In Minnesota, the Land of 10,000 Lakes, natural beauty blends seamlessly with a vibrant Midwestern spirit. Understanding sales tax in Minnesota means uncovering a system as balanced and dependable as the state’s renowned outdoor adventures and welcoming communities.
This guide breaks down everything you need to know about Minnesota’s sales tax, from determining the right sales tax rates to understanding exemptions and filing processes. By the end of this comprehensive guide, you’ll be equipped to handle Minnesota’s sales tax with confidence and ease.
Sales Tax Nexus in Minnesota
When a business creates either a physical or economic nexus, it is required to collect sales tax in Minnesota.
Physical Nexus
A physical nexus means having a significant physical presence or engaging in enough activities within a state to require the collection and payment of sales tax. The factors that determine a physical nexus in Minnesota include:
- Physical Location: This includes having an office, a place for distribution, sales, or showcasing products, a warehouse or storage facility, or any other place where you conduct business.
- Inventory in the State: This covers situations where you store your products within the state, even if it’s done through a third-party fulfillment center or 3PL (like Amazon FBA) or an online marketplace.
- Employees, independent contractors, agents, or other representatives operating on your behalf.
- Affiliate Nexus or Click-through Nexus: You could trigger a physical nexus if you have affiliates in Minnesota. This applies whether the affiliate operates online or in-person.
- Presence at Trade Show: Participating in trade shows, seminars, or similar events to promote or conduct business in Minnesota counts as business activity. Each day involved in these activities contributes to establishing a physical presence for sales tax purposes.
Economic Nexus
States have established regulations to collect sales tax from out-of-state sellers who meet certain revenue and/or transaction thresholds. This rule is known as economic nexus.
Beginning October 1, 2019, the threshold for economic nexus in Minnesota is $100,000 in gross revenue or 200 transactions in the prior 12 months.
While the nexus criteria mentioned above generally apply to most businesses, additional methods exist for establishing economic sales tax nexus. To access a comprehensive list of these rules, please refer to the
governing laws for economic sales tax nexus requirements in Minnesota.
Minnesota Sales Tax on Goods and Services
One of the first things you need to know is whether the goods you’re selling or services you’re offering are taxable in Minnesota.
Tangible Products
Almost all goods are taxable in Minnesota, including:
- Cosmetics
- Electronics
- Furniture
- Jewelry
- Personal Hygiene – Grooming and hygiene products, including baby items, are taxable.
- Medical Devices – Durable medical equipment is taxable unless sold for home use or covered by Medicare or Medicaid. No certificate is needed for home use.
The goods that are exempt from sales tax are:
- Groceries – Food and food ingredients are tax-exempt. This includes items in liquid, solid, frozen, or dried form, meant for human consumption, and consumed for taste or nutrition.
- Home Goods
- Feminine Hygiene Products
- Prescription Medications – All drugs for human use, both prescribed and over-the-counter, are tax-exempt.
- Clothing – Clothing suitable for general use is exempt. This includes but is not limited to aprons, athletic supporters, baby receiving blankets, bathing suits, costumes, children and adult diapers, shoes, underwear, etc.
- Diapers
- Textbooks
- Agricultural Supplies: Qualifying new and used farm machinery is tax-exempt if it meets the legal definition, is used directly in farming, and is used at least 50% of the time for agriculture.
Services
In Minnesota, the majority of service-based transactions, such as professional services, advertising, and employment services, are not subject to sales tax.
However, there are specific situations where certain services are taxable. For instance, taxable services are:
- Massage
- Motor vehicle cleaning
- Software maintenance
- Pet grooming and animal boarding
- Pest control and exterminating services
Software as a Service (SaaS)/Digital Products
SaaS is not taxable in the state of Minnesota. However, software is taxable if bought, leased, or licensed to a customer and stored on a server in Minnesota.
Digital products (i.e., ebooks, downloadable video content, mobile apps) are taxable.
Shipping/Handling
Shipping and handling charges in Minnesota are taxable if the sale of the item is taxable. If the item is exempt, the shipping charge is also exempt.
Sales Tax Permits and Licenses in Minnesota
You can register for a seller’s permit online through the Minnesota Department of Revenue (MNDOR) or follow our detailed step-by-step guide for assistance.
Seller’s Permit
A common area of confusion for many new business owners is understanding the need for a Sales and Use Tax Permit, also known as a seller’s permit. You can register for a Minnesota sales tax permit online at the
Minnesota Tax Portal (MTP) or follow our detailed
step-by-step guide for assistance.
Ensure you have specific information on hand when registering for a seller’s permit, including, but not limited to:
- Business Identification Information (name, address, phone number, email address)
- Business Entity Structure (sole proprietorship, partnership, corporation, LLC, etc.)
- Federal Employer Identification Number (EIN or FEIN)
- Owner/Partner/Officer Information
- Business Activity Details (description of products or services sold, sales volume, date of the first sale or the expected date to start dates)
- NAICS code
Registration fee
There is no fee to register for a sales tax permit.
Renewal
In Minnesota, you don’t have to renew your sales tax permit.
