sec. 8.

Minnesota Statutes 2014, section 297A.669, subdivision 14a, is amended to read:

Subd. 14a.

Prepaid wireless calling service.

"Prepaid wireless calling service," for
purposes of this section, means a telecommunications service that:

(1) provides the right to utilize mobile wireless service as well as other
nontelecommunications services, including deleted text begin the download of digital products delivered
electronically, content, and deleted text end ancillary services;

(2) must be paid for in advance; and

(3) is sold in predetermined units or dollars of which the number declines with
use in a known amount.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
June 30, 2015.
new text end

Sec. 9. new text begin REPEALER.
new text end

new text begin Minnesota Statutes 2014, section 297A.61, subdivisions 50, 51, 52, 53, 54, 55,
and 56, new text end new text begin are repealed.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
June 30, 2015.
new text end