Minnesota sales tax guide

Sales tax is a tax paid to a governing body (state or local) on the sale of certain goods and services. Minnesota first adopted a general state sales tax in 1967, and since that time, the rate has risen to 6.875 percent. On top of the state sales tax, there may be one or more local sales taxes, as well as one or more special district taxes, each of which can range between 0 percent and 1.5 percent. Currently, combined sales tax rates in Minnesota range from 6.875 percent to 8.375 percent, depending on the location of the sale.

As a business owner selling taxable goods or services, you act as an agent of the state of Minnesota by collecting tax from purchasers and passing it along to the appropriate tax authority. Sales and use tax in Minnesota is administered by the Minnesota Department of Revenue (DOR).

Any sales tax collected from customers belongs to the state of Minnesota, not you. It’s your responsibility to manage the taxes you collect to remain in compliance with state and local laws. Failure to do so can lead to penalties and interest charges.

In Minnesota, sales tax is levied on the sale of tangible goods and some services. The tax is collected by the seller and remitted to state tax authorities. The seller acts as a de facto collector.

To help you determine whether you need to collect sales tax in Minnesota, start by answering these three questions:

1. Do you have nexus in Minnesota?
2. Are you selling taxable goods or services to Minnesota residents?
3. Are your buyers required to pay sales tax?

If the answer to all three questions is yes, you’re required to register with the state tax authority, collect the correct amount of sales tax per sale, file returns, and remit to the state.

If you meet the criteria for collecting sales tax and choose not to, you’ll be held responsible for the tax due, plus applicable penalties and interest.

It’s extremely important to set up tax collection at the point of sale — it’s near impossible to collect sales tax from customers after a transaction is complete.

The need to collect sales tax in Minnesota is predicated on having a significant connection with the state. This is a concept known as nexus. Nexus is a Latin word that means "to bind or tie," and it’s the deciding factor for whether the state has the legal authority to require your business to collect, file, and remit sales tax.

Sales tax nexus in all states used to be limited to physical presence: A state could require a business to register and collect and remit sales tax only if it had a physical presence in the state, such as employees or an office, retail store, or warehouse.

In June 2018, the Supreme Court of the United States overruled the physical presence rule with its decision in South Dakota v. Wayfair, Inc. States are now free to tax businesses based on their economic and virtual connections to the state, or economic nexus.

While physical presence still triggers a sales tax collection obligation in Minnesota, it’s now possible for out-of-state sellers to have sales tax nexus with Minnesota.

Out-of-state sellers with no physical presence in a state may establish sales tax nexus in the following ways:

Affiliate nexus: Having ties to businesses or affiliates in Minnesota. This includes, but isn’t limited to, the design and development of tangible personal property (goods) sold by the remote retailer, or solicitation of sales of goods on behalf of the retailer.

Click-through nexus:
Having an agreement to reward a person(s) in the state for directly or indirectly referring potential purchasers of goods through an internet link, website, or otherwise, and:

• Cumulative gross receipts from sales of such referrals in Minnesota exceed $10,000 during the preceding four quarters

Economic nexus: Having a certain amount of economic activity in the state. For sales made on and after October 1, 2018, a remote seller must register with the state then collect and remit Minnesota sales tax if the remote seller meets either of the following criteria (the economic thresholds):

• 100 or more retail sales shipped to Minnesota; or
• 10 or more retail sales totalling more than $100,000 shipped to the state in the span of 12 consecutive months

Inventory in the state: Storing property for sale in the state. This includes merchandise owned by Fulfillment by Amazon (FBA) merchants and stored in Minnesota in a warehouse owned or operated by Amazon.

Marketplace sales: Making sales through a marketplace. Effective October 1, 2018, marketplace facilitators are responsible for collecting and remitting sales tax on behalf of marketplace sellers in Minnesota unless:

• The marketplace seller has taxable retail sales through the marketplace of less than $10,000 in a 12-month period;
• The marketplace seller elects to register and collect Minnesota sales tax directly; or
• The marketplace does not maintain a place of business in Minnesota.

Trade shows: Attending conventions or trade shows in Minnesota. You may be liable for collecting and remitting Minnesota use tax on orders taken or sales made during Minnesota conventions or trade shows. Out-of-state businesses must collect and remit Minnesota sales or use tax on all taxable sales made while in the state.

An out-of-state business establishes nexus when it conducts business activity in Minnesota on at least four days during a 12-month period.

If you have sales tax nexus in Minnesota, you’re required to register with the Minnesota DOR and to charge, collect, and remit the appropriate tax to the state.

