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Last Updated: 6/16/2017

Purchases

Items purchased by nonprofit organizations are taxable, unless you have Nonprofit Exempt Status or buy the item for resale.

Nonprofit Exempt Status purchases

If you have Nonprofit Exempt Status:

  • The exemption is limited to items used to perform the charitable, religious, or educational functions of the nonprofit organization.
  • Purchases must be made and paid for directly by the nonprofit organization.
  • To claim the exemption, give your supplier a completed Form ST3, Certificate of Exemption.

Note: If an employee purchases taxable items and is later reimbursed, the items are taxable, even when the items would be exempt if purchased directly by the organization.

Items that do not qualify for exemption

Nonprofit Exempt Status does not apply to purchases of:

  • Prepared food, candy, soft drinks, alcoholic beverages, and catered food
  • Lodging
  • Gambling equipment and supplies
  • Most motor vehicle purchases, leases, and rentals (including the 9.2 percent car rental tax and 5 percent rental fee)
  • Waste collection and disposal services

Purchasing fundraising items

Do not pay sales tax on items that are sold for fundraising. Give your vendor a completed Form ST3, Certificate of Exemption. Specify the resale exemption. Examples include:

  • Alcoholic beverages
  • Arts and crafts
  • Books
  • Prepared food
  • Soft drinks

If you sell alcoholic beverages at a fundraising event, you must do the following:

  • Contact the city office where the fundraising event is located for a temporary retail liquor license
  • Purchase your liquor from a licensed liquor distributor

Health Care Facilities

Qualifying health care facilities may be eligible for a sales tax exemption on certain purchases. Examples include:

  • Boarding care homes
  • Clinics
  • Critical access dental providers
  • Hospitals
  • Nursing homes
  • Outpatient surgical centers

For more information, see Fact Sheet 172, Health Care Facilities.

Veteran organizations

Veteran organizations do not qualify for Nonprofit Exempt Status. However, these organizations do qualify for a limited exemption if both of the following apply:

  • The organization is organized in Minnesota
  • The organization is exempt from federal tax under section 501(c )(19) of the Internal Revenue Code

The limited exemption applies to purchases for charitable, civic, educational, or nonprofit use. Examples include:

  • Educational brochures and posters
  • Equipment for youth sports teams
  • Flags
  • Items given away though programs like Operation Comfort Warriors

To claim the exemption, give your vendor a completed Form ST3, Certificate of Exemption. Specify the Veteran organization exemption.

General Taxable Purchases

Taxable services

Several services are taxable. Examples include:

For more information, see the complete list of taxable services in Minnesota.

Use tax

If you buy equipment, supplies, or other taxable items for your business and the seller does not charge Minnesota sales tax, you owe use tax on the cost of the items. If your business is located in an area with a local tax, you may also owe local use tax.

Some common situations where you may owe use tax include:

  • You buy taxable items or services online without paying sales tax
  • You withdraw an item from inventory to use (instead of selling it), donate, or give away
  • You buy taxable items outside of Minnesota
  • You buy taxable items in another Minnesota city or county with a lower (or no) local sales tax

For more information, see Fact Sheet 146, Use Tax for Businesses and Fact Sheet 164, Local Sales and Use Taxes.

Purchasing Agent Agreements

A building contractor cannot use your nonprofit organization’s exempt status to buy materials exempt for use in a lump-sum contract.

However, you may designate a contractor as your purchasing agent, allowing them to make tax-exempt purchases of qualifying materials, equipment, and supplies used to improve real property. To do this, you must have Nonprofit Exempt Status and the written contract must clearly state:

  • You appointed the contractor as your purchasing agent
  • You take title to all materials and supplies at point of delivery
  • You are responsible for the risk of loss on all materials and supplies
  • You are responsible for all defective materials and supplies including those incorporated into real property
  • These requirements apply to the prime contractor and every subcontractor who supplies both materials and labor.

Note: The purchasing agent exemption does not apply to purchases or leases of equipment a contractor uses to complete the construction contract. 

For more information, see 95-05 Construction Contracts – Purchasing Agent Exemption.

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