Resale Certificate
A resale certificate is a document that allows businesses to buy products without paying sales tax on them as long as they plan to resell those items to customers, who will then pay the tax. As a seller, you can also accept resale certificates from others looking to buy for resale.
In Minnesota, sellers use resale certificates to buy goods from their suppliers that they intend to resell. The issuance of the certificates is always done in good faith that the seller would report tax on the final sale of the items.
You can fill out the
Minnesota form ST-3 – Certificate of Exemption provided by Minnesota after you receive your sales tax permit. You can also fill out the
Streamlined Sales and Use Tax Certificate of Exemption if you would like to get
sales tax exemption for multiple states simultaneously. If you don’t want the hassle of registering, sign up for our all-inclusive service that includes sales tax registration.
Streamlined Sales Tax (SST)
The Streamlined Sales Tax (SST) is an initiative to simplify and standardize sales tax regulations across multiple states. Minnesota is a party to this program, meaning it follows the uniform rules and definitions established by SST.
Check with the Minnesota Revenue Services for the most current information on Minnesota’s participation in the Streamlined Sales Tax initiative.
Calculating and Collecting Sales Tax in Minnesota
Sales Tax Computation
In Minnesota, sales tax isn’t just one simple rate; it’s a combination of state and local taxes. To figure out the total sales tax for your calculation, you’ll need to add up the rates for the state, county, and city (if applicable) where your transaction occurs.
Here’s an example. Suppose an out-of-state seller satisfies the economic nexus criteria in Minnesota and sells to a customer in Rochester, MN, with a ZIP code of 55901. In that case, the seller has to charge the customer a total sales tax, which can be broken down as follows:
 |
SALES TAX FORMULA |
RATE |
| State: |
Minnesota |
5.50% |
| County: |
Cumberland County |
0.00% |
| District: |
First District |
0.50% |
| City: |
Rochester |
0.75% |
| Combined Sales Tax Rate = |
8.13% |
|
Origin-based vs. Destination-Based
When making in-state sales, it is important to determine if you are located in an origin-based state or destination-based state to figure out what rate to charge for sales tax.
Minnesota is a destination-based state, meaning sales tax is determined based on the buyer’s location. That means for a Minnesota-based seller, sales tax is generally based on the location of the buyer when selling within the state.
For out-of-state or remote sellers, the sales tax rate is always determined by the buyer’s location. For instance, if you’re selling a product from Maine to a customer in Eagan, Minnesota, where you have nexus, you’d apply Eagan’s sales tax rate to that sale.
To make life easier, consider using sales tax software or consulting a tax professional, like TaxHero, to ensure accurate tax calculations and collections. Understanding these tax rules helps you stay compliant, whether you’re in-state or out-of-state.
Filing and Remitting Sales Tax Returns in Minnesota
The next step after collection is filing and remitting your Minnesota sales tax returns. Filing and remittance can vary in frequency, typically monthly, quarterly, or annually.
- Annual Filing: If your average monthly sales tax liability is less than $100, you are required to file annually.
- Quarterly Filing: For an average monthly liability between $100 and $500, quarterly filing is mandated.
- Monthly Filing: If your average monthly sales tax liability exceeds $500, you must file monthly.
It’s crucial to keep accurate records of your sales and tax collections and adhere to the filing schedule set by the state to remain compliant with Minnesota’s sales tax regulations.
Due Dates
In Minnesota, the due date falls 20th day of the following month. For instance, sales tax collected in January is due by February 20th for monthly filers.
However, if this day is a holiday, weekend, or in the rare occurrence of a natural disaster, the deadline is typically extended to the next business day. For instance, if you’re a monthly filer and filing sales tax for the month of April, and the May 20th deadline falls on a holiday or weekend, you’ll have until May 21st, the following business day, to submit.
Filing Sales Tax Returns
To file your sales tax return for Minnesota, a few options are available:
- File online through the Minnesota Department of Revenue.
- File by phone – To file by touch-tone phone, call 1-800-570-3329. If your sales and use tax liability is $10,000 or more during the state’s fiscal year (July 1 – June 30), you must pay all taxes electronically starting the next calendar year.
- File with TaxHero – Let TaxHero take care of it so you don’t have to worry about missing a payment or return.
Timely Filing Discount
Some states offer a discount to businesses for collecting, filing, and remitting sales tax on time as an incentive to process sales taxes promptly. However, Minnesota does not offer a discount.
Sales Tax Holiday
Currently, for 2024-2025, there are no planned sales tax holidays in Minnesota.
Minnesota Sales Tax Penalties
Like in most states, sales tax is a big part of how Minnesota generates revenue. Thus, maintaining compliance with sales tax regulations is of utmost importance. Failure to do so can lead to consequences and sales tax penalties. Therefore, it is crucial always to ensure you are up-to-date in filing, collecting, and remitting sales tax to the state.
Here are the specific penalties for non-compliance with sales tax regulations in Minnesota:
- Late Filing Penalty: 5% of unpaid tax if filed late.
- Late Payment Penalty: 5% to 15% of unpaid tax, depending on the delay.
- Interest: Interest is charged on any unpaid tax from the due date until the tax is paid in full. The interest rate is determined annually by the Minnesota Department of Revenue.
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