For more information, see M.S. 297A.66 and Revenue Notice 00-10.

Sales tax nexus can linger even after a retailer ceases the activities that caused it to be “engaged in business” in the state. This is known as trailing nexus. In Minnesota, if you do business for four days within a 12-month period, you trigger nexus. According to state law, you’re then obligated to collect and remit sales tax starting on the fourth day, and continuing for the following 11 months.

If you’re an active Amazon seller and you use Fulfillment by Amazon (FBA), you need to know where your inventory is stored and if its presence in a state will trigger nexus. FBA sellers can also download an Inventory Event Detail Report from Amazon Seller Central to identify inventory stored in Minnesota.

If you sell taxable goods to Minnesota residents and have inventory stored in the state, you likely have nexus and an obligation to collect and remit tax. To begin to understand your unique nexus obligations, check out our free economic nexus tool or consult with a trusted tax advisor.

In some states, sales tax rates, rules, and regulations are based on the location of the seller and the origin of the sale (origin-based sourcing). In others, sales tax is based on the location of the buyer and the destination of the sale (destination-based sourcing).

Minnesota is a destination-based state. This means you’re responsible for applying the sales tax rate determined by the ship-to address on all taxable sales.

After determining you have sales tax nexus in Minnesota, you need to register with the proper state authority and collect, file, and remit sales tax to the state. We get a lot of questions about this and recognize it may be the most difficult hurdle for businesses to overcome. Avalara Licensing can help you obtain your Minnesota business license and sales tax registration.

You can register for a Minnesota sales tax permit online through the Minnesota DOR. To apply, you’ll need to provide the Minnesota DOR with certain information about your business, including but not limited to:

• Business name, address, and contact information
• Federal EIN number
• Date business activities began or will begin
• Projected monthly sales
• Projected monthly taxable sales
• Products to be sold

There is currently no cost to register for a sales tax permit in Minnesota.

You must register with the Minnesota Department of Revenue if you acquire an existing business in Minnesota. The state requires all registered businesses to have the current business owner’s name and contact information on file.

The Streamlined Sales and Use Tax Agreement (SSUTA), or Streamlined Sales Tax (SST), is an effort by multiple states to simplify the administration and cost of sales and use tax for remote sellers. Remote sellers can register in multiple states at the same time through the Streamlined Sales Tax Registration System (SSTRS).

Minnesota became a full member of the SST on October 1, 2005.

Once you've successfully registered to collect Minnesota sales tax, you'll need to apply the correct rate to all taxable sales, remit sales tax, file timely returns with the Minnesota Department of Revenue, and keep excellent records. Here’s what you need to know to keep everything organized and in check.

How you collect Minnesota sales tax is influenced by how you sell your goods:

Brick-and-mortar store: Have a physical store? Brick-and-mortar point-of-sale solutions allow users to set the sales tax rate associated with the store location. New tax groups can then be created to allow for specific product tax rules.

Hosted store: Hosted store solutions like Shopify and Squarespace offer integrated sales tax rate determination and collection. Hosted stores offer sellers a dashboard environment where Minnesota sales tax collection can be managed.

Marketplace: Marketplaces like Amazon and Etsy offer integrated sales tax rate determination and collection, usually for a fee. As with hosted stores, you can set things up from your seller dashboard and let your marketplace provider do most of the heavy lifting.

Mobile point of sale: Mobile point-of-sale systems like Square rely on GPS to determine sale location. The appropriate tax rate is then determined and applied to the order. Specific tax rules can be set within the system to allow for specific product tax rules.

Minnesota sales tax collection can be automated to make your life much easier. Avalara AvaTax seamlessly integrates with the business systems you already use to deliver sales and use tax calculations in real time.

Some goods are exempt from sales tax under Minnesota law. Examples include most grocery items, feminine hygiene products, and medical supplies.

We recommend businesses review the laws and rules put forth by the Minnesota Department of Revenue to stay up to date on which goods are taxable and which are exempt, and under what conditions.

Some customers are exempt from paying sales tax under Minnesota law. Examples include government agencies, some nonprofit organizations, and merchants purchasing goods for resale.

Sellers are required to collect a valid exemption or resale certificate from buyers to validate each exempt transaction.

Minnesota sales tax exemption and resale certificates are worth far more than the paper they’re written on. If you’re audited and cannot validate an exempt transaction, the Minnesota Department of Revenue may hold you responsible for the uncollected sales tax. In some cases, late fees and interest will be applied and can result in large, unexpected bills.

