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No more 'crazy' red tape: MN small businesses get sales tax exemption

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Minnesota businesses are cheering a change in state tax laws that will make it much easier for them to claim a sales tax break when they buy new equipment.

The law, called the Up-Front Capital Equipment Exemption, went into effect on July 1.

It replaces a two-decade old law that required businesses to pay sales tax upfront on those purchases, then file paperwork with the state to get a rebate check sent back to them months later.

Now, businesses can claim the sales tax exemption when they make their purchase, after filling out a one-time form with the state Department of Revenue. The idea is to streamline the process and make it easier for businesses to take advantage of the exemption.

Business owners told the White Bear Press the paperwork under the old rebate system was so complicated they often had to hire accountants to fill out the forms, or they decided not to apply for the rebates at all.

Another business person told the Star Tribune that "reams of documents" were required to apply for the tax rebate.

The bill's sponsor, Sen. Chuck Wiger, DFL-Maplewood, told the Press it's a significant issue for small businesses.

"The red tape was crazy," Wiger said. "We knew we had to change it for both job growth and fairness. This was not fair."

The law was passed in 2013, but didn't go into effect until July 1 of this year so the state could prepare for any lost revenue that would result from the change, according to the Press.

A case in point

The Star Tribune talked to a business owner who illustrates how this change will make the process easier.

His parts manufacturing company bought a $150,000 machine in January and had to pay $10,000 in sales tax at the time of purchase.

In order to get that amount back in a rebate, he hired an accountant who charges more than $1,000 to do the paperwork for him. And then he had to wait several months for the rebate check to arrive.

He's buying another new machine that arrives later this month, according to the Star Tribune And because of the law change he can claim the sales tax break right up front. That means no tax owed, no paperwork to be done, and no waiting months for a check from the state.

What's better is that businesses like his will often reinvest those tax savings into their operation or perhaps hire more employees.

The Minnesota Department of Revenue says the sales tax exemption saves Minnesota businesses about $360 million a year, according to the White Bear Press.

Companies need to apply for the exemption by filling out a form with the Revenue Department, and then show that form to the vendors when they make a purchase.

The form, and a fact sheet that explains what purchases are eligible for the exemption, is available on the department's website.

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