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Minnesota Storage Tax Has Problems

author photo of Annette Nellen

A recently issued fact sheet from the Minnesota Department of Revenue reminded me of challenges of our sales tax system that can be avoided.

Fact Sheet 178 on Storage and Warehousing Services reminds businesses that starting April 1, 2014, sales tax is imposed on "business related storage and warehousing services." It also applies to "logistics services" provided by the storage facility. The tax only applies to the storage of tangible items, not digital ones.  There is an exception, which highlights the challenge with our typical sales tax structure. Here is the statement from the fact sheet:

"No tax is due when a company stores its inventory in its own warehouse, separate from its production facility.
Reminder: Warehousing or storage is not a taxable service when it is provided by a parent company or affiliate group, or on an isolated or occasional basis."

So, build or acquire your own storage facility and avoid the tax. That is, vertically integrate.  If you are unable to afford that, you pay the sales tax on the storage of your items in a third party's warehouse. Clearly a competitive disadvantage.

Two ways to avoid this.

  1. Do not impose sales tax on goods or services purchased by businesses. Just have the final consumer pay sales tax.
  2. Use a credit invoice VAT. Every time goods or services are purchased, VAT is paid. If the buyer is a business, they get that VAT paid refunded when they complete their VAT return (they credit it against the VAT they collected).

The storage tax will be harsh on smaller businesses that are unlikely to have their own storage facilities. It also imposes a competitive disadvantage for companies without their own storage capabilities.

Fact Sheet 178 goes on to explain that not all storage services are taxable. It depends on what you store. For example, if coal, lumber or liquor is stored, the tax is owed. If it is agricultural products or refrigerated storage, no tax is owed. The fact sheet then goes on for 3 more pages to define these terms (I'm sure the statute they are summarizing is longer). So, that is another problem with this new tax - it does not apply to all off-site storage by businesses. Thus, definitions have to be provided of what is taxable and what is not. Please skim the fact sheet to get a sense of the complexity involved.

I'm surprised to see this new tax in Minnesota. It is not moving the state forward with a logical, business-friendly tax system. The new tax violates principles of equity, simplicity, transparency and economic growth.

What do you think?

Other recent “Sales Tax Policy - Tales & Trends” posts by Annette Nellen, CPA, ESQ:

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4 Responses to Minnesota Storage Tax Has Problems

  • Posted by Author photo of Annette NellenAnnette Nellen on April 2, 2014 1:34am:

    Gwen - thanks for the update. The repeal was one of several tax changes in HF 1777 signed into law on 3/21/14 -

  • Posted by Gwen on April 2, 2014 12:25am:

    FYI: This has been repealed.

  • Posted by Author photo of Annette NellenAnnette Nellen on January 26, 2014 4:26am:

    Thanks for the comment. Yes, many states do the same as Minnesota. The Federation of Tax Administrators has been tracking state taxation of services. Their last report is dated 2007 and indicates 19 states taxing automotive storage and 10 food storage, but that sounds like consumer use - which is fine. My concern is with taxing storage fees of businesses which causes pyramiding. The FTA info is at
    For tax policy reasons, I think it is better for states to expand their sales tax by picking up untaxed consumer consumption such as personal services and non-business storage and digital downloads of music and other media (by non-businesses).
    Annette Nellen

  • Posted by Bob on January 26, 2014 12:32am:

    With all due respect, MN is far from the only State that either is/will be taxing storage rent.. As a VERY small business owner in NJ with 2 10x30 units, I pay sales tax on my rents & I understand that this has been on NJ regs for quite some time.
    I am sorry, but if MN stood out as the ONLY state, or 1 of a very FEW states that tax storage, I would agree that this is an area of concern. However, understanding that taxability of storage fees could be a toss-up from state-to-state makes MS's action far less "lusterous".

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