Minnesota Sales