RATE OF SALES TAX:
6.875%
LOCAL & COUNTY MAXIMUM RATES:
2.00%
What are the taxable goods and services?
The first step in sales tax compliance is determining if the items or services your firm offers are taxable in Minnesota.
Traditional Products and Services
Physical property, such as furniture, household appliances, and automobiles, is subject to sales tax in Minnesota.
Medicine, both prescription and nonprescription, food, fuel, and apparel are all tax-free.
In Minnesota, certain services are subject to sales tax. Visit the Minnesota Department of Revenue’s website for a comprehensive list of taxable services.
Digital Products and Services
A digital item or service is anything that is supplied electronically, such as a music downloaded from iTunes or a movie bought from Amazon.
Businesses in Minnesota are required to collect sales tax on the sale of digital items.
Minnesota, however, has one exemption to this restriction. Businesses do not collect sales tax on digital textbooks and instructional materials purchased by students.
How to Register for Sales Tax in Minnesota
If you have concluded that you must charge sales tax on part or all of the products and services that your company sells, the next step is to apply for a seller’s licence.
This enables your company to collect sales tax on behalf of the municipal and state governments.
You will need the following information to register:
If appropriate, your Federal Employer Identification Number (FEIN).
Your legal name or single proprietorship name, as well as your company address
If appropriate, your company name (DBA).
Your NAICS (North American Industry Classification System) code for 2022. You may do an NAICS Code Lookup to locate the NAICS Code for LLC that corresponds to your industry.
The single owner, officers, partners, or representatives’ names and Social Security numbers
A contactable person’s email address and name
A Resale Certificate might help you save money.
When acquiring items for resale, your firm does not have to pay sales tax if you obtain a resale certificate, also known as a reseller’s permit.
Sales Tax Collection
After obtaining your seller’s licence and starting your company, you’ll need to figure out how much sales tax to charge various consumers. It is critical for company owners to collect the right rate of sales tax to avoid penalties and the danger of expensive audits.
When computing sales tax, consider the following types of transactions:
Store Sales Shipping Within-State Sales Outside-State Sales
Retail Sales
For conventional company owners who sell products or services on-site, calculating sales tax is simple: all sales are taxed at the rate determined by the store’s location.
Here’s an illustration of how this situation may look:
In Saint Paul, Minnesota, Mary owns and operates a bookshop. Because books are taxable in the state of Minnesota, Mary charges a flat 7.625% sales tax on all purchases. This includes the 6.875% state sales tax in Minnesota, the 0.5% city sales tax in Saint Paul, and the 0.5% local district tax in Mary.
Sales inside the state
Minnesota has a scheme known as destination-based sales taxation. This implies that long-distance transactions inside Minnesota are taxed based on the buyer’s address. This regulation applies to sales taxes levied by the state, county, and city.
Consider the following scenario:
Steve operates his own eBay electronics company from his home in Duluth, Minnesota. A buyer from Mankato, Minnesota discovers Steve’s eBay website and buys a $350 set of headphones. Steve uses the 6.875% state tax rate for Minnesota, plus 0.5% for Mankato’s municipal tax rate and 0.5% for his customer’s local tax district, when computing the sales tax for this transaction. The total cost is $377.56 ($27.56 sales tax) at a total sales tax rate of 7.875%.
Out-of-State Purchases
Minnesota firms must only pay sales tax on out-of-state sales if they have a presence in other states.
Nexus indicates that the company has a physical presence in another state.
Common nexus types include:
A physical place, such as an office, retail shop, or warehouse.
An employee who works from home or as a roaming sales representative.
An affiliate marketer
Dropshipping from a third-party vendor.
A temporary physical site, such as a festival or fair booth.
Submit Your Sales Tax Return
You’re ready to submit your sales tax return now that you’ve obtained your Minnesota seller’s permit and understand how to charge the correct amount of sales tax to all of your customers. You avoid penalties and fines, be sure to meet all filing dates.
How to File a Claim
Businesses in Minnesota are required to file sales tax forms and make sales tax payments online.
How Frequently Should You File?
The frequency with which you must submit is determined by the total amount of sales tax collected by your firm.
Annual filing: If your company receives less than $100 in sales tax each month, you should submit returns on an annual basis.
Quarterly filing: If your company receives between $100 and $500 in sales tax every month, you should choose to submit quarterly returns.
Monthly filing: If your company receives more than $500 in sales tax every month, you must submit returns on a monthly basis.
Deadlines for Filing
The deadline for all Minnesota sales tax returns is the 20th of the month, unless it is a weekend or federal holiday, in which case the deadline is postponed to the following working day. The following are the filing deadlines for this year:
Penalties for Filing Late
If you do not submit your return by the due date for the reporting period, Minnesota imposes a late payment penalty equivalent to 5% of any unpaid tax.
Minnesota additionally imposes a late payment penalty of 5% of the tax payable if the return is not submitted within 30 days of the due date. Beyond 30 days, the rate rises to 10%, then to 15% if the filing date occurs after 60 days of the due date.
The state levies any unpaid tax or penalty at a compounding interest rate of 4% per year or 0.33% every month or partial month.