A provision buried in HF5125 eliminates a sales tax exemption that affects IT vendors, equipment suppliers, and other trades serving Minnesota's data center industry.
Most construction and trades business owners in Minnesota don't realize that a significant sales tax exemption affecting the data center industry is about to disappear—and it could change how they price and plan projects starting in 2026.
Here's what's happening: Minnesota currently exempts sales and use taxes on enterprise information technology equipment and computer software purchased for use in qualified data centers, qualified refurbished data centers, and qualified large-scale data centers. HF5125 repeals that exemption, effective July 1, 2026.
If your business sells equipment to, supplies materials for, or provides services to data center operators or their tenants, this matters. That includes IT vendors, equipment suppliers, mechanical contractors, electrical contractors, and co-location service providers who work within or for data center facilities.
Right now, when these customers buy qualifying equipment and software for their data center operations, they don't pay Minnesota sales tax. Starting July 1, 2026, they will. That changes the cost structure of their projects—and potentially your pricing conversations with them.
The exemption disappears entirely. Any enterprise IT equipment or computer software purchased for use in a qualified data center will be subject to Minnesota's standard sales and use tax rate. This applies to all three categories of facilities covered by the current exemption: qualified data centers, qualified refurbished data centers, and qualified large-scale data centers.
For businesses that supply or install this equipment, the practical effect is straightforward: your customers' costs will increase by whatever Minnesota's applicable sales tax rate is in their jurisdiction. For customers, it means budgeting for tax on equipment they currently buy tax-free.
If you have data center clients or prospects, July 1, 2026 is a real deadline. Some customers may accelerate purchases before the exemption ends to avoid the tax. Others may adjust project timelines or budgets once they understand the new cost. Either way, it's worth understanding this change now rather than discovering it mid-project.
The provision is found in Section 6(b) on Page 4 of HF5125. The effective date is July 1, 2026, giving businesses roughly 18 months to plan.
If you work in trades or construction serving Minnesota's data center sector, understanding this exemption and its repeal is straightforward business intelligence. It doesn't require action today, but it's the kind of change worth flagging to your sales team and your customers who operate or lease space in data centers.
Source: HF5125, Section 6(b), Page 4; effective July 1, 2026.