Minnesota Updates Guidance on Exemptions for Utilities used in Production

Minnesota has updated a sales tax fact sheet that provides guidance regarding exemptions for utilities used in production to include information on utility refunds for landlords. The state exempts electricity, gas, steam and water used or consumed in agricultural or industrial production if it is necessary to produce a particular product and it is in excess of the average climate control or lighting for the production area.  Electricity used to operate a qualified data center is also exempt once the project is certified by DEED.  This updated guidance addresses situations where the utility bill is issued to a landlord rather than the qualifying entity.  Specifically, a landlord may file a claim for a utility exemption on behalf of a tenant if all of the following conditions are met:

• The tenant’s area is separately metered from other business or residential areas in the same facility.
• The terms of the lease or rental agreement require the tenant to reimburse the landlord for the cost of the utility in question and pay this amount in addition to the lease or rent payment.
• The tenant must use the utility in a qualifying manner and determine the exempt percentage.
• The landlord must pass through the entire utility cost to the tenant, without markup or reduction.
• The landlord must give the refund to the tenant.

(Sales Tax Fact Sheet 129, Minnesota Department of Revenue, August 11, 2020)