Understanding Minnesota Sales and Use Taxes
Understanding and complying with the sales tax requirements in the states in which you do business is absolutely essential. More states are taxing services, as well as retail sales, so no business owner can afford to be in the dark. In addition, you may find that you are liable for use taxes for products purchased out of state. This article answers some of the basic questions regarding sales tax in Minnesota.
Minnesota's general rate of sales and use tax is 6.875 percent. In addition, make sure you contact your local governments in Minnesota because they are allowed to assess a local sales and use tax. This tax is a general tax levied on the gross receipts from sales at retail of tangible personal property or on its lease or rental.
Minnesota also charges sales tax on the furnishing of specified services. Taxable services include renting, producing, fabricating, printing, or processing of tangible personal property, preparation or serving of meals or drinks, entertainment admissions and membership fees, lodging, utilities, telecommunications, parking, cleaning, security, pet care, and lawn care.
In Minnesota, you will normally be allowed a credit for sales or use tax paid in another state for tangible personal property used in Minnesota. The amount of the credit may not exceed the amount of the Minnesota tax.
Sellers Are Responsible for Collecting, Paying Over Tax
In Minnesota although the sales tax is on a seller's gross receipts, shifting of the tax to the purchaser is mandatory. Sales tax must be separately stated on the invoice, and the tax becomes a debt from the purchaser to the seller.
Absorbing the tax is not permitted. In Minnesota it is against the law to refund or offer to refund all or any part of the amount collected, or to absorb the amount of sales tax required to be added to the sales price and collected from the purchaser. As a seller, it is also against the law for you to advertise directly or indirectly that you will absorb the sales tax that is required to be added to the sales price.
Tax Permits Are Required
In Minnesota, applications for vendor permits are filed with the Commissioner of Revenue. Permits are valid until revoked and are valid only for the persons in whose name they have been issued and for the transaction of business at the places designated.
Not All Sales Are Taxable
Minnesota has many specific items that are exempt from sales tax — for example, certain prescription medications are exempt from Minnesota sales tax. You'll want to check and see if you are exempt from the sales tax.
An exemption certificate may be issued by a purchaser of a nontaxable item. The exemption certificate may be based on the type of transaction (such as a resale exemption) or on the item itself.
No Tax Is Due on Items Purchased for Resale or Lease
If you're are making purchases that are for the purpose of resale, you are exempt from the sales and use tax. Similarly, items purchased to be held for leasing (which constitutes a sale) are also exempt. You're required to furnish an exemption certificate to your seller if claiming the resale exemption.
Resale certificate requirements. Purchasers can obtain an exemption certificate from the Commissioner of Revenue or they may prepare their own exemption certificates, as long as they contain all the information required. If a seller accepts an exemption certificate in good faith, the seller is relieved from responsibility for collecting and remitting the tax.
Accepting a certificate in good faith requires that the certificate contain the following information:
- the name and address of the purchaser
- the sales tax account number of the purchaser's permit (or reason for lack of number)
- the character of property sold by the purchaser in the regular course of business
- a description of the property purchased
- the purchaser's signature
Blanket Resale Certificates Are Permitted
Buyers who frequently make exempt purchases should furnish the seller with a blanket certificate to cover future purchases. The idea is that by providing a blanket resale certificate, both the buyer and the seller can avoid the hassle of having to deal with a new certificate every time you make a purchase. Whether a certificate is a single purchase or blanket certificate is determined by marking the appropriate blank provided on the form. If you do not use the prescribed form, make sure you mark on the substitute form that it is a blanket certificate.
Physical Presence Required for Tax Liability
Minnesota has a statute that specifically taxes out-of-state mail order and catalogue sellers. However, you will be responsible for paying this tax only if you have physical presence within Minnesota. To determine if you have physical presence, ask yourself the following:
- Do I have retail facilities, a warehouse, or any office space in Minnesota? Maintaining retail or warehouse facilities will give you physical presence. Also, having an office for employees, even for business activities unrelated to mail order sales, will give you physical presence.
- Do my employees or I enter Minnesota for purposes of taking and transmitting orders from Minnesota? If your employee or independent contractor goes into Minnesota to take or transmit orders, your business may have physical presence in Minnesota. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence.
- Do my delivery vehicles frequently enter Minnesota for purposes of delivering property? Frequent deliveries in Minnesota by your trucks will give you physical presence in Minnesota.
File Claim to Obtain Refund of Overpayments
When taxable property is returned to you for a refund, you should reduce your gross receipts in the month the property is returned by the amount of the sales price refunded to your customer. A purchaser may apply directly to the Commissioner of Revenue for a refund. For the purchaser to apply directly, the purchaser must be registered and the refund amount requested must exceed $500. Claims for refund must be filed within three and one-half years from the due date of the return or two years from the payment of tax, whichever is later.
Minnesota Imposes Use Tax on Out-of-State Sales
Use tax is imposed on the use, storage, distribution, or consumption in Minnesota of tangible personal property or taxable services. In Minnesota the use tax is a complementary tax and does not apply in situations in which the sales tax is collected. The incidence of the use tax is on the purchaser or consumer. The use tax is also a debt from the purchaser to the seller.