Bill seeks to halt parade of tax exemption requests

It’s become an annual sojourn for mayors, administrators, principals, and police and fire chiefs from throughout Minnesota. They come to the Capitol, each bearing a similar request for their city, county, town or school district: Could you please give us a sales tax exemption on the construction materials we’ve purchased for use on a local project?

Now perhaps you’d say: Wait, aren’t local governments tax exempt? Why are they paying sales taxes? The answer is that those materials aren’t usually bought by the government, but by contractors they’ve hired for their projects. After the receipts are submitted, a local government reimburses the contractor, then goes to the Legislature to recover the sales tax portion of their outlay.

But is there a simpler way? Both Rep. Matt Norris (DFL-Blaine) and Rep. Chris Swedzinski (R-Ghent) think there should be. So each sponsors a bill they hope would stop the parade of tax exemption requests at the Capitol and allow a blanket exemption for all local governments and nonprofits.

Norris is the sponsor of HF1248, while Swedzinski sponsors HF618, which — after being amended during Tuesday’s meeting of the House Taxes Committee — contains virtually identical language to Norris’ bill. In a particularly bipartisan gesture, the two presented the bills side-by-side from the testifier’s table, and saw them both laid over for possible omnibus bill inclusion.

“This seeks to make it a very practical way that reflects reality for these projects, which are to the tune of hundreds of millions of dollars across the state,” Swedzinski said.

The bills would provide a sales tax exemption for the purchase of construction materials and supplies when purchased by a contractor, subcontractor or builder for construction or reconstruction of buildings and facilities used principally by:

• school districts;
• other local governments;
• government-owned hospitals and nursing homes;
• libraries;
• charitable, religious, and educational nonprofits;
• nonprofit hospitals, nonprofits, and critical access dental providers; or
• nonprofit nursing homes and boarding care homes.

The bills would allow these entities to benefit from a sales tax exemption on all construction materials regardless of whether they do an all-inclusive construction contract or separate contracts for material and for labor. It would also exempt materials used in the construction, reconstruction and repair of public infrastructure like roads, bridges, sewers and water treatment facilities.

The Revenue Department estimates that the proposed changes would reduce the General Fund by $29.1 million in fiscal year 2026 and three other funds (Natural Resources and Arts, Housing Assistance and a Special Revenue Fund) by a total of about $2.7 million over the same period. The estimate said the total for all funds would be reduced between $65.4 million and $69.6 million in each of the ensuing three years.

“We’re not creating any new tax exemption,” Norris added. “But some come to the Legislature and get these exemptions and some don’t. This would level the playing field.”

The committee’s co-chair, Rep. Greg Davids (R-Preston), said that there have been more than 60 such requests this year.