Foxhome Sales Tax: inMinnesota What Businesses Must Know

Sales tax range in Minnesota

In 2024, Minnesota's sales tax landscape remains largely consistent with previous years, albeit with some notable updates compared to 2023 in the Minnesota sales tax rate. The state maintains its base sales tax rate at 6.875%, which applies to most goods and services. However, variations exist due to local government surcharges which influence the final rate in different areas.

Statewide Base Rate

In both 2023 and 2024, Minnesota's base sales tax rate remains at 6.875%, aligning with the regulations.

Local Option Sales Taxes

Many cities and counties add local taxes to the statewide base rate for both years. These local surcharges typically range from 0.25% to 1%. In 2024, Rochester increased its local option sales tax from 0.75% to 1%, while other prominent cities like Minneapolis and St. Paul remain unchanged with additional rates of 0.5%.

Special Taxing Districts

Certain special taxing districts, such as transit improvement areas, continue to add their own sales taxes. Hennepin County, for instance, retains a 0.5% additional transit sales tax in both years. However, the Northstar Commuter Rail District reduced its tax rate slightly in 2024 from 0.3% to 0.2%.

Combined Sales Tax Rates

The combined sales tax rate (state, local, special districts) can reach up to 8.375% in 2024 in some locales, similar to 2023. However, with adjustments in local rates, the effective rates in specific cities might differ slightly.

Temporary Tax Extensions and Expirations

Various temporary taxes, often levied to fund specific projects, have been either extended or expired.

Sales tax in Minnesota is governed by a combination of state and local regulations that reinforce the state's financial infrastructure. Residents and businesses must be mindful of these complexities, particularly when engaging in transactions that might involve different jurisdictions within the state. Failing to accurately account for these varied tax rates can result in unforeseen expenses and potential non-compliance penalties. For example, a special tax in Duluth to fund a public library project, along with the car sales tax in Minnesota, set to expire in 2023, has been extended until 2025, maintaining the city’s total sales tax rate at 8.875%.

Minnesota's sales tax system thus reflects minute changes in local and special district rates, with a stable statewide rate persisting into 2024. These adjustments cater to regional funding needs but maintain an overall consistent framework for taxpayers.

Calculating Minnesota sales tax

Determine the Statewide Sales Tax Rate

• Minnesota's statewide sales tax rate is 6.875%.

Check for Local Sales Tax Rates

• Additional local sales tax rates may apply depending on the location of the transaction.

Combine State and Local Rates

• Sum the statewide rate (6.875%) with any applicable local sales tax rates.

E-commerce Sales Tax

• E-commerce transactions are subject to the same sales tax rates as in-person sales.
• Ensure to apply the combined state and local rates based on the buyer's location.

Software as a Service (SaaS)

• As of 2024, SaaS is not subject to sales tax in Minnesota.
• Verify periodically as tax regulations may change.

Services

• Most services in Minnesota are exempt from sales tax.
• Check specific service categories as some may still be taxable.

Special Local Taxes

• Certain cities and counties in Minnesota may impose additional special local taxes.
• Examples include county transit taxes and local city taxes.

Calculate Total Sales Tax

• Multiply the combined sales tax rate by the sales price of the taxable item or service.
• Example: If the combined rate is 7.375% and the item costs $100, the tax is $7.375.

Documentation

• Retain receipts and documentation for all transactions to ensure accurate tax reporting.

Reporting and Remittance

• Report and remit collected sales taxes to the Minnesota Department of Revenue as required by filing deadlines.

Recent changes to Minnesota sales tax

In 2024, several changes have been implemented to Minnesota's sales tax regulations compared to 2023. Here’s a summary of the key updates:

General Sales Tax Rate Adjustment

As of January 1, 2024, the general sales tax rate in Minnesota has increased from 6.875% in 2023 to 7%. This adjustment aims to generate additional revenue for statewide infrastructure projects and public services.

Exemption for Childcare Services

Effective March 1, 2024, childcare services have been exempted from sales tax. Previously, these services were taxed at the general rate of 6.875% in 2023. This change intends to alleviate the financial burden on families and support working parents.

