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Minnesota Sales Tax Reform


 Minnesota Sales Tax Reform: This Could Be Big.

UPDATE 3.11.13: On March 8 at the TwinWest Chamber breakfast, Governor Dayton (D) announced that he is abandoning his proposal to expand the state sales tax to many business services. TwinWest Chamber president Brad Meier tweeted the news: “Governor Dayton says biz to biz tax will be off the table in revised budget.” The news should please business leaders, some of whom have reportedly considered leaving the state over the service tax issue. When he addresses the Minnesota Chamber of Commerce later this week, Governor Dayton is expected to “ask business people to devise solutions, not simply oppose tax and spending levels.

The Minnesota Department of Revenue has released a Sales Tax Reform Overview that parses Governor Mark Dayton's (D) proposed budget. At the outset, it points out that "Governor Dayton's budget proposes the largest cut to the sales tax rate in state history."

In other words, this could be big.

The overview provides examples of what is and isn't taxed under the governor's proposed budget. These include (but are not limited to) the following.

Still exempt from sales tax under the proposed plan:

  • Some agricultural items;
  • Capital equipment;
  • Clothing items under $100;
  • Daycare services;
  • Food;
  • Funeral services;
  • Medical services;
  • Mining production materials;
  • Nonprofit purchases;
  • Personal care attendants;
  • Public safety items;
  • Prescription drugs;
  • Renewable energy systems;
  • Residential heating fuels;
  • Textbooks, computers for school use; and
  • Veterans organizations memberships.

Currently taxed and would remain subject to taxes, but at new rate of 5.5%:

  • Appliances;
  • Artwork;
  • Auto parts/ repair parts;
  • Books, CDs, magazines.
  • Candy bars;
  • Cats and dogs, and pet grooming services;
  • Cleaning services and supplies;
  • Electronics;
  • Furniture, linen, and housewares;
  • Jewelry;
  • Lawn care services, lawn and garden items;
  • Lodging;
  • Lumber, paint, tile;
  • Outdoor recreation items and sporting goods;
  • Personal care items;
  • School supplies;
  • Toys; and
  • Utility bills.

Newly subject to taxes under the proposed plan, at 5.5%:

  • Accounting services;
  • Admission to events, and memberships;
  • Advertising services;
  • Architectural and engineering services;
  • Auto repair;
  • Bank charges;
  • Investment counseling;
  • Clothing items more than $100;
  • Computer services;
  • Consulting services;
  • Design services;
  • Digital products;
  • Legal services;
  • Over-the-counter drugs;
  • Personal instruction;
  • Personal services;
  • Publications;
  • Transport and travel services; and
  • Veterinary services.

A complete list of taxable and exempt goods and services is available at the Minnesota Department of Revenue.

Sourcing

The overview also deals with sourcing issues. In a nutshell:

  • If both the buyer and seller are in Minnesota and the purchase is delivered to a Minnesota address, the purchase (good or service) is subject to sales or use tax.
  • If the buyer is in Minnesota but the seller is not, seller must collect and remit sales tax to Minnesota if it has nexus. If seller does not have nexus, buyer must pay use tax.
  • If the seller is in Minnesota but the buyer is in another state, the purchase is not subject to Minnesota sales or use tax but may be subject to those taxes in the other state.

Specific Industries

How specific industries are taxed may change under the governor's proposed budget. The overview delves into the following industries, providing examples of what will still be exempt, what will still be taxed but taxed at a new rate, and what will be newly taxed.

  • Manufacturing;
  • Contractors and labor;
  • Agricultural production; and
  • Nonprofits.

It's a Wash

The overview underscores that while consumers would be paying taxes on additional goods and services, since the tax rate on all goods and services would be lower, consumers would end up paying roughly the same amount of taxes overall.

How to Keep Up?

Keeping on top of sales tax changes and exemption certificates in all 50 states can be tricky. Let others keep keep track of sales tax changes for you.

photo credit: Chuckumentary via photopin cc


Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.