Known as “the land of 10,000 lakes”, people first came to Minnesota during the last ice age. They probably followed herds of large game into this area. Some of those early Minnesota people carved pictures of humans, animals and weapons into rocks. Some of these carvings, called “petroglyphs,” are thousands of years old – and many are still visible today.
Minnesota became the 32nd state in the union in 1858. The state covers 79,626 square miles, and almost 10% of that surface area is covered by water. That water area actually includes 11,842 lakes of 10 acres or more (nearly 20% more than the number the state is known for), and 69,200 miles of rivers and streams. The mighty Mississippi originates in Minnesota, and the first 600 miles of its total 2,552 miles flow through the state.
Minnesota has a population of approximately 5.4 million people. The Minnesota Department of Revenue is responsible for collecting the Minnesota state sales tax of 6.875 percent from all those people on all products except purchases of unprepared food, clothing, shoes or medicine, which are not taxed. In many counties and cities the total sales tax will be higher, in fact no less than 8 counties have had sales tax changes go into effect since April of 2014. The map shown illustrates the variability and complexity of the cities, counties and state tax rates in just the ‘twin cities’ area.
About Sales Taxes and this series:
Thanks to Avalara, the 'tax people', this article is one in a 50 part series. Yes, I said (50 parts), covering sales tax issues associated with each and every state tax jurisdiction in the United States. We will be publishing an article essentially every Tuesday, thus the series name "Sales Tax Tuesday" over the entire year of 2015.
Who knows, by the end of this year there could be sufficient changes to just start the whole series over again with updated information.
Sales tax provides critical revenue for states. Other than property and income tax, sales tax is the largest source of tax revenue in the majority of the 46 states that collect it. From a government perspective, making sure every sales tax dollar is collected, through audits, fines, penalties rates and rules, is an exercise for income. It’s easy to be lured into a false sense of compliance when it comes to sales tax, this series is intended to insure that you are aware of the key sales tax facts for YOUR state.
Note: For sales tax definitions and essentials check out the opening article to this series.
Minnesota Sales Tax Facts1:
1) Sales and Use tax managed by the Minnesota Department of Revenue.
2) Member of the Streamlined Sales Tax (SST)
3) Minnesota has 35 different sales tax jurisdictions. The state rate is 6.875% and the total rate can range as high as 7.875% when including local jurisdictions. The average is 7.19% making it the 17th highest average sales tax rate. 4) Sales tax is sourced at the destination address.
4) Some common nexus creating activities are: place of business, agents of the business operating permanently or temporarily (contract workers or sales force).
5) Systematic solicitation can create nexus (categorized by more than 100 sales in 12 consecutive months OR 10 or more sales totaling in over $100,000 in 12 consecutive months)
6) Minnesota has a click-through nexus statute - direct or indirect referrals of potential customers via link on a website that results in $10,000 or more in sales over a 12-month period.
7) Minnesota has an extensive list of taxable vs. non-taxable products and services, but some unique examples include:
- Food, food ingredients and candy are non-taxable in Minnesota, but “candy” cannot list flour as an ingredient, or require refrigeration. Prepared foods are taxable (generally categorized by eating utensils being provided by the seller).
- Optional maintenance contracts on equipment are taxable. Optional maintenance contracts on software are taxed at 20% of the total rate. Optional warranty contracts remain non-taxable.
8) Exemptions certificates are valid for the following business: distributors and manufacturers, those qualified for the Minnesota Job Expansion refund program, local government entities, and for purposes of resale. There is no expiration for state exemption certificates.
9) Certain non-profits are exempt from sales tax including churches, schools, and museums, but do NOT include chambers of commerce, homeowners associations, social clubs (fraternities/sororities), medical clinics or hospitals and outpatient surgical centers.
10) Minnesota tax returns are required on either a monthly, quarterly or annual basis depending on the average tax per month remitted, but if the business reported more than $250,000 in the previous fiscal year, they will also be required to remit a bi-annual accelerated payment on June 26th of each year.
I try to find something unique or of keen interest about each state, or that state's Sales Tax. Now I could tell you about the time that I was playing golf in Minnesota and got hit in the head with a golf ball, but then you would all know why I am crazy as I am. But instead I thought I would share something I found keenly interesting about Minnesota Sales Tax. You might think that states would ‘tax’ services the more essential the service, but actually the rule of thumb is just the opposite; the more essential a service the more likely it is to be exempt from sales taxes.
Take ‘’snow removal’ for example, different states tax it differently, some tax removing it, some tax making it, and other tax ‘playing’ in it. Well you probably know that Minnesota is a ‘snow state’, average annual snowfall ranges from more than 100 inches per year to around 36 inches per year. It seems pretty obvious that ‘snow removal services’ are probably essential in Minnesota, fortunately they are NOT subject to sales tax, nor is ‘snow plowing’.
So what about ‘playing’ in the snow, well it all depends on the definition of playing I guess. Admissions to ski areas ARE taxable, however, cross-country ski passes for use of public trails are NOT taxable. Items used or consumed primarily for tramways at ski areas or in snowmaking or snow grooming are exempt from sales taxes. So even ‘snow’ and anything related thereto can be a source of complexity as far as sales tax is concerned.
Manual sales and use tax management is prone to error and consumes staff time in pass-through rather than revenue-generating activities. You can easily see the complexity of sales tax in Minnesota just in the map of the ‘Twin Cities’. But despite the complexity and intricacies Avalara provides solutions for sales tax automation, including tax calculation, exemption certificate management, returns processing and 1099 filing and reporting. Automation via Avalara allows businesses to be fully sales tax compliant without sacrificing productivity.
Footnote/Credits:
1 - State by State Sales Tax - Minnesota, Patrick Neu, Avalara - February, 2015