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Minnesota seeks to tax more out-of-state sellers

  • Jan 16, 2017 | Gail Cole

 Minnesota lawmakers consider expanding sales tax to more remote retailers.

Update, 6.6.2017: Minnesota HF 1, which imposes a tax collection obligation on marketplace vendors, became law without the governor's signature on May 30.

Update, 5.10.2017: HF 2143 is similar to SF 45 but is being more favorably received. This is likely due to its effective date. HF 2143 is effective at the earlier of July 2020 or "a decision by the United States Supreme Court modifying its decision in Quill Corp. v. North Dakota ... so that a state may require retailers without a physical presence in the state to collect and remit tax."

Last year, Minnesota Gov. Mark Dayton’s pocket veto of an omnibus tax measure blocked an attempt to broaden the definition of a “retailer maintaining a place of business” in Minnesota. Now the Senate is again considering legislation that would increase the activities that create an obligation to collect and remit sales and use tax in Minnesota.

Under SF 45, introduced last week, a tax obligation is created if a retailer or its subsidiary or affiliate:

  • Has or maintains a place of storage in Minnesota
  • Employs a Minnesota resident who works from a home office
  • Has a representative, including a marketplace provider or other third party, operating in the state for any purpose, including facilitating or processing sales

According to the bill, “A retailer is represented by a marketplace provider in this state if the retailer makes sales in this state facilitated by a marketplace provider that maintains a place of business in this state.” Facilitating a sale includes:

  • "Listing or advertising for sale by the retailer, in any forum, tangible personal property, or taxable services or digital goods"
  • "Either directly or indirectly through agreements with third parties collecting payment from the customer and transmitting that payment to the retailer regardless of whether the marketplace provider receives compensation or other consideration in exchange for its services"

Small seller exception

Only retailers with “total taxable retail sales” in Minnesota of $10,000 or more in the “12-month period ending on the last day of the most recently completed calendar quarter” are obligated to collect and remit Minnesota sales and use tax under SF 45. The bill allows an exception for retailers making less than $10,000 worth of “taxable retail sales” during that time period.

Affiliated entities

An affiliated entity under SF 45 must collect Minnesota sales and use tax if any of the following are true:

  • It “has the same or a similar business name as the retailer and sells, from at least one location in this state, [taxable] tangible personal property, digital goods, or services … that are similar to those sold by the retailer”
  • It “maintains an office, distribution facility, salesroom, warehouse, storage place, or other similar place of business in this state to facilitate the delivery of tangible personal property, digital goods, or services sold by the retailer to its customers” in Minnesota
  • It “maintains a place of business in this state and uses trademarks, service marks, or trade names in this state that are the same or substantially similar to those used by the retailer,… with the express or implied consent of the holder of the marks or names”
  • It delivers, installs, assembles or performs maintenance or repair services on tangible personal property in Minnesota sold by the retailer
  • It facilitates the delivery of tangible personal property to the retailer’s customers by allowing the customers to pick up tangible personal property sold by the retailer at a place of business maintained by the entity in Minnesota
  • It “shares management, business systems, business practices, or employees with the retailer, or engages in intercompany transactions with the retailer related to the activities that establish or maintain” the retailer’s market in Minnesota

Furthermore, the retailer and the entity no longer need to be “related parties” under SF 45 for a tax obligation to be created.

If SF 45 is ultimately enacted, Minnesota will join a growing number of states attempting to increase sales and use tax revenue by taxing out-of-state vendors that make sales in the state.

Tax automation software facilitates sales and use tax compliance for companies doing business in multiple states. Learn more.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
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.