Minnesota: Out-of-state sellers must collect sales tax starting October 1, 2018

The Minnesota Department of Revenue has announced it will require marketplace providers and certain out-of-state sellers to collect and remit sales tax as of October 1, 2018.

In June 2017, Minnesota became the first state to impose a tax on marketplace providers like Amazon. Although the online behemoth has collected and remitted tax on its own sales in all states since April 1, 2017, it generally doesn’t do so on its third-party (i.e., marketplace) sales. Minnesota’s law holds that selling through a marketplace creates nexus — a tax collection obligation — for remote sellers, and requires marketplace providers with a place of business in Minnesota to collect and remit tax on behalf of its sellers.

Although the law was enacted in mid-2017, it had a delayed effective date: the earlier of July 1, 2019, or when the Supreme Court of the United States modifies its decision in Quill Corp. v. North Dakota, or if Congress enacts a law authorizing a state to impose a requirement to collect and remit sales tax on retailers without a physical presence in the state.

On June 21, 2018, the Supreme Court of the United States overruled Quill’s physical presence rule in South Dakota v. Wayfair, Inc., thus authorizing a state to impose a tax collection obligation on an out-of-state seller.

Consequently, the Minnesota Department of Revenue explains:

• Remote sellers that sell goods or services into Minnesota from other states must register and begin collecting sales tax in Minnesota no later than October 1, 2018.
• Minnesota businesses that remotely sell into other states may also need to start collecting sales tax in those states.

According to the department, the Wayfair decision affects businesses that sell products or services into Minnesota or another state but have no physical presence in that state. Sales can transpire over the internet, by mail, phone, or other means. It also affects marketplace providers that facilitate retail sales in Minnesota, whether they receive compensation or not.

Small seller exception

However, Minnesota does allow an exception for small sellers. The collection requirement isn’t triggered until an out-of-state seller’s sales in Minnesota total either: 

• 10 or more retail sales shipped to Minnesota totaling more than $100,000 during a period of 12 consecutive months; or
• 100 or more retail sales shipped to the state during a period of 12 consecutive months.

For additional information about Minnesota’s sales tax collection requirements for remote sellers, visit the Minnesota Department of Revenue website and its extremely informative FAQ page on South Dakota v. Wayfair, Inc.

To learn more about South Dakota v. Wayfair, Inc. and its potential impact on your business, visit this Avalara resource page.