MN Sales Tax 101

Minnesota Rules that 3rd Party Fulfillment DOES Create Sales Tax Nexus

by Mark Faggiano

Minnesota sales tax nexusOne of the hottest debates we see here at TaxJar and in the Sales Tax for eCommerce Sellers Facebook group is about whether storing goods in a 3rd party fulfillment center (such as an Amazon Fulfillment Center) constitutes sales tax nexus. Our stance, after carefully studying various state’s laws, is that yes, in most states, housing goods in a 3rd party warehouse does give your business sales tax nexus and all the compliance responsibilities that go with it.

In defense of the detractors, the laws are written in legalese that barely anyone can understand. Still, many sellers challenge the fact that housing goods in a warehouse constitutes a presence “significant” enough to mean that they are on the hook for sales tax in those states. They make intelligent-sounding arguments.

But yesterday, the state of Minnesota came out and explicitly posted a bulletin stating that using a warehousing or storage service for tangible goods is grounds for sales tax nexus in the Gopher State.

The bulletin states:

“Beginning April 1, 2014, Minnesota sales and use tax applies to business-related warehousing and storage services for tangible personal property.”

Minnesota Warehouse Sales Tax Nexus

It further says:

“If a storage or warehouse facility is in an area with local sales taxes, they also apply.”

This seems to leave no ambiguity that anybody who sells through a 3rd party and stores goods in a warehouse in Minnesota has sales tax nexus in that state.

As of now, there is no Amazon Fulfillment Center in Minnesota, so many of our FBA customers don’t have to worry about this particular law.

Significantly, though, this shows that states are starting to take note of the issue of FBA and other fulfillment services, and making or clarifying sales tax laws at it relates to 3rd party selling. One simple fact remains: states are starved for ways to increase their base of taxpayers. Loosening nexus laws is one way to get more businesses to pay sales tax in Minnesota. If it works there, common sense says other states will be quick to follow their lead.

Get the conversation started below. What do you think of Minnesota’s bulletin? Are you directly affected? Do you think other states will copy this trend soon?

  • Todd Ryks

    Thanks for this article. I live in Minnesota and have had difficulty figuring out my tax liabilities regarding FBA. Even though Amazon doesn’t have a warehouse here (yet) I’m still wondering if I need to collect taxes from sales that are shipped to someone who lives here.

    • If you live and/or operate your business in MN then you are required to register your business with the sate and collect sales tax on items shipped to folks in the state.

      • Todd Ryks

        Thanks. Brain fart on my part. Obviously I have to collect sales taxes on sales to my own state.

  • Charlie

    Does this mean in the state of MN, any items that are FBA’d I would have have to pay use tax on those services?

  • HI Charlie – are you speaking as the buyer or the seller?

  • Todd Ryks

    Amazon to collect Minnesota sales tax starting Oct. 1
    http://www.startribune.com/business/276219111.html

    Will a warehouse be next?

  • Pingback: Will Out-of-State Sellers Soon be Collecting Connecticut Sales Tax?()

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