If you do business in Minnesota, it’s important to know whether you need to collect sales tax, as well as how much to collect. The exact amount of the tax will vary depending on the area of the state you’re located in or that you’re shipping to, and there are various other rules and regulations you need to consider as well. Before you collect any tax in Minnesota, of course, you need to determine if what you’re selling is taxable and whether you have a nexus in the state.
Minnesota has a statewide sales tax rate of 6.875%, and this is the only sales tax levied in many areas. Certain counties and cities do charge additional local sales tax, however, and so it’s important to know if you’re shipping goods to one of those areas, or if you have a physical location there, so that you charge sales tax appropriately on applicable purchases.
To determine whether local taxes are due on items you’re selling, as well as the final rate to charge, you can refer to this chart from the Minnesota Department of Revenue. It shows the rates in each locality, as well as the specific items that additional rate applies to. For instance, Lanesboro charges local sales and use tax of 0.50%, which needs to be added to the state rate to determine the total sales tax due, and this applies to any item that is also covered by the state sales tax law.
Other municipalities are more specific. In Detroit Lakes, for example, an additional 1.00% sales tax is charged on prepared food and beverages, while all other taxable items are only subject to the state rate. Minneapolis has several separate categories of additional sales tax, including a 3.00% downtown liquor tax and a 2.625% lodging tax. No matter where you’re selling, though, or what the specific rates charged, all you need to do to determine the total applicable sales tax is to add the state rate and all relevant local rates together, and then apply that combined rate to the cost of the purchase.
The tax can be included in the total listed price of the item or service, or it can be added on separately at checkout. However, it needs to be clear to the customer which option you’ve chosen and that all required taxes are being charged. It’s also important to remember that the rate you apply needs to reflect the destination of a shipped item rather than it’s point of origin. For instance, if you have a physical store or warehouse in St. Paul, but you’re shipping something to a customer in Duluth, you need to charge them the combined sales tax rate for Duluth.
Of course, you need only worry about collecting sales tax in Minnesota if you have a nexus, or significant business presence, there. Per the state, this applies to you if you:
If you meet any of these criteria, you are required to collect and remit sales tax at the appropriate rate as determined by the location of services provided or destination of goods shipped. One important element to keep in mind is that, if you sell through Amazon and your goods are stored in their warehouse in Minnesota, you must charge Minnesota sales tax on purchases shipped to customers in the state.
Most retail sales of tangible personal property are taxable in Minnesota. This includes anything sold for a purpose other than resale, sublease, or sub rent, as well as any services for the same purposes. Some examples include:
The Minnesota Sales Tax Booklet provides a complete list of all taxable items, as well as items that are exempt or to which special rates apply. One significant exception to the standard sales tax guidelines is the purchase of motor vehicles, for which the state rate is 6.5%. Special rates also apply to car rentals, liquor sales, waste management services, and mobile home and trailer sales.
In general, food, clothing, prescription and over the counter medications, and medical equipment are not taxable in Minnesota. Other exempt items include meals provided in early childhood education programs or daycare, pre-k through 12th grade schools, nursing homes, senior homes, correctional facilities, and detox facilities. Sales to certain types of organizations, including nonprofits, may also be exempt if the buyer has obtained a proper exemption certificate from the state ahead of time.
The types of services that are subject to Minnesota state sales tax include:
If you provide a service at a permanent physical location, you will charge the sales tax applicable at that location. If you or your employees travel to provide the service, the rate in effect where the service is provided will apply.
Before you collect any sales tax in Minnesota, you must register with the state, which can be done online through the Department of Revenue website or over the phone. You must register for the tax type you plan on collecting, and you will also have to ensure you’re properly registered in every area in which you plan to collect taxes.
If you have a physical location and don’t ship anything or travel to provide services, you only need to register at that physical location. But if you intend to ship items to customers across the state, you need to make sure you’re properly registered to collect any local sales tax as well.
You can choose between filing once under a single Minnesota tax ID number for all your locations, if you have more than one, or you can obtain a separate ID number for each and file separate returns. However, it’s important that you always clearly list all locations for transactions on your return or you may be charged a penalty and lose the privilege of filing a combined return for all locations.
In Minnesota, you must file your sales tax return annually, quarterly, or monthly, depending on the amount of tax you usually collect. Your filing must be:
If you file monthly, all payments are due on the due date in the following chart for the month after taxes were collected.
|January – March (Q1)||April 20th|
|April – June (Q2)||July 20th|
|July – September (Q3)||October 20th|
|October – December (Q4)||January 20th|
If you file annually, your deadline will be February 5th of the following year. If the due date falls on a weekend or holiday, you will have until the next business day to complete the filing and payment process.
If you fail to make a payment when one is due, you will be charged a penalty of 5% if you make the payment within 30 days of the due date. Payments received between 31 and 60 days after the original due date will be subject to a 10% penalty, and payments that are more than 60 days late will incur a 15% penalty.
An additional 5% penalty will be charged if you fail to file a return in addition to missing a payment, and there is a penalty of 25% if you continue to pay late. A failure to report local sales taxes appropriately also incurs a 5% penalty, and a failure to include accurate location information on a consolidated return from multiple locations will result in a fine of $500 for each problematic return.
In addition to the penalties, interest is charged on the combined total of tax due and penalty. The rate of interest charged depends on the year the taxes should have been paid in, with the rate for 2017 set at 4% and the rate for 2010-2016 at 3%. Carrying an unpaid tax balance or repeatedly paying late can ultimately lead to the revocation of your authorization to do business in the state.
There are many details to keep track of when you’re doing business in Minnesota to ensure you’re properly registered to collect sales tax and that you apply the appropriate rate to purchases. Because of this, it’s helpful to have a tool designed to keep track of all relevant elements for you, and TaxTools provides everything you need in this regard. It will allow you to manage payments, apply local tax rates properly, and keep track of filing deadlines to avoid incurring any penalties. It also relieves you of the stress involved in keeping track of changes to state tax laws so you can focus on other things.