Sales tax holidays exempt specific products from sales and use tax for a limited period, usually a weekend or a week. Approximately 17 states offer sales tax holidays every year.

As of June 2019, however, there are no sales tax holidays in Minnesota.

You're registered with the Minnesota Department of Revenue and you've begun collecting sales tax. Remember, those tax dollars don't belong to you. As an agent of the state of Minnesota, your role is that of intermediary to transfer tax dollars from consumers to the tax authorities.

Once you’ve collected sales tax, you’re required to remit it to the Minnesota Department of Revenue by a certain date. The Minnesota Department of Revenue will then distribute it appropriately.

Filing a Minnesota sales tax return is a two-step process comprised of submitting the required sales data (filing a return) and remitting the collected tax dollars (if any) to the Minnesota DOR. The filing process forces you to detail your total sales in the state, the amount of sales tax collected, and the location of each sale.

Online filing is generally recommended through the Minnesota E-Services portal, but returns by phone are acceptable.

The Minnesota Department of Revenue will assign you a filing frequency. Typically, this is determined by the size or sales volume of your business. State governments generally ask larger businesses to file more frequently. See the filing due dates section for more information.

Minnesota sales tax returns and payments must be remitted at the same time; both have the same due date.

You may file directly with the Minnesota DOR by visiting their site and entering your transaction data manually. This is a free service, but preparing Minnesota sales tax returns can be time-consuming — especially for larger sellers.

To save time and avoid costly errors, many businesses outsource their sales and use tax filing to an accountant, bookkeeper, or sales tax automation company like Avalara. This is a normal business practice that can save business owners time and help them steer clear of costly mistakes due to inexperience and a lack of deep knowledge about Minnesota sales tax code.

Once you have a Minnesota seller's permit, you’re required to file returns at the completion of each assigned collection period regardless of whether any sales tax was collected. When no sales tax was collected, you must file a "zero return.”

Failure to submit a zero return can result in penalties and interest charges.

The Minnesota DOR requires all businesses to "close their books" by filing a final sales tax return. This also holds true for business owners selling or otherwise transferring ownership of their business.

Many states encourage the timely or early filing of sales and use tax returns with a timely filing discount.

As of June 2019, the Minnesota DOR does not offer sales tax filers a discount.

It's important to know the due dates associated with the filing frequency assigned to your business by the Minnesota Department of Revenue. This way you'll be prepared and can plan accordingly. Failure to file by the assigned date can lead to late fines and interest charges.

The Minnesota DOR requires monthly and quarterly sales tax filing to be completed by the 20th day of the month following the tax period. Below, we've grouped Minnesota sales tax filing due dates by filing frequency for your convenience. Due dates falling on a weekend or holiday are adjusted to the following business day.

Filing a Minnesota sales tax return late may result in a late filing penalty as well as interest on any outstanding tax due. For more information, refer to our section on penalties and interest.

In the event a Minnesota sales tax filing deadline was missed due to circumstances beyond your control (e.g., weather, accident), the Minnesota DOR may grant you an extension. However, you may be asked to provide evidence supporting your claim.

Hopefully you don't need to worry about this section because you're filing and remitting Minnesota sales tax on time and without incident. However, in the real world, mistakes happen.

If you miss a sales tax filing deadline, follow the saying, “better late than never,” and file your return as soon as possible. Failure to file returns and remit collected tax on time may result in penalties and interest charges, and the longer you wait to file, the greater the penalty and the greater the interest.

If you’re in the process of acquiring a business, it’s strongly recommended that you contact the Minnesota DOR and inquire about the current status of the potential acquisition. Once you've purchased the business, you’ll be held responsible for all outstanding Minnesota sales and use tax liability.

If you’re collecting sales tax from Minnesota residents, you’ll need to consider how to handle taxes on shipping and handling charges.

Shipping and handling charges in Minnesota are considered part of the sales price even when separately stated, and should be applied to taxable sales and omitted on exempt sales. For sales with both taxable and exempt products, tax should be charged based on the percentage or weight of the taxable goods.

Delivery services provided and billed by a third-party delivery service are generally exempt, except for deliveries of aggregate materials and concrete block.

There are exceptions to almost every rule with sales tax, and the same is true for shipping and handling charges. Specific questions on shipping in Minnesota and sales tax should be taken directly to a tax professional familiar with Minnesota tax laws.

For additional information, see Minnesota DOR Sales Tax Fact Sheet 155.