SALES TAX RATE:
MAXIMUM LOCAL & COUNTY RATES:
Which Goods and Services are Taxable?
Determining whether or not the products or services your company sells are taxable in Minnesota is the first step in sales tax compliance.
Traditional Goods or Services
Goods that are subject to sales tax in Minnesota include physical property, like furniture, home appliances, and motor vehicles.
Prescription and nonprescription medicine, groceries, gasoline, and clothing are all tax-exempt.
Some services in Minnesota are subject to sales tax. For a detailed list of taxable services check out the website of the Minnesota Department of Revenue.
Digital Goods or Services
A digital good or service is anything electronically delivered, such as an album downloaded from iTunes or a film purchased from Amazon.
Minnesota requires businesses to collect sales tax on the sale of digital goods.
However, Minnesota has one exception to this policy. Businesses do not collect sales tax on students’ digital textbooks as well as instructional material.
How to Register for Minnesota Sales Tax
If you determined that you need to charge sales tax on some or all of the goods and services your business sells, your next step is to register for a seller's permit. This allows your business to collect sales tax on behalf of your local and state governments.
In order to register, you will need the following information:
- Your Federal employer ID number (FEIN), if applicable
- Your legal name or sole-proprietor name and business address
- Your business name (DBA), if applicable
- Your 2022 North American Industry Classification System (NAICS) code. You can do a NAICS Code Lookup and find the NAICS Code for LLC that matches your industry.
- The names and Social Security numbers of the sole-proprietor, officers, partners or representatives
- The email address and name of a contactable person
Save Money with a Resale Certificate
With a resale certificate, also known as a reseller's permit, your business does not have to pay sales tax when purchasing goods for resale.
Collecting Sales Tax
After getting your seller's permit and launching your business, you will need to determine how much sales tax you need to charge different customers. To avoid fines and the risk of costly audits, it's important for business owners to collect the correct rate of sales tax.
When calculating sales tax, you'll need to consider the following kinds of sales:
- Store Sales
- Shipping In-State
- Out-of-State Sales
For traditional business owners selling goods or services on-site, calculating sales tax is easy: all sales are taxed at the rate based on the location of the store.
Here's an example of what this scenario looks like:
Mary owns and manages a bookstore in Saint Paul, Minnesota. Since books are taxable in the state of Minnesota, Mary charges her customers a flat-rate sales tax of 7.625% on all sales. This includes Minnesota’s state sales tax rate of 6.875%, Saint Paul’s city sales tax rate of 0.5%, and Mary’s local district tax rate of 0.5%.
The state of Minnesota follows what is known as a destination-based sales tax policy. This means that long-distance sales within Minnesota are taxed according to the address of the buyer. This policy applies to state, county, and city sales taxes.
Consider the following example:
Steve runs his own business selling electronics on eBay out of his home in Duluth, Minnesota. A customer living in Mankato, Minnesota finds Steve’s eBay page and purchases a $350 pair of headphones. When calculating the sales tax for this purchase, Steve applies the 6.875% state tax rate for Minnesota, plus 0.5% for Mankato’s city tax rate and 0.5% for his customer’s local tax district. At a total sales tax rate of 7.875%, the total cost is $377.56 ($27.56 sales tax).
Minnesota businesses only need to pay sales tax on out-of-state sales if they have nexus in other states. Nexus means that the business has a physical presence in another state.
Common types of nexus include:
- A physical location, such as an office, store, or warehouse
- An employee who works remotely or who is a traveling sales representative
- A marketing affiliate
- Drop-shipping from a third party seller.
- A temporary physical location, including festival and fair booths.
File Your Sales Tax Return
Now that you’ve registered for your Minnesota seller's permit and know how to charge the right amount of sales tax to all of your customers, you are all set to file your sales tax return. Just be sure to keep up with all filing deadlines to avoid penalties and fines.
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How to File
Minnesota requires businesses to file sales tax returns and submit sales tax payments online.
How Often Should You File?
How often you need to file depends upon the total amount of sales tax your business collects.
- Annual filing: If your business collects less than $100 in sales tax per month then your business should elect to file returns on an annual basis.
- Quarterly filing: If your business collects between $100 and $500 in sales tax per month then your business should elect to file returns on a quarterly basis.
- Monthly filing: If your business collects more than $500 in sales tax per month then your business should file returns on a monthly basis.
Note: Minnesota requires you to file a sales tax return even if you have no sales tax to report.
All Minnesota sales tax return deadlines fall on the 20th day of the month, unless it is a weekend or federal holiday, in which case the deadline is moved back to the next business day. Below is a list of this year’s filing deadlines:
Annual filing: February 5th
- Q1 (Jan. 20 - Mar. 20): Due April 20
- Q2 (April 20 - June 20): Due July 20
- Q3 (July 20 - Sept. 20): Due Oct. 20
- Q4 (Oct. 20 - Dec. 20): Due Jan. 22, 2018
Monthly filing: The 20th of the following month, or the next business day, e.g. April 20th for the month of March, or May 20th for the month of April.
Penalties for Late Filing
Minnesota also charges a late payment penalty that is equal to 5% of any unpaid tax if you do not file your return by the due date for the reporting period.
Minnesota also charges a late payment penalty of 5% of the tax that is due if filed within 30 days of the due date. After 30 days, the rate increases to 10% and finally to a maximum of 15% if the filing date falls after 60 days of the due date.
The state assesses the unpaid tax with a compounded interest rate of 4% per year or 0.33% per month or partial month for any unpaid tax or penalty.