A provision in HF5125 repeals the sales tax exemption for data center construction—a change that could affect project costs and timelines for Minnesota builders.
Most construction and trades business owners in Minnesota don't realize that a significant tax exemption for data center projects is about to disappear—and they may need to adjust their bids and timelines accordingly.
On July 1, 2026, Minnesota will repeal the sales tax exemption that has allowed construction firms and equipment suppliers to purchase materials and enterprise IT equipment tax-free when building or refurbishing qualified data centers. This change is embedded in HF5125, a bill primarily focused on data center tax policy.
Under Minnesota Statute 297A.68, subdivision 42, construction materials and specialized equipment used in data center construction have been exempt from sales tax. This exemption applied to both new construction and renovation projects that met qualification standards.
HF5125 repeals this exemption effective July 1, 2026. The repeal is found in Section 3 of the bill, which strikes the relevant language from 297A.75, subdivision 1.
Starting that date, construction and trades businesses will owe sales tax on:
This change directly impacts:
If your company has been factoring the tax exemption into project estimates, you'll need to recalculate costs once the exemption ends.
If you have data center projects planned or in early stages, consider the timeline carefully. Projects that break ground and substantially complete material purchases before July 1, 2026, may still qualify for the exemption—though you should verify this with your accountant or tax advisor, as transition rules may apply.
For projects scheduled after the effective date, budget for the full sales tax on materials and equipment. This will increase project costs and may affect your competitive positioning, depending on how other bidders account for the change.
Review any long-term data center contracts or letters of intent you've signed. Some may include language about tax treatment that could need renegotiation if the exemption status changes mid-project.
HF5125's repeal of the data center construction sales tax exemption takes effect July 1, 2026. This is a real cost increase for trades and construction firms working on these projects. The time to understand the impact on your business is now—not after the law changes.
Source: HF5125, Section 3, Page 3; Minnesota Statute 297A.68, subdivision 42, and 297A.75, subdivision 1.