Study: MN’s Warehouse Tax Unique Among States
A new tax on public warehousing services in Minnesota, which many businesses have contested, is distinct from taxes in all other states.
That's according to a recent study that was commissioned by an advocacy group called International Warehouse Logistics Association and conducted by Minneapolis-based accounting firm KPMG, LLP, at the request of the Minnesota Warehouse Association (MWA).
Starting April 1, a 6.875 percent sales and use tax will be collected when a company in Minnesota buys warehouse or storage services for “tangible” property—“tangible” referring to goods that can be weighed and measured (the tax does not apply to digital storage services).
Several services are exempt from the tax, including services provided by a parent company or affiliated group; self-storage services that the purchaser can’t deduct as a business expense on its federal corporate or income tax return; and the warehousing and storage of agricultural products, electronic data, and refrigerated storage.
The results of KPMG’s study—which examined the taxability of general warehousing and storage services in each state—indicated that while Hawaii, New Mexico, South Dakota, and West Virginia tax warehousing and storage services, it is part of a broader tax on business services. Additionally, while Mississippi specifically taxes warehousing services, it provides an exemption for perishable goods and for goods to be shipped outside of the state. According to the study, while Minnesota’s tax contains some exemptions, those are not among them.
Minnesota’s new warehousing services sales tax, part of the state legislature’s sales tax base expansion, is meant to help offset the approximately $200 million cost of exempting local government purchases from a sales tax and businesses from a sales tax on capital equipment, according to the Star Tribune.
Meanwhile, warehousing and logistics providers that are against the tax say that it will put them at a competitive disadvantage with companies in neighboring states that do not have the tax.
MWA President Jonathan Lamb said his organization wants to see the warehousing services tax repealed when the legislature convenes in February.
“Minnesota is the only state in the nation to tax warehousing services in this targeted manner,” Lamb said in a statement. “Unfortunately, the Minnesota tax will definitely impact warehouse service providers and the key sectors they serve, including manufacturing, printing, medical, forestry products, and retail.”
Separately, the Tax Foundation, a Washington, D.C.-based organization that describes itself as a non-partisan tax research group, recently named Minnesota the fourth-worst state for business taxes. The organization cited recent tax changes, including an increase in the individual income tax rate, as contributing to the state’s low ranking. Although Minnesota ranked 47th overall, it ranked higher in certain categories, including 35th for its level of sales taxes and 33rd for its level of property taxes.