General Contractors and Subcontractors (applies to all contractor types)

You must pay sales and use tax on the cost of all materials, supplies, and equipment used to complete a construction contract. These items are taxable at the time of purchase. If the supplier does not charge Minnesota Sales Tax, you owe use tax on the purchase price. See Taxable Purchases and Use Tax.

You’re improving real property when you:

• repair, replace, or incorporate items such as furnaces, garbage disposals, built-in dishwashers and stovetops, water heaters, and central air conditioners
• work on plumbing or electrical wiring

Invoicing Real Property Repairs

When invoicing improvements to real property:

• Pass the sales or use tax paid as part of the materials cost.
• Do not itemize sales tax separately on the invoice.
• Do not charge sales tax on construction contracts.

Bleachers and lockers, regardless of how they are incorporated, are tangible items. You must charge sales tax on the item and the labor to install the item.

For more information, see:

• Revenue Notice 18-04, Improvements to Real Property
• Labor – Installation, Fabrication, Construction, and Repair

Machinery and equipment that qualifies for a business exemption under Minnesota Statutes 297A.68 are tangible items. They are not considered real property.

You must charge sales tax on the following unless the customer provides a completed Form ST3, Certificate of Exemption:

• machinery and equipment
• labor charges to install and setup the machinery and equipment
• any other charges necessary to complete the sale, including delivery charges

The customer is responsible for identifying the machinery and equipment that qualifies for a business exemption. If your customer provides you with a completed Form ST3, you may purchase those items exempt for resale. Previously, you had to enter into a purchasing agent agreement to purchase these items exempt for resale.

Appliances that are not built-in and are free-standing are tangible personal property and are taxable. These types of appliances are set in place in an opening in between cupboards.

Examples include:

• microwave
• refrigerators
• washing machines

Built-In Appliances

Built-in appliances, such as dishwashers, that are designed to go under the counter are real property and are not taxable.

The sale of building materials, supplies, equipment, or other tangible items that are not incorporated into real property are taxable retail sales. 

If you make a taxable retail sale, you must charge sales tax on the total sales price, including any installation or delivery charges. 

If you purchase items to resell, give your vendor a completed Form ST3, Certificate of Exemption. Specify the Resale exemption.

If you rent your equipment to someone without an operator, the rental charge is taxable.

If you sell equipment or other items used in your business, those sales may be taxable. For more information, see Isolated and Occasional Sales.

Leased items are not real property because they are not intended to be permanent.

When is a lease not a lease?

A transaction is not a lease when the security agreement or deferred payment plan contracts require the transfer of title upon completion of the required payments.

A transaction is also not a lease when the contract requires transfer of title after completion of required payments and an option price payment. The option price must not exceed the greater of $100 or one percent of the total required payments.

In these situations, you will need to determine whether the items are real property.

Utilities supplied for residential heating during construction of a residence are not taxable for the months of November, December, January, February, March and April.

The lease or rental of portable toilets with related maintenance, waste removal, and cleaning services is subject to sales tax. The entire contract price, even if the lease or rental price is separately stated from the services, are taxable. The related maintenance, waste removal, and cleaning services are taxable because they are necessary to complete the sale of the lease or rental of the portable toilet.

For more information, see Revenue Notice 18-05, Lease or Rental of Tangible Personal Property – Portable Toilets.

If you improperly charge sales tax on items that become real property, and the customer files a request for refund, we may assess you sales or use tax on the cost of materials used in the construction contract.