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Used by the purchaser

equipment and contracts with another party to use the

6. The principal must hold title to the equipment or be

equipment to produce the manufacturer’s product, the

the lessee of the equipment at all times, even at the

manufacturer can claim the refund if there is a written

end of the agreement between the principal and the

agreement between the principal purchaser or lessee and

second party.

a second party containing all the following elements:

7. The risks of ownership or leasehold for the capital

1. The agreement must state that the principal manufac-

equipment must remain with the principal at all times

turer will purchase and provide the second party with

rather than with the second party.

machinery and equipment necessary to fulfill the

Example. A snack manufacturer expands its product line

agreement.

and enters into an agreement with a second company to

produce a specific snack line. The snacks will be sold

2. The agreement must include provisions for payment

under the manufacturer’s label. Under the terms of the

to the second party for manufacture of the principal’s

agreement, the manufacturer purchased and installed all

product.

equipment necessary to produce the new snack line in

the second company’s plant. The second company re-

3. There must be no payment by the second party for use

ceives payment on a per-completed-case basis.

of the machinery or equipment.

The terms of the agreement require the equipment be

4. None of the capital equipment purchased or leased by

used only for production of the new snack product. Title

the principal is used by the second party for its own

remains at all times with the snack manufacturer. At the

use.

end of the agreement, the equipment will be returned to

the snack manufacturer. The equipment purchased by

5. The principal must purchase and pay for the capital

the snack manufacturer for the new snack line qualifies

equipment in its own name, and must include the

for the capital equipment refund.

equipment on its balance sheet as a depreciable asset.

Purchases by contractors

To qualify as capital equipment, the items must be used

that the owner is obligated to pay for the capital

by the purchaser or lessee in a qualifying activity. When

equipment purchased. The owner can authorize the

a contractor buys and installs equipment as part of an

agent to pay for the items directly as long as the

improvement to real property, the contractor is consid-

owner reimburses the agent for actual expenses.

ered the purchaser and no capital equipment refund is

4. The capital equipment purchased under the agency

generally allowed. However, a qualifying purchaser may

agreement must not be used by the agent for its

appoint a contractor or other person as an agent to buy

own use. If there is a separate lump sum contract that

capital equipment on its behalf.

requires the agent to turn over equipment to the

If all the following conditions are met, the owner may

owner, the equipment does not qualify.

file a claim to request a refund of the sales tax paid.

5. Title to all capital equipment purchased under the

1. There must be a written agreement establishing the

agency agreement passes directly to the owner at the

relationship and granting the agent the ability to bind

point of delivery.

the owner to pay for the purchases.

6. The risks of ownership of the capital equipment

2. The capital equipment must be purchased in the

purchased under the agency agreement are with the

name of the owner, not the agent.

owner.

3. All contracts or purchase orders entered into by the

agent must contain a statement that the purchases are

being made pursuant to an agency relationship and

Capital Equipment, Replacement Capital Equipment Sales Tax Fact Sheet 103 - Minnesota Department Of Revenue Page 7

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