The State of Minnesota enacted changes to sales tax law that became effective July 2013, which included a requirement for service providers to collect sales tax on repair labor performed for businesses. Imposing sales tax on repair labor raised many questions from our clients these past six months and resulted in many of our clients collecting sales tax on Repair and Maintenance work performed for their customers. However, the state has reversed course on implementation and updated their fact sheets.
What Changed in the law that became effective in July 2013? – The most common sales tax questions that I received this past year related to repair labor for various types of property affixed to real property. More specifically, businesses asked whether they needed to collect sales tax when repairing equipment such as HVAC units. Equipment such as HVAC’s are personal property that transform to become fixtures of real property upon installation. The state initially informed taxpayers that repair labor on the electronic and precision components within fixtures of real property would be subject to sales tax (i.e. businesses would need to separately track and collect tax on labor to repair electronic components within the HVAC but not collect tax on labor to repair mechanical components of the HVAC).
NEW Revised Treatment – The state has reversed course recently. Retroactive to July 1, 2013, labor to repair fixtures of real property will no longer require allocation of labor for electronic and precision components. All labor to repair fixtures of real property will be considered construction labor, which is not subject to sales tax.
Which clients are affected? – Primarily contractors that perform repair and maintenance to building systems.