Should you collect sales tax in Minnesota?
Sales tax is levied on the retail sale of tangible personal property to your customers, including leasing or renting. However, you will collect the sales tax if you determine the nexus in Minnesota. A nexus is a presence that may come physically or economically.
A physical nexus is typically created when your business has a store, warehouse, or office location in Minnesota. An economic nexus is intertwined when you cross paths with threshold limits as already stipulated by the state. These thresholds can be on a revenue or some other transactional basis.
Let’s explore if your business has a Physical nexus in Minnesota.
A physical nexus is integrated when your business is engaged in the following in Minnesota:
- Selling tangible personal property in Minnesota.
- Maintaining, occupying, or using a place of business or an office in Minnesota.
- Employing or retaining any contractor, including an agent, representative, or salesman, by whatever name called, engaged in activities relating to selling, delivering, installing, or taking business orders.
- Having a stock of goods in Minnesota.
Is it constituting an Economic nexus in Minnesota?
Suppose you are a remote seller (i.e., don’t have a physical presence in the state), and your business sales in Minnesota exceed $100,000 during the current or previous calendar year, or you make 200 or more separate retail transactions via a Marketplace into the state. In that case, you must comply with and register under sales tax rules.
Click here for more guidance.
How can you Register for Sales tax in Minnesota?
To get a sales tax permit in Minnesota, you need to apply online on the Minnesota Internet filing system. Otherwise, you can apply through phone by calling at 651-282-5225 or 1-800-657-3605 (toll-free).
Additionally, before applying for a new tax account number, make sure you have the following information handy:
- FEIN and Social Security numbers of all officers, partners, or owners.
- Address details (physical and mailing).
- Business incorporation dates in Minnesota.
- Contact information.
- NAICS code.
- Nature of business.
Is your product or services liable to Sales tax in Minnesota?
Tangible Property: Sales tax in Minnesota is imposed primarily on the retail sale of tangible personal property, such as Furniture, giftware, toys, etc.
Services: Although services are not subject to sales tax in Minnesota, a few exceptions include service or labor costs leading to the creation of tangible personal property, hotel stays, vehicle rentals, etc.
Digital Product: Minnesota charges sales tax on digital products. So, if you sell digital products such as software, streaming services, e-books, etc., you need to collect sales tax.
SAAS: SAAS is software that allows users to connect to the cloud and use it over an internet connection. It is non-taxable in Minnesota. Please see the Minnesota Revenue Department advisory on digital transactions here.
The state provides certain exemptions from the sales tax levy, such as food for home consumption, prescription drugs, newspapers/ magazines, and manufacturing equipment. To see what exemptions are covered, please click here.
You can also visit the Minnesota Department of Revenue website for more concise information about taxability in Minnesota.
How should you collect and calculate state taxes in Minnesota?
Collecting and computing accurate sales tax to be remitted to the state may involve stratospheric efforts, especially when you are not Minnesota-based. The sales tax is destination-based in Minnesota, which means you must collect taxes on tangible property sold to buyers based in Minnesota.
Complexities involved where you have a business nexus even if not in the state. Any default may lead to severe concerns, penalties, or fines by the state. That is what TaxDo is here for you! Our specialized sales tax calculator and professional services will simplify your job and lighten your compliance burden.
Minnesota has a base sales tax rate of 6.875%, followed by local tax rates, which can be up to 2% based on the cities and municipalities. Further, a few districts also impose a resort district tax of 2%, and as such, the total sales tax rate can go up to 8%. Click here for the city-wise sales tax rates (including local rates).
Below is the simple formula you can use to calculate your sales tax collection on each merchandise sold:
Sales Tax collectible = Sale value * (6.875% plus local tax rate)
Do you need to collect sales tax on Shipping Charges?
Shipping charges can be delineated separately in the sale invoice raised to the customer or dissipated within the selling price of items sold. There will be no tax applicability on shipping charges if the items sold are exempt from sales tax. However, you must collect the tax on the total sales price, including shipping charges, if the items sold are taxable even if the shipping charges are separately stated on the invoice. Read here the guidance issued by the state.
How should you file sales tax in Minnesota?
E-file: You can e-file your return using the Minnesota online portal.
Payments can also be made through the online portal or by check with a payment voucher.
Filing frequencies and due dates
You must file the monthly sales tax due on the 20th Day of the following month. However, you will get the quarterly filing status when your sales tax collection is between $100 and $500 per month. In that case, file your sales tax by the 20th Day of the month from the end of the relevant quarter.
Additionally, you can file annually if your total sales tax collection is less than $100 monthly. Then, please file your sales tax by 5th February of the following year.
Note: If the due date is a holiday or weekend, the next business day would be considered the final due date. This link will take you to the official website of the Minnesota Revenue Department, where you can see what the state has to say about sales tax filing due dates.
Are there any fines or penalties for default when filing or paying sales tax?
The state levies a penalty of 5% of sales tax, subject to a maximum of 25% for repeated defaults. A penalty for late tax payments, ranging between 5% and 15%, is also imposed.
However, assigning your tax burden to TaxDo would not result in you paying any penalty or interest. We will adhere to the due dates. Go through the comprehensive guide to penalties and interest issues by the Minnesota Department of Revenue.