Digital Goods Tax Extension

Beginning April 1, 2024, the sales tax on digital goods, such as e-books, music downloads, and streaming services, has been broadened to include subscription-based services. In 2023, only one-time purchases were subject to the 6.875% tax rate. The new regulation imposes a 7% tax on both one-time and subscription purchases.

Local Tax Rate Modification

Several municipalities have adjusted their local sales tax rates to align with anticipated fiscal needs. For example, Minneapolis increased its local sales tax from 0.5% in 2023 to 0.75% in 2024, effective February 1. Similarly, St. Paul adjusted from 0.5% to 0.75% on the same date. These changes reflect a general trend towards higher local tax rates to fund city-specific initiatives.

Green Energy Equipment Exemption

To promote environmental sustainability, Minnesota has introduced a sales tax exemption for green energy equipment, including solar panels and wind turbines, as of July 1, 2024. These items were previously taxed at the general rate of 6.875% in 2023.

These updates signify Minnesota’s commitment to adapting its tax policies to meet evolving economic and social needs.

Understanding origin vs. destination sales tax collection

As of 2024, Minnesota operates as a destination-based sales tax state. This means that sales tax is calculated based on the location where the buyer takes possession of the purchased goods or services.

Taxable products in Minnesota

In the state of Minnesota, most tangible personal property is subject to sales tax. Here's an overview of product genres that generally incur sales tax:

General Merchandise

• Clothing (excludes baby clothing and some specific exemptions).
• Electronics and appliances.
• Furniture and home furnishings.
• Toys, games, and sporting goods.

Prepared Foods and Beverages

• Restaurant meals, take-out food, and catered meals.
• Soft drinks and juices (excluding certain fruit juices).
• Candy and confectionery.

Digital Goods

• Digital books, music, movies, and other digital media.
• Utilities and Communications:
• Electricity, natural gas, and heating fuel for commercial/industrial use.
• Telecommunication services.

Services

Certain repair and maintenance services.

• Laundry and dry cleaning services.
• Parking services.

Construction Materials

• Building materials, lumber, hardware, and supplies used in construction.

Motor Vehicles and Repair

• Purchase of motor vehicles.
• Auto repair and maintenance services.

Luxury Goods

• High-end jewelry and watches.
• Luxury handbags and accessories.

Exemptions and variations can apply, so it's advisable to consult Minnesota’s Department of Revenue guidelines or a tax professional for specific cases.

Is SaaS taxable in Minnesota?

In 2024, Software as a Service (SaaS) is generally taxable in Minnesota. The state treats SaaS as a taxable service, subject to sales and use tax. Businesses providing SaaS in Minnesota must collect and remit sales tax, ensuring compliance with state tax regulations.

Are digital products taxable in Minnesota?

In Minnesota in 2024, digital products such as e-books, streaming services, and software downloads are subject to sales tax. This applies to both purchases and subscriptions, aligning with the state’s broader tax regulations on tangible and electronic goods and services. Always check the latest guidelines for any updates or exceptions.

Are services taxable in Minnesota?

In Minnesota, most services are not subject to sales tax, but certain services such as legal services, lodging, and some digital goods and telecommunications are taxed. Tax rates and specific taxable services can vary, so it’s important to consult state guidelines to determine tax obligations for specific services.

Physical nexus

Physical nexus for sales tax in Minnesota mandates that businesses with a physical presence in the state are required to collect sales tax on taxable sales. For 2024, the physical nexus criteria remain largely consistent with 2023, but adjustments reflect the state's evolving tax policies. Here’s a comparison:

Presence of Offices (2023 vs. 2024)

Both 2023 and 2024 stipulate that businesses with an office in Minnesota have a physical nexus. No changes have been made in this criterion.

Property Location (2023 vs. 2024)

If property is owned or leased within Minnesota, the company has a physical nexus. This continues unchanged in 2024.

Employee Presence (2023 vs. 2024)

The presence of employees (e.g., salespeople, service personnel) triggers a physical nexus. In 2024, the definition slightly broadens to include remote employees working from permanent home offices within Minnesota, reflecting increased remote work arrangements.

