Correspondence 1992-1993 Waldron

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� t n U • Sales taz, �.a��a r�� p.ge � '° Services of detective agencies, security services, burglar, fire alarm, and armored car services; * Lawn care, fertilizing, mo�wing, and spraying; garden planting and maintenance; tree, bush, and shrub planting, Pruni.n8, sP�Y�B► and surgery; aud tree trimming for public utility lines. Cides are already paying sales tax on solid waste collection and disposal. Clothing and food Clothing and food are generally exempt, with some exceptions. The laws and ru]es applicable to individual consumers will also apply to cities. Construction materials Materials used for the construo- tion or repair of city buildings or streets will be subject to the sales tax whether the city or a contractor purchases them. However, this will not be an added cost for many cities, because many are already paying the sales tax for materials contractors purchase. Utility services The following utility services will generally be taxable when the city usr� them for facilities such as city hall, commur.ity centers, and playgrounds: electricity, water, natural gas, local and long distance telephone, and steam. If a city-avwed utility provides these services to the city, the situation is complicated. If the utility is sepa- rately incorporated or is aa cnterprise separate and distinct from other city oper�a,tions, the city should pay the sales tax. If the utility is not separate the city should not pay the sales tax. Sewer services are NOT taxable. Page 4 iViaterials consumed in production Products which are consumed in production of products for ultimate retail sale are exempt from t�xation. T�is provision exempts products such as these which city-awned utilities use: water treatment cbemicals; electricity used directly in city production of electricity, treated water, or steam; fuel a city-auvned utility uses to produce electricity. Transition period provisions The general rule is that the sales tax is payable if the city receives delivery on or after June 1, 1992.. The daze of billi.ng or bill payment c'ices nat matter. For example, a product. delivered on May 31 and paid for June 1 or later is exempt. In the opposite case, a product paid for May 31 and delivered June 1 or later is taxable. For utility or service charges, the sales tax applies only for the days cities received services on and after June l. For example, on an electric bill covering May and June, only the electriciry the city used in )une would be subject to the sales tax. 11�ianufacturing capital equipment Manufacturing capital equipment is exempt if the city uses it for a new facility or the physical expansion of an existing facilit�� hich produces a product for retail sale. The exemption does not apply to equipment which rep'�aces existing equipment or repair parts. This exemption DOES a�ply to a city-awned facility which produces electricity or steam for sale to city customers. It also applies to water trsatment plants. Since sewage treatment does not produce a product for retail sale, cities must pay the sales tax on sewage treatment equipment. Responsibility for sales taz returns The consumer pays the sales tax to the seller at the time of purchase. The seller must fill out a sales tax return and remit the tax collected each month to the Department of Revenue. Thus, cities have no responsibilities regard- ing the sales tax, other than paying the tax, and the seller shoutd resolve many questions of whether a city purchase is taxable. � 14iinnesota, like most states, has a use ta�c which accompanies the sales tax. If a city pwchases a product or service which is subject to the sales tax, but the seller does not charge the sales tax, the city must pay a use tax. This situation will occur most often on purchases from suppliers outside Minnesota. In this case, each month the city must fill out a use tax return and pay the use tax with each retarn. The return can be annual if purchases subject to the use tax are less than �5,000 for the year. If a city makes a mail order purchase from a caxalog, the seller probably will not charge sales tax. I�owever, the city will still be respon- �ible for filling out a use tax return �and paying the use tax. The Minnesota Department of Revenue dces extensive audits of Minnesota businesses to detect purchases from non-Minnesota suppliers who have not collected the Minnesota sales tax. The department is collecting large amounts of delinquent use taxes from Minnesota businesses, and it is safe to say that the department will audit cities in the future. J'T LMC Cities ]�uiletin � �