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SALES AND USE TAX Low-Income Housing Construction April 13, 2010 Yes Department of Revenue Analysis of H.F. 2527 (Davnie) / S.F. 2229 (Moua) F.Y. 2010 General Fund Natural Resources and Arts Funds Total – All Funds No DOR Administrative Costs/Savings $0 $0 $0 Fund Impact F.Y. 2011 F.Y. 2012 (000’s) ($400) ($440) ($20) ($30) ($420) ($470) X F.Y. 2013 ($450) ($30) ($480) Effective for sales and purchases made after June 30, 2010. EXPLANATION OF THE BILL Current Law: A sales tax exemption applies to materials and supplies used or consumed in and equipment incorporated into the construction, improvement, or expansion of low-income housing projects. The owner of the project must be one of the types or entities listed in the statute. Proposed Law: The bill would extend the exemption to include a limited liability corporation which is a wholly-owned subsidiary of a qualifying nonprofit entity and to a limited partnership in which the sole or managing general partner is this type of limited liability corporation. Note: The analysis was conducted assuming that limited liability corporation refers to a limited liability company (LLC). Also, the language used in referring to LLCs generally refers to the LLC consisting of a sole member rather than as a wholly-owned subsidiary and the analysis was conducted under this assumption as well. REVENUE ANALYSIS DETAIL • • • • • Information was not available on the number entities or housing units that would be exempted under this bill. In the absence of specific information, the estimate assumes that 142 units would be affected. This number is equivalent to about 25% of the average number of units added each year. Based on information developed for the 2010 Tax Expenditure Budget, 40% of the units constructed are new construction and 60% are rehabilitation. The average sales tax per new housing unit was estimated at $3,500 at the 6.875% rate. The average sales tax per rehabilitated unit was estimated at $3,100 at the 6.875% rate. The GDP price deflator was used to estimate the sales tax growth of 1.3% in FY 2011, 1.5% in FY 2012, and 1.6% in FY 2013. Fiscal year 2011 was adjusted for an effective date of July 1, 2010 (11 months of impact). Source: Minnesota Department of Revenue Tax Research Division http://www.taxes.state.mn.us/taxes/legal_policy hf2527(sf2229)_1/lcb