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HF 5125

Data centers sales and use tax exemption repealed, and contingent reduction in special education aid appropriations repealed.

2025-2026 Regular Session Introduced by Kaela Berg and 6 co-sponsors

Minnesota repeals the data center sales tax exemption and requires very large capital investments (at least $250M over 60 months) to qualify for any future tax relief, effective Ju

Author added Pursell
#taxation-salesanduse #telecommunicationsandinformationtechnology
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Bill Summary · HF 5125

Summary of HF5125 (2025-2026) – Minnesota

HF5125 repeals the data center sales and use tax exemption, halts the contingent reduction in special education aid appropriations, and makes related changes to definitions and administration. The bill takes effect on July 1, 2026 for the key data center provisions and July 1, 2026 for the tax-related amendments, with the new data center thresholds applying in the 60-month period beginning after June 30, 2025.

Purpose and intent

  • Repeal the sales tax exemption for data centers (enterprise information technology equipment and software used in data centers).
  • Repeal the contingent reduction in special education aid appropriations that was tied to the Blue Ribbon Commission on Special Education recommendations.
  • Update definitions and criteria for what constitutes a “qualified” data center and related enterprise information technology equipment.
  • Reconcile statutes and repeal prior exemptions while preserving a framework for refunds where applicable.

Key provisions and changes

1) Data center exemption repeal and new definitions (Section 1–2)
- Replace the existing data center exemption criteria with new thresholds:
- Qualified large-scale data center definition now requires:
- One or more buildings connected by fiber, at least 25,000 total square feet, and
- Total construction/refurbishment costs plus investment in enterprise information technology equipment and computer software totaling at least $250,000,000 over a 60-month period beginning after June 30, 2025.
- New term: “Enterprise information technology equipment” includes computers and equipment supporting computing, networking, or data storage (servers, routers, cooling and power infrastructure, cable racks, etc.).
- Effective date for these updates: July 1, 2026.

2) Repeal of the 297A.68 data center exemption (Section 3–5)
- Repeals the former data center exemption (which allowed tax relief on purchases of enterprise IT equipment and software for data centers) and associated refund framework.
- Current exemptions under this section will be removed, with refunds for exempt items governed by new provisions in 297A.75 if applicable (see below).

3) Refund provisions for exempt items (amendments to 297A.75) (Section 3–5)
- Maintains a refund mechanism for taxes paid on exempt items, but with revised eligibility:
- Subdivision 2 (Refund; eligible persons) outlines who may apply for refunds and clarifies applicable roles (purchaser, governmental entity, owner, etc.), aligning with the updated exemption landscape.
- Applicants and eligible entities are defined to ensure proper administration of refunds for capital projects and related equipment once the exemption framework is repealed.

4) Repeal of prior data center provisions (Section 6)
- Repeals Laws 2025, First Special Session chapter 10, article 7, section 8, and Minnesota Statutes 2025 Supplement, section 297A.68, subdivision 42 (the prior data center exemption and certification framework).
- Effective date for repeals: July 1, 2026.

5) Contingent reduction in special education aid (Section 8)
- Direction to the Commissioner of Management and Budget to assume a $250,000,000 reduction in special education aid appropriations for the 2027–29 biennium and subsequent biennia, for planning purposes.
- Requires reporting on enacted Blue Ribbon Commission on Special Education recommendations and permits adjustments to the special education cross-subsidy aid factor if anticipated savings fall short of the $250 million target.
- The Education Department and Legislature must address any net savings and notify appropriate committees if reductions are needed.

Affected parties and implications

  • Data centers and developers:

    • Under the new thresholds, large-scale data centers would no longer receive the sales tax exemption, increasing upfront costs for construction, equipment, and software.
    • The definition of eligible data center projects now centers on substantial capital expenditure ($250M+ over 60 months) and a minimum footprint (25,000+ square feet).

  • Governments, taxpayers, and vendors:

    • Refund framework remains for certain exempt purchases; clear eligibility criteria and application process included.

  • Education funding and school districts:

    • The bill introduces a contingent mechanism to reduce special education aid if savings from Blue Ribbon-related provisions do not meet $250M, with required reporting to legislative committees.

Procedural and timeline notes

  • Effective dates:
    • July 1, 2026: New data center qualification criteria; repeal of prior exemptions; refund provisions take effect under revised statute.
  • Project timeline trigger:
    • The 60-month period for qualifying expenditures for a data center begins after June 30, 2025.
  • Legislative action history:
    • Introduced and referred to Energy Finance and Policy (as of 2026-05-07) with co-sponsor.

Bottom line

HF5125 shifts Minnesota away from broad data center tax exemptions toward a more limited, highly sizable-capital, construction-and-equipment-based qualification for large-scale data centers, effective mid-2026. It also introduces a planning-driven approach to potential reductions in special education funding tied to Blue Ribbon Commission recommendations, providing a mechanism to adjust aid if anticipated savings do not materialize.

Compiled from official sources — confirm details with the bill’s official record.

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