In 2025, Minnesota counties, cities, and school districts requested over $200 million in sales tax refunds for construction materials, a level far beyond available resources.
While limited exemptions exist when public entities directly purchase and take title to materials, most local governments rely on contractors to make those purchases. That means the majority of public projects don’t qualify for the exemption as written, forcing cities, counties, and schools to pursue post-sale refunds, which require legislative approval and are vulnerable to budget constraints.
What’s the Issue?
Under Minn. Stat. § 297A.70, subd. 2, sales tax is exempt only when materials are purchased and titled directly to a government entity. But in practice, contractors purchase most materials—leaving many public projects subject to tax unless governments pursue complex direct-purchase contracts or legislative refund requests.
Lawmakers Try to Address the Issue
Two bipartisan bills introduced in 2025 were aimed at fixing this issue:
HF 618 – Rep. Chris Swedzinski (R);
HF 1248 – Rep. Matt Norris (DFL); Reps. Greg Davids (R), Wayne Johnson (R), Nathan Coulter (DFL);
The two bills mentioned above were introduced but did not progress through the hearing process. This is something that could spark some interest during the 2026 legislative session.
Another Model: Wisconsin’s Approach
Wisconsin’s 2017 Act 402 (Wis. Stat. § 77.54(9m)) uses a different structure. Contractors present Form S‑211 at purchase, which allows them to have the tax exemption applied up front instead of submitting refund applications or the need for special contracts. Lawmakers passed these measures because they say it increases consistency and ease.
Lawmakers in Wisconsin set up a program that contained guardrails including a certificate-based audit trail and an ability to ensure that the use of the program is limited to government owned projects. Record keeping requirements of five years are in place to allow for ease of audits or locating past sales. This method would allow Minnesota greater oversight through permits and inspections and would make contractors liable for misuse.
Why It Matters
Local governments face budgeting delays and uncertainty with the current system, as they are spending time and resources trying to recoup the money, or not getting it back at all. Contractors are also trying to navigate inconsistent treatment across states, which can be a roadblock as well.
Policy leaders must weigh whether to simplify the exemption process at the state level or continue refund-based models that delay local projects. Both options carry costs for government and ultimately for taxpayers.
Looking Ahead to 2026
As tax policy discussions continue, a more transparent and predictable exemption or refund process remains a shared priority across sectors. This model may offer discussion points as Minnesota weighs its options. If your county, city, or company is navigating this issue – or wants to engage the conversation – Larkin Hoffman Public Affairs can be a resource.
