MN Warehousing Tax – Part 1

MN Warehousing Tax – Part 1

MN Warehousing Tax– Part 1 is the first of two reports we are planning to bring to our readers regarding the new warehouse tax on the books for MN businesses. If you are involved in third party warehousing as a part of your business, we are sure you have heard the MN Warehousing Tax is due to go into effect on April 1st. It is actually one of three business to business (B2B) taxes to go into effect in 2014. This specific warehousing tax would impact businesses which provide third party warehousing services, as well as those businesses who utilize these third party services.

According to the MN Department of Revenue, “Starting April 1, 2014, business-related warehousing and storage services will be taxable in Minnesota. This means state sales and use tax is due when a business buys warehouse or storage services for its tangible personal property.” There are exceptions to this rule, which are dependent upon business use[1].

Come April 1st, Minnesota would be one of few if not the only state with a warehousing tax of this kind, which could ultimately put the businesses in our state at a distinct disadvantage. Some companies are already feeling the impact of this tax. According to an article by Jessica Harper for Sun Thisweek Dakota County Tribune, in an interview with warehousing General Manager, Kathy Forester, in talking about the tax, she states, “With its customers seeking services elsewhere, Strategic lost 18 percent of its revenue between August 2013 and January 2014, which prompted the company to lay off 22 percent of its workforce[2].”

The Minnesota Legislature is scheduled to reconvene on February 25th. At that time, the Minnesota State Budget will be reviewed. If there is a sufficient surplus, Governor Dayton may consider a repeal of one or more of these B2B taxes[3]. As it stands now, however, these taxes have been signed into law and only a new bill that strikes the provision of the current tax could repeal it. There are many groups working right now, toward the effort to repeal the MN Warehousing Tax.[4]

Stay tuned to learn more in the weeks to come, or feel free to contact our team with concerns about the impact on your current commercial space.

Upcoming Dates:

  • Mid-February – State Budget Forecast (Gov. Dayton will use this information to determine if these new taxes are necessary)
  • February 25th – New Legislative Session Begins
  • April 1st – New Warehouse Tax goes into effect

[1] MN Department of Revenue Warehouse Tax Summary

http://www.revenue.state.mn.us/businesses/sut/Pages/2013_WarehouseStorageServices.aspx

[2] Businesses impacted by the MN Warehouse Tax

http://hometownsource.com/2014/01/27/businesses-legislators-feel-heat-from-new-taxes/

[3] Businesses vow to repeal the warehouse tax and Gov. Dayton to support repeal if sufficient surplus exists

http://www.mprnews.org/story/2014/01/08/businesses-vow-to-seek-repeal-of-warehouse-tax

[4] Commercial Real Estate Group works to repeal the tax

http://www.startribune.com/business/242830181.html

 

Warehouse Building Considerations: Midwest Review

Warehouse Building Considerations – What you should know before you buy, build or remodel

Warehouse building considerations have been a topic of discussion of late, as one of the building types APPRO/CERRON is frequently contacted about for real estate and construction projects happens to be warehouse projects. There have been some great deals on warehouses in the last few years, and a potential buyer is often posed with the dilemma of whether it makes the most sense to buy an existing building and spend the money to renovate it to his or her company’s individual needs, or design and build a warehouse custom built to those needs.

To build new, one potentially loses out capitalizing on the devaluation of existing buildings (the availability of which are quickly diminishing on the commercial market). To renovate, however, often means to compromise on some of the features of the building, and/or to invest money into a building whose components might not all last as long as those in a new building.

With APPRO pricing your projects, you can weigh the various pros and cons of either option to come up with a solution that best fits your needs before proceeding to hire us to assist you along whichever solution (buy, remodel, add or build) you choose.

Some of the other considerations that we’ve seen owners look at include more detailed considerations (or checklist), like the following:

  • What are the clear height dimensions and door size dimensions that will work best for you?
  • Are super-flat floors a requirement for forklift traffic, more typical of higher clear height warehouses?
  • Are steel fibers or a special floor coating required for wear?
  • Will high-speed racking be utilized?
  • What height will the product be stored to, and what will be stored in the warehouse, as this affects sprinkler coverage, and associated cost?
  • How susceptible will the walls be to damage from forklifts, which will affect whether the exterior walls are precast, metal or something else?
  • Will rail access be a consideration?
  • Will a loading dock be needed, as is typical, or just drive-in doors that close at pavement height?
  • If a loading dock is needed, will the design include locks to attach the truck to the dock while loading or unloading?
  • Is it important for the truck to be able to engage its dock and park, and then open truck doors (drive through docks); or is it OK to open truck doors before backing into its dock space?
  • Will there need to be a stop and go light system in place for trucks?
  • Will a canopy be needed above the overhead doors?
  • What kind of grade is acceptable driving in and out of the docks for trucks?
  • Will the warehouse need to be heated and/or cooled? Insulated?

