On Monday, Haberman Machine Controller Kim Arrigoni groaned as she faced the 10-inch stack of tax rebate forms, tax schedules and equipment receipts the state required just so her family-owned business could get back thousands in sales taxes Haberman Machine never really owed in the first place.
The stacks are now going away.
After a two-year delay, Minnesota’s much hated 1989 sales tax rebate program for capital equipment purchases ended last week. The change is a major coup for small businesses and the Minnesota Chamber of Commerce, which lobbied hard for legislators to rescind a law many considered an unnecessary hardship.
Under the law, Minnesota factories had to pay sales tax, file returns and wait months to get rebates on every piece of equipment bought or repaired. According to the Minnesota Department of Revenue, about 2,000 factories spend $4 billion each year on new equipment and repair parts and then shell out $270 million for a sales tax they eventually get back.
“When you are talking cash flow, that is a big number,” said Beth Strinden Kadoun, director of tax and fiscal policy for the Minnesota Chamber of Commerce, which has 2,300 members. About 80 percent are small companies affected by the change.
The change makes newly purchased capital equipment, parts and repairs tax-exempt.
“This is a huge win for our industry in Minnesota,” Arrigoni said. “It’s been a huge pain for businesses because of the cost and the time involved. … It took reams of documents” to get the state to issue each tax rebate.
Gov. Mark Dayton believes the change is “making it easier for business owners,” said spokesman Matt Swenson.
Katie Clark Sieben, commissioner of the Minnesota Department of Employment and Economic Development [DEED], said the “unnecessary burden” is now removed. The upfront tax exemption “will save Minnesota businesses both time and money as they plan for future growth. … Having access to capital can often be the largest hurdle to development.”
In January, Mike Yeager, owner of the medical and auto parts manufacturer Yeager Machine, paid $10,000 in sales tax on a $150,000 machine he bought for his Norwood Young America factory. He had to hire an accountant who charged $1,000 to $2,000 per filing to get the rebate on sales tax charges like this. Then he had to wait three to six months to get the rebate check.
A second new machine arrives next month at his company. His tax bill this time around? Nada.
“I am so happy,” Yeager said. “I had to buy this machine. But it doesn’t arrive until August, so my accountants have assured me that I won’t have to pay sales taxes on it since it doesn’t get installed until after July 1. I love it.”
And the money saved? He’ll put it toward hiring a 26th employee or buying more equipment.
Arrigoni said Haberman Machine also will “reinvest that tax money in our infrastructure.”
The company in September plans to spend $500,000 to $1 million replacing outdated machines that fabricate parts for manufacturers of medical devices to escalators. Under the old law, the company would have paid $35,625 to $71,250 in state and county taxes, causing more consideration on the number of machines to buy.
Such company reinvestments are a “great result” of this tax change, said Minnesota Revenue Commissioner Cynthia Bauerly. Her department followed all the legislative hearings that dealt with the disliked tax policy.
“People have been waiting a long time for this one,” Bauerly said. “We are really excited for businesses who are seeing this change. Now they won’t have to go through the paperwork to get their exemption.”
As of Wednesday, businesses can simply give their equipment supplier an ST-3 certificate of exemption form, she said. “You have to indicate that [the purchase] is for capital equipment and everybody is good to go.”