04-10-2019 Council Packet - Laserfiche WebLink

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RELEVANT LINKS: League of Minnesota Cities Handbook for Minnesota Cities 10/15/2018 Expenditures, Purchasing, and Contracts Chapter 22 | Page 42 Minnesota Department of Revenue Notice #17-10, December 4, 2017. The sales tax exemption is only available if a city or its contractor purchases construction materials to be used in constructing buildings or facilities used principally by the city. The tax exemption does not apply to sales of materials if purchased by a contractor or subcontractor for building, construction, or reconstruction if part of a lump-sum contract, or similar type of contract, with a guaranteed maximum price covering both labor and materials. Therefore, a combined labor and materials guaranteed maximum contract (or similar type of contract) will not benefit from the sales tax exemption. For information on competitive bidding generally see LMC information memo, Competitive Bidding Requirements in Cities. The alternative to lump-sum contracts is to solicit bids on two separate contracts—one for materials and one for labor—and to designate a contractor as the city’s purchasing agent. If done properly, the city will not have to pay sales or use tax on the materials for the contracted project. A. Soliciting bids on two contracts Minnesota Department of Revenue Notice #17-10, December 4, 2017. When soliciting two separate contracts to obtain the sales tax exemption, a city must: • Initially advertise for separate bids for materials and labor. • Reserve the right to accept only one bid without accepting both bids from any one contractor. • Award separate contracts for materials and labor. The Department of Revenue extends this separation of labor and materials requirement to contracts with subcontractors as well. B. Purchasing agent agreements Minnesota Department of Revenue Factsheet #111 – Schools: Sales and Purchases. Minnesota Department of Revenue Factsheet #128 – Contractors. To receive the tax exemption, a city must also formally authorize the contractor providing the materials as its purchasing agent. Minnesota schools and towns and their contractors benefited from the sales tax exemption before Minnesota cities. The Department of Revenue has published fact sheets for those entities that can be used to guide cities when designating a purchasing agent. Minnesota Department of Revenue Factsheet #142 – Sales to Governments. LMC Model Purchasing Agent Agreement. Using a proper form for designating a purchasing agent agreement is important because using an improper form could deprive a city of its intended sales tax exemption. The purchasing agent agreements have many requirements, which are described below. 1. Agreements for contractors The purchasing agent agreement between the city and the city’s materials contractor must specify that: