Firm holds seminar on costly tax hikes

Published 11:29 am Wednesday, July 17, 2013

Confused about the upcoming changes to Minnesota’s sales tax code? You’re not the only one, according to representatives from audit firm Clifton Larson Allen.

The firm hosted a sales tax change seminar Tuesday morning, which drew more than 30 business owners, nonprofit leaders and government officials to the Holiday Inn to learn about the coming changes.

One of the biggest changes is the switch in business repair and maintenance services, which are now taxable.

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“This is going to hit every industry unless you’re exempt,” said Mike Herold, tax principal for CliftonLarsonAllen.

Yet even repair services have exceptions, as repair services for motor vehicles — trailers, cars, motorcycles, or anything you need to have licensed for road use — are exempt from taxes.

That exception is one of many that aren’t fully defined by the state. Herold told the audience much of the caveats of the upcoming sales tax changes will be decided by the Department of Revenue, as legislators left many definitions open when they passed sales tax legislation earlier this year.

“There’s a tremendous amount of confusion right now,” Herold said.

For many businesses, the rules are just one more hurdle that has to be overcome.

“It is what it is,” said Aaron DeVries, of DeVries Manufacturing, which repairs farm equipment. DeVries joins many other repair businesses in charging farmers sales tax for the first time on some services, unless farmers apply for a special exemption. Even then, any repairs made to a farmer’s ATV or other transportation around a field that doesn’t specifically help produce crops can be taxed under the new rules.

There are several odd exceptions to the sales tax code, though legislators made sweeping changes and added many new taxable items in Minnesota. Practically all digital goods for sale are taxable, except for digital photos. Yet a resident who buys a series of photos used to convey a larger visual story, such as a flipbook, could be taxed, according to Herold.

The new rules likely won’t hit nonprofits or governmental bodies as hard, however. Nonprofits can sell items for charitable causes for up to 24 days in a given year before all of their sales become taxable under the new rules, which won’t much affect local organizations such as the United Way of Mower County.

“It really has to do with more special efforts,” said Mandi Lighthizer-Schmidt, executive director of the UWMC. “For us it’s minor changes, but for a lot of businesses, it’s major to them.”

Austin Finance Director Tom Dankert agreed, as the city of Austin likely won’t have to make major adjustments to comply with the new tax code. Cities and counties will be exempt from a majority of the new rules starting in January of next year, under the recent tax legislation. Dankert said there still may be a few vendors, such as Austin Utilities and others, which the city may still pay taxes for services in order to save money, however.

Yet some of the new rules could change. Herold said the much-discussed warehouse storage tax is largely misunderstood by legislators and the public at large, and will likely be taken off the books before its implementation in April 2014. The storage tax will only apply to businesses storing materials created by other businesses, such as trucking companies that store goods made by other manufacturers.

Yet legislators passed the storage tax before state experts and other officials could estimate its impact, which means the tax’s effects on the economy are unknown. Legislators from both parties have joined Democratic Gov. Mark Dayton in promising to review the storage tax at the start of the legislative session in January.

Despite the often confusing changes, Herold said businesses can look forward to one given: the state wants to ramp up its business audits, which means area business owners will likely be audited at some point over the next few years to ensure compliance with the tax code changes.

“We’re going to see a lot of audit activity,” Herold said. “Particularly if you’re in a repair or maintenance-type activity, you’re going to be audited.”