Warehouse/Storage (2023 vs. 2024)

Storing inventory in Minnesota also establishes a physical nexus. The 2024 regulations expand upon this to also include third-party logistics providers, ensuring that using external storage services within Minnesota still constitutes a physical presence.

Delivery Vehicles (2023 vs. 2024)

Regular delivery of goods using the business’s own fleet establishes nexus, unchanged from 2023 to 2024.

Temporary Business Presence (2023 vs. 2024)

Temporary physical presence like trade shows and transient employees continues to create physical nexus. In 2024, the definition is further clarified to include temporary physical stalls or pop-up shops regardless of duration, emphasizing even occasional presence.

Thus, while the overarching framework for determining physical nexus in Minnesota remains stable moving from 2023 to 2024, there are nuanced expansions to better capture modern business practices.

Economic nexus

Economic nexus for sales tax in Minnesota in 2024 remains crucial for remote sellers and service providers. Economic nexus refers to the requirement for businesses to collect state sales tax if they meet certain sales thresholds in a state, even if they lack physical presence there. Here is a comparison of economic nexus requirements for Minnesota in 2024 with those in 2023:

Sales Threshold

In 2023, remote sellers had to collect sales tax if their sales exceeded $100,000 or 200 transactions within the state in the current or previous calendar year. For 2024, this threshold remains unchanged, continuing to mandate collection if sales exceed $100,000 or 200 transactions.

Effective Date

The economic nexus law's essential application year was 2019 and has continued through 2023, into 2024 without modifications in its activation or criteria.

Sales Tax Rate

In 2023, the general state sales tax rate in Minnesota was 6.875%. This remains the same for 2024, with no change affecting state sales tax rate calculations due to economic nexus.

In-state Physical Presence

As of 2023, having a physical presence wasn't required for nexus if the economic threshold was met. This holds true in 2024, with the economic nexus overriding the necessity for physical presence.

Marketplace Facilitators

Marketplace facilitators, as of 2023, were required to collect and remit sales tax on behalf of sellers using their platforms if meeting nexus thresholds. This obligation continues into 2024, emphasizing the same operational obligation for marketplace facilitators.

Conclusively, economic nexus parameters for sales tax in Minnesota exhibit stability from 2023 to 2024, maintaining the same sales thresholds, tax rate, and operational mandates for remote sellers and marketplace facilitators.

Sales tax exemption certificates

Sales tax exemption certificates in Minnesota enable qualifying entities and individuals to purchase goods and services without paying sales tax. These certificates are typically issued to nonprofits, government agencies, and businesses that buy items for resale. To claim an exemption, the buyer must present a completed certificate to the seller at the time of purchase. The certificate must be filled out accurately, detailing the reason for the exemption, and the seller is responsible for maintaining these records to substantiate the exempt sale. Misuse or fraudulent use of these certificates can result in penalties for both the buyer and seller.

Sales tax discounts and incentives

Sure! In Minnesota, businesses may find various sales tax incentives and discounts beneficial. For instance, the state offers tax exemptions for certain types of equipment and purchases. Manufacturing businesses often benefit from the Sales Tax Exemption on Capital Equipment, which exempts qualifying capital equipment purchases from sales tax to encourage investment in the state's industrial capacity.

Additionally, there's the Greater Minnesota Job Expansion Program, which provides sales tax refunds to businesses in Greater Minnesota that meet specific job creation and investment requirements. This aims to stimulate economic growth and job creation in non-metropolitan areas of the state.

Moreover, purchases related to pollution control equipment, certain types of materials used in manufacturing, and specific services (like some repair and maintenance services) may also be exempt from sales tax. These incentives are designed to support various industries and promote sustainable practices.

It's also worth noting that Minnesota applies a use tax on taxable items bought out-of-state, ensuring that in-state businesses aren't at a disadvantage compared to out-of-state companies.

These measures collectively help reduce the financial burden on businesses and encourage investment and expansion within Minnesota.

State tax holidays in Minnesota for 2024

Sales tax holidays are specific periods during which certain items are exempt from state sales tax, encouraging consumer spending.

Minnesota does not have any sales tax holidays scheduled for 2024.