Ringtones, digital books, more soon taxed in Minnesota
By Brian Bakst
ST. PAUL, Minn. (AP) — Need that new Justin Bieber ringtone? Come July 1, buying it will carry a Minnesota sales tax. Hiring a repairman for the office photocopier? That labor will be taxed. Catching a pay-per-view movie on satellite television? There's a tax on that, too.
The Minnesota Department of Revenue published guidance Thursday on an array of sales tax changes the Legislature adopted last month. Most take effect on July 1.
The expansion of the sales tax is a small piece of a $2.1 billion plan to raise more state revenue to plug a budget hole while ramping up spending on education and other priority programs. The new sales tax money will help cover the cost of making purchases by local governments tax-free, a savings to them exceeding $100 million per year.
The new taxes are narrower than those proposed earlier by Gov. Mark Dayton, who abandoned a major sales tax overhaul amid stiff resistance.
Many of the new sales taxes fall on business-to-business transactions. That includes equipment repair for computers and industrial machinery, with some exceptions.
The labor costs for fixing computer terminals, video records and microscopes will be taxed, for instance. But labor fees tied to such things as fixing aircraft, company vehicles and office furniture will remain exempt, according to the tax collection agency. Prewritten computer software will be considered taxable, but custom programs will not.
Some consumers will pay more. Digital downloads — from books to e-greeting cards to movies and songs — will be subject to the 6.875 percent sales tax.
But there are caveats there as well. Digital literary works are about to be taxed. But online newspapers, magazines and other news products that require purchase will not be. School textbooks of any form remain free of sales taxes.
Myron Frans, the state's tax commissioner, said the changes update Minnesota's tax code for the Internet shopping age.
"If you go to a bookstore and buy a book right now it's subject to sales tax in Minnesota, but if you download that same book electronically from wherever it is not taxable," Frans said. "This will change those so the same item whether it's a tangible item in the store or in electronic form, it is all taxable."
Ringtones, those customized sounds that people can buy to alert them of phone calls or text messages, had previously been taxed in Minnesota but were made exempt in October 2011. That exemption goes away July 1.
The revenue expected from the digital download portion is less than $5 million in each of the first few years it is in place, according to a legislative fiscal analysis.
Minnesota previously taxed cable television and direct satellite services. But the law changes altered the definition to specifically include programming services like digital video recorders and music services delivered by satellite providers. Home security features delivered through such transmissions are included.
The Revenue Department didn't release clarifying details on tax changes not slated to kick in until 2014, including a controversial sales tax on business warehousing.
Copyright 2013 The Associated Press.