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Commission reviews heating-fuel and utility-service sales-tax exemptions estimated at $250M a year
Summary
The commission heard an LBO presentation that residential heating-fuel and utility-service sales-tax exemptions reduce regressivity and cost an estimated $250 million annually; members flagged data gaps caused by upfront exemptions that leave the Department with modeled — not claim-based — estimates.
Legislative Budget Office staff presented the commission with an overview of sales-and-use exemptions for residential heating fuels and utility services on Aug. 16, 2024, and said the exemptions are intended to reduce the sales-tax burden on lower-income households.
Joel Enders told commissioners the exemptions cover fuel oil, coal, wood, steam, hot water, propane, liquefied petroleum gas and natural gas used as a primary residential heat source (with electricity exempt November through April for primary‑heat customers). The exemptions also extend to residential water and sewer services. LBO’s estimate is that the combined effect reduces sales-tax revenue by roughly $250 million annually.
Members emphasized the policy importance of the exemption. One member noted that while water is a small line on many utility bills, it is a basic necessity and the exemptions are long-standing (enacted in 1978). Members also raised the distributional question of whether the exemption equally benefits renters and owners when utilities may be paid through shared meters in multifamily buildings.
Commissioners and Department of Revenue staff discussed the limits of administrative data for upfront exemptions. Enders and Department staff explained that because many sales-tax exemptions are applied at the point of sale, the Department often must rely on indirect measures (federal consumption estimates scaled to Minnesota) rather than direct refund-claim data to estimate fiscal impact.
The commission adopted LBO’s purpose statements and directed the LBO to proceed with evaluations.
