What is the state sales tax rate in Minnesota?

The state sales tax rate is 6.875%, and local jurisdictions may add additional local sales taxes that increase the total rate charged at the point of sale.

When must a seller register to collect Minnesota sales tax?

A seller must register if it has a physical presence in Minnesota or meets economic nexus thresholds through remote sales, at which point the seller must collect and remit applicable state and local sales taxes.

Minnesota Sales Tax: Small Business Guide for Online Sellers

Overview

Information about Minnesota Sales Tax Important Note: This blog is for informational purposes, and we advise you to consult with a local tax professional. This guide will explain the state sales tax rate, how local taxes work, which transactions are taxable, who is responsible for registering and collecting tax, how to file a return and pay the tax you owe, and much more.

State and Local Rates

Minnesota has a state sales tax rate of 6.875%. Local sales taxes Local sales taxes in addition to the state rate can be imposed, and these vary significantly. Local rates differ in each city and county and can raise the total tax to be collected at the point of sale. To arrive at the total tax percentage for a sale, add the state rate to any local rates pertaining to the item you plan to sell.

What Transactions Are Taxable

The rule is that sales of tangible personal property are taxable at retail in Minnesota. Some services are also taxable, including repair and maintenance services, and some digital goods or software can be taxed depending on how they’re transmitted. A sales tax is imposed on the retail sale, lease or rental of tangible personal property. Some exemptions for special kinds of sales are included here.

Common Exemptions and Non-Taxable Sales

Sales tax is not due on all sales. Common exemptions include:

Sales for resale: Goods sold to end users may also be exempt when the purchaser gives a valid resale certificate.

A few groceries and prescription drugs: Some groceries and prescription drugs may be exempt or taxed at different rates.

Products and inputs to manufacturing and industrial production: Parts and equipment used in the direct manufacturing of a product may be considered exempt.

Non profit & government purchases : Those who purchase for a qualified organization could be exempt but proof of exemption must be submitted.

Sellers will want to be sure they understand the rules of what is or isn’t exempt and secure, and retain, exemption certificates for any exempt sales in case of audit.

Registration and Nexus

Out-of-state sellers with a physical presence in Minnesota (such as a warehouse or employees) are required to register for sales tax. Remote sellers and marketplace sellers are also required to register under economic nexus rules if they meet a threshold of sales into the state. Remote sellers generally will have to register and collect sales tax when their sales into Minnesota exceed the economic nexus threshold. After nexus is created, the seller will be required to collect the accurate combined state and local rates on all taxable transaction.

Collection and Point of Sale

Charge the combined state and local sales tax to your customer when making a taxable sale. The sales tax paid is not the seller's money; it is held in trust for the state, and must be remitted based on how often a filing requirement applies to the seller. Precise point-of-sale systems and legible receipts will help to see the right amount is being collected and reported.

Filing, Reporting, and Payment

Once registered, sellers are required to file sales tax returns and pay over the collected tax. Filing interval (monthly, quarterly, annually) is based on how much the seller makes in taxable sales and owes in tax. Total sales, taxable sales, exempt sales and the tax collected must be shown on returns. Exact adherence to payment due dates and filing deadlines is necessary to avoid penalties and interest. Maintain complete records of sales, exemption certificates, and remittances for the period required by law.

Marketplace Facilitators and Third-Party Sellers

Marketplace facilitators which facilitate sales for third-party sellers are often required to collect and remit the sales tax on those sales. This relieves the burden of collection for individual sellers who make sales through such a marketplace. But sellers should ensure third-party sales are being taxed correctly and keep records for tax and compliance purposes.

Use tax and out-of-state purchases

When sellers or buyers buy taxable items from an out-of-state seller and do not pay Minnesota sales tax, you may owe a use tax. Use tax mirrors sales tax and aims to shield local businesses against unfair competition by clawing back a share of the taxes lost on purchases made out of state. Businesses ought to maintain records of what they buy, and in some cases remit tax (also known as use tax).

Common Compliance Challenges

The seller must often grapple with multiple compliance challenges such as: figuring out the appropriate local rate to charge on a sale, handling exemptions and resale certificates, continually tracking nexus around different states, and being up to date with taxability rules for digital goods or services. Regularly updating taxability rules, maintaining good records and reconciling POS reporting to tax returns makes errors less likely.

Practical Tips for Sellers

Identify nexus early: Examine where your business has property, employees, inventory or substantial sales and register as soon as you establish nexus.
Document diligently: File sales journal, exemption certificates and records of tax collected and paid.
Run taxability: Determine whether certain items are taxable or nontaxable and retain records of the standard for taxation.
Keeping up to date on local rates: Local taxes can change the total rate you are charged; check periodically for updates on any applicable local taxation.
Reconcile returns: Track the filed return and compare to sales records once they’re received, making sure that remittance matches collected taxes and adjusting quickly if discrepancies arise.

Preparing for an Audit

Keep good records of all sales transactions including receipts, sales journals, exemption certificates and filed returns. If you can show an established pattern of tax collection or exemption application and timely payment, inquires can be resolved more easily.

Conclusion

Minnesota Sales tax in Minnesota is between one state wide rate and mega taxes from local jurisdictions, so the rules vary depending on what’s being sold (or provided as a service. What’s taxable; when to register, when and how much tax to collect and remit, and how to document exempt sales. Through proper record keeping, tracking nexus and local rates, and following filing requirements, businesses can minimize compliance risk and concentrate on their customers.