Mining Tax Guide - Minnesota State Legislature

The general Minnesota sales and use tax is a broad-based tax on
consumer expenditures. The tax is imposed on the sale of tangible
personal property or services to the final consumer. A number of
exemptions reduce the size of the actual sales and use tax base. In
addition, different tax rates apply to several products. The current
sales tax rate is 6.875 percent.
Sales and use taxes are essentially identical taxation of tangible
personal property. Sales tax is assessed by the seller at the time
of the sale. Use tax is paid by the purchaser or user when no sales
tax is paid at the time of the sale.
Industrial Production Exemption
The industrial production exemption, M.S. 297A.68, subd. 2,
allows industry to exempt items from sales and use tax that
are used or consumed in the production of personal property
intended to be sold ultimately at retail, whether or not the item
used becomes an ingredient or constituent part of the property
produced. Items included in the exemption are chemicals, fuels,
petroleum products, lubricants, packaging materials, electricity,
gas, and steam. Explosives, a major item for the mining industry,
are exempt under the chemical classification. Sales Tax Fact Sheet
147, Taconite and Iron Mining, is available on the department’s
website.
The 1971 Minnesota legislature approved the production materials
exemption (M.S. 297A.68, Subd. 4) exclusively for the taconite
mining industry. This statute allows an exemption from sales
tax on grinding rods, grinding balls, and mill liners that are
substantially consumed in the production of taconite. During
the process, this material is added to, and becomes a part of, the
product processed. For the purpose of the exemption, the term
mill includes all facilities used to reduce and process ore.
In 1974, the Minnesota legislature amended the industrial
production exemption (M.S. 297A.68, subd. 2) to cover
accessory tools. The accessory tool exemption is available to all
manufacturing-type businesses. The legislature, in defining what
qualifies as an accessory tool, set three standards that must be
met: 1) an item must be separate and detachable; 2) it must have
a direct effect on the product; and 3) it must have a useful life of
fewer than twelve months. In mining, shovel dipper teeth, shovel
bucket lip and lower wing shrouds, cat and grader blade cutting
edges, drill bits and reamers qualify for this exemption.
The 1994 legislature expanded the law to exempt materials,
including chemicals, fuels and electricity purchased by persons
engaged in industrial production to treat production process
waste.
Sales and Use Tax
Taconite and Iron Ore
(M.S. 297A)
42
All sales and use tax information must be filed electronically at the
department’s website at www.revenue.state.mn.us or by phone
at 1-800-570-3329.
Capital Equipment Refund
If you buy or lease qualifying capital equipment or replacement
capital equipment for use in Minnesota, you are eligible for a
refund of all, or a part of, the Minnesota and any local sales or
use tax paid.
Capital equipment means machinery and equipment used by
the purchaser or lessee primarily for manufacturing, fabricating,
mining, or refining a product to be sold ultimately at retail. Both
purchasers and lessees of capital equipment are eligible for a full
refund of the sales or use tax.
Replacement capital equipment means machinery and equipment
to replace qualifying capital equipment; repair and replacement
parts, accessories and upgrades to qualifying equipment;
foundations for qualifying equipment; and special purpose
buildings. Beginning July 1, 1998, purchases or leases of
replacement capital equipment are eligible for a full refund of the
sales and use tax paid.
You must pay sales tax when you buy or lease capital or
replacement capital equipment. If the seller does not charge sales
tax, you must report and pay use tax on the equipment. To get a
refund of sales or use tax paid, you must file a capital equipment
refund claim, Form ST-11. You may file no more than two capital
equipment refund claims in a calendar year.
A claim must be filed within three and one-half years from the
due date of the return, or within one year of the date of an order
assessing liability (if the liability has been paid in full), whichever
is longer.
Capital equipment is not the same as capitalized assets. Items
capitalized for accounting purposes do not automatically qualify
as capital equipment. Items that you expense for accounting
purposes, such as leased equipment, may be considered capital
equipment for refund purposes.
Capital equipment does not include:
• Agriculture, aquaculture, and logging equipment; or
• Motor vehicles taxed under Minnesota Statutes, section
297B (vehicles for road use).