How Will Minnesota’s Storage and Warehouse Services Tax Impact You?
- Tax Tips
- Mar 11, 2014 | Gail Cole
On April 1, 2014, business-related storage and warehouse services in Minnesota will be subject to sales tax. It’s a big deal. This change could trigger a sales tax collection obligation for remote retailers not currently collecting in Minnesota. Will it impact you? Will you be required to file a sales tax return in Minnesota, beginning April 1, 2014?
If your business is based outside of Minnesota but you ship to Minnesota customers and store your products in a Minnesota warehouse or storage center, you may be subject to the new tax. Since sales tax in Minnesota is based on the destination of the product rather than the source of the sales transaction, finding the right rate requires resourcefulness.
The following items are subject to the new sales and use tax for storage and warehousing services:
- Coal storage;
- Customs (foreign trade) warehousing;
- Document storage and warehousing;
- General warehousing and storage of goods
- Hazardous waste storage;
- Lumber storage terminals;
- Liquor warehousing;
- Self-storage services the purchaser can deduct as a business expense on its federal income tax return; and
- Storage for construction machinery or supplies.
There are exemptions from this tax, of course. Storage services provided by a parent company or affiliate group are not taxable. In addition, storage services are exempt for the following:
- Agricultural products still in their raw state;
- Refrigerated storage;
- Electronic data storage;
- Self-storage services and storage of motor vehicles, recreational vehicles and boats (when those services cannot be deducted as a business expense); and
- Petroleum products (interstate petroleum terminals).
To clarify: agricultural products such as apples, corn, lettuce, potatoes, sugar beets and wheat are exempt from the sales and use tax on warehouse and storage services. However, bottled honey, cheese and flour are subject to the tax—unless they are kept in refrigerated storage. Further explanations are provided on a Minnesota Department of Revenue fact sheet on the subject.
The Minnesota Warehouse Association (MWA) has a “Countdown to Warehouse Tax” on the front of its website. According to the MWA website, “Minnesota’s third-party logistics industry employs 14,253 Minnesotans… and pays approximately $36,111,392 in Minnesota payroll taxes.” In other words, a lot of businesses store items in Minnesota warehouses and storage facilities.
Minnesota is not the first state to subject warehousing and storage services to sales tax. Hawaii, New Mexico, South Dakota and West Virginia also tax these services. Mississippi, which also taxes warehousing services, allows an exemption for “perishable goods and for goods to be shipped outside of the state.”