There are more considerations, of course, than those above. But take a look at the list and consider which of these options are important to you when you make that all-important decision to buy or design/build.

Whether you are just starting the process or have been considering your building needs for a while, allow our team to assist you with any questions you may have about the construction (remodeling, additions or new building) process. We are here to help!

Trading Up: The Basics of a 1031 Tax Exchange

Trading Up: The Basics of a 1031 Tax Exchange

A Commercial Real Estate Topic Review of the purpose, rules & options in a 1031 Tax Deferred Exchange

1031 Exchange How to by CERRON Commercial PropertiesI’ll start by saying you should consult with your tax and financial advisors for information on whether a 1031 Exchange is right for you and your financial goals. I can help you find the new property and also help you sell the old property.

A 1031 Exchange can be a great tax benefit for someone that wants to stay invested in commercial real estate and would also like to trade up and improve their commercial investment. Maybe that office warehouse with the low ceilings and dated office finish has become increasingly expensive to keep up and to lease out. Maybe a newer, high clearance warehouse with a beautiful office space and state of the art cabling and communication capabilities is just what your renters are looking for. You’ve just hit on the perfect 1031 exchange scenario. Sell that old building and buy one that fits your goals without having to give Uncle Sam any of your hard earned commercial investment profit.

There are a few things you need to know about 1031 exchanges before you take my advice and call Cerron for your property solutions. So what is a 1031 Tax Exchange? In this article I’m talking about a 1031 (also called “like-kind exchange”) being used to swap one commercial property investment asset for another and not losing 15 to 20 percent to the government in tax liability. In other words, you can change the form of your investment (trade up) without cashing out and being liable for capital gains tax, the tax is deferred.

Sorry, you can’t use a 1031 exchange for personal use. If your spouse would like a bigger, nicer, more expensive house, that’s a personal problem and a 1031 isn’t going to work to solve it. It’s for commercial investment property. There are other rules that apply also. You need to identify your property that you’re selling for a 1031 exchange before you close on it. Then you must submit the replacement property to a qualified intermediary in writing within 45 days. The qualified intermediary will hold the money from the property you sold until you purchase the new property and will facilitate the transaction. You must also close on the new like-kind property within 6 months of the sale of the original property. The IRS gives like-kind property a surprisingly liberal meaning so it may be possible to sell a farm and buy a shopping center. To get the full benefit the new property should be of equal or greater value.

There’s a quick lesson in 1031 Exchanges. Any one of us at CERRON Properties would be glad to help you get more information and help you find the perfect property for your 1031 Exchange.

Thanks,

Dan Huntington

MN Warehouses Are Under Attack

“MN Warehouses Are Under Attack”, according to Jonathan Lamb, president of Lake Superior Warehousing Company, Duluth, “describes the new 6.875% service tax on Minnesota warehouses that, barring repeal, will take effect April 1, 2014.”

This legislation has the potential to have a significant impact on many industrial businesses AND service providers. “Our members are deeply concerned about the potential impact of this new business sales tax on their tenants who provide third party warehousing services, businesses which operate with slim margins and compete across state lines with similar service providers in nearby states with lower overhead costs, such as Wisconsin,” she said. As a result, “The Minnesota Warehouse Association is taking no chances. According to Hausladen, his members are moving ahead, drafting legislation to repeal the tax, which it plans to introduce at a “launch event” July 30 at the Radisson Hotel Roseville.”

Learn more about this activity in this morning’s MN Real Estate Journal published article, “11th HOUR ANTI-COMPETITIVE WAREHOUSING TAX: A BIG LOSER FOR OWNERS OF INDUSTRIAL PROPERTIES…AND FOR MINNESOTA?”, by Stephanie Wolf, NAIOP Minnesota.