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Last Updated: 7/12/2017

Real Property

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A  2017 law change added a definition of "real property" for purposes of sales tax.

What is real property?

Real property includes:

  • land
  • buildings and structures intended to be permanent
  • improvements and fixtures that both:
    • are incorporated into and intended to be of permanent benefit to a building or structure given its current use
    • cannot be removed without causing substantial damage to the building or structure

What is not real property?

For sales tax purposes, real property specifically does not include tools, implements, or machinery and equipment that are both:

  • attached or installed into real property for use in a business or production activity
  • eligible for a business-related sales tax exemption under Minnesota Statute 297A.68, no matter their size, weight, or how they are incorporated into the real property
Note: For items that are not specifically excluded from the definition of real property, you must determine if they meet the above definition of real property. 

How should contractors handle sales and purchases of machinery and equipment?

Machinery and equipment are considered tangible personal property when they are specifically excluded from –  or do not meet the definition of – real property . Contractors should buy these items exempt for resale by providing the seller a completed Form ST3, Certificate of Exemption. Specify the Resale exemption.

When billing customers, the contractor must tax the following unless a customer provides a completed exemption certificate:

  • machinery and equipment
  • installation and setup labor of the machinery and equipment
  • delivery charges for the machinery and equipment

Previously, contractors had to pay the sales tax when they purchased these items and installed them into real property. They billed the cost to the customer without itemizing sales tax on the receipt.

How do businesses purchase capital equipment installed into real property exempt from tax?

If you buy capital equipment that a contractor installs, you must give the contractor a completed exemption certificate. Specify the Capital Equipment exemption.