Defining Real Property

Real property does not include tools, implements, or machinery and equipment that are both:

• Attached or incorporated into real property for use in a business or production activity.
• Eligible for a business-related sales tax exemption under Minnesota Statutes 297A.68. For example, the capital equipment exemption, no matter their size, weight, or how they are incorporated into the real property.

Note: Leased items cannot become part of real property. For example, a leased ATM cannot be real property.

Tangible personal property becomes an improvement or fixture when it becomes part of the real property and loses its identity as separate tangible personal property. This occurs when the improvement or fixture is:

• Intended to be a permanent benefit to the real property given its current use,
• Causes substantial damage upon removal, and
• Incorporated into the real property.

*Incorporated into means an addition or alteration to real property that becomes part of, or is permanently affixed to, the property so that it is intended to become permanent or remain for an indefinite period of time and removal causes substantial damage.

Whether a building material or supply is incorporated into a building or structure depends upon a review of each situation.

Examples

• A residential customer has a kitchen island installed. If the kitchen island is placed in position, and not incorporated into the property (it can be easily moved around), it is tangible personal property. If the kitchen island is incorporated into the property, it is real property.
• A business has a walk-in cooler installed. If the walk-in cooler has raised floors that are designed for easy disassembly and removal, the walk-in cooler is tangible personal property. If the walk-in cooler has grouted-in tile or poured concrete floors, it is real property.