If your business operates within or you sell to people in the state of Minnesota, you may have wondered if you have to worry about sales tax. When do you have to collect it? Does your business have nexus in the state? What’s the correct amount of sales tax to collect anyway?
To clear these questions up, we thought we’d take a look at sales tax within the state of Minnesota. We’ll get to the bottom of Minnesota sales tax so you can get back to doing what you love, sourcing, selling and making a profit.
You’re an online seller, but don’t live in Minnesota
Unless you fit into the definition of nexus below, you don’t have to worry about sales tax in Minnesota if you operate out of the state. At least, not yet – make sure to keep up on any news about changing internet sales tax laws!
You live in and/or operate a business in Minnesota
If you operate a physical business in Minnesota, you must register your business in the state. The Sales Tax Booklet shows you who needs to register and how to do about it doing it.
You must also collect sales tax. The sales tax rate you collect depends on where your customer lives since Minnesota is a destination based sales tax state. The Minnesota base sales tax rate is 6.875%, but you must add any applicable local rates, too.
So for example, although the base rate is 6.875, if your customer lives in St. Paul, you would pay a total of 7.625%. If they live in the Anoka area, you would pay 7.125%. Use TaxJar’s handy Sales Tax Calculator to quickly look up local sales tax rates in Minnesota.
If you are an online seller, live out-of-state, and use a fulfillment service (like FBA)
There are no Amazon fulfillment warehouses in Minnesota, so FBA will not create nexus for you in this state.
However, that’s not the end of the story. The state recently ruled that 3rd party fulfillment does create sales tax nexus in Minnesota.
The Minnesota Department of Revenue’s website lists several criteria for what constitutes nexus in the state. You have Minnesota sales tax nexus if you’re a seller and you:
- Have an office, distribution, sales, sample room location, warehouse, or other place of business in Minnesota
- Have a representative, agent, salesperson, or solicitor either on a permanent or temporary basis
- Deliver items into Minnesota in your own vehicles
- Provide taxable services in Minnesota
- Have entered into an agreement with a solicitor for the referral of Minnesota customers and your gross receipts over 12 months is at least $10,000
If any of the above applies to you, then you must register your business for Minnesota. Even if you don’t live in Minnesota, the process of collecting sales tax for you is essentially the same as it is for someone who lives in Minnesota, because of the destination-based tax. Combine the basic state rate, 6.875%, with the local sales tax rate of the area you are shipping to to get your total.
Collecting the correct sales tax rate
If you operate within the state or have nexus within Minnesota, you must collect sales tax. So to get down to the nitty-gritty, how much do you have to worry about collecting.
Take another look at the Sales Tax Booklet to get an idea of what you owe. The basic sales tax rate for the state is 6.875%, but you must also take local rates into account. For an example, if your customer is in the Dakota area, you would add the base rate to the local rate to pay a 7.125%. The Scott area appears to not have a local rate so you would pay the base rate of 6.875%.
Also, make sure you’re collecting on shipping as well, as Minnesota considers shipping, handling, and installation charges taxable.
Confused? Don’t be – just use TaxJar’s Sales Tax Calculator to find all the local sales tax rates in Minnesota you need.
Filing sales tax in Minnesota
If you need to file a sales tax return in Minnesota, TaxJar has your back. You can now enroll in AutoFile for the state of Minnesota and we’ll automatically file your sales tax return for you! Find out more at TaxJar.com.
Summing It Up: Minnesota is a destination based sales tax state
First off, if you operate out of the state and don’t have nexus in Minnesota, you don’t have to worry about sales tax.
If you do fall in one of the other two categories, you have to pay sales tax. The base rate is 6.875%, but Minnesota is a destination based sales tax which means you have local rates to worry about. How much you charge depends on where the item is shipped. Add the base rate to the local rate to get your total. Also, be sure to take shipping, handling, and installation charges into account, as Minnesota considers those charges fair game for sales tax.
Do you have experience selling in Minnesota? Any questions about Minnesota sales tax? Comment below to get the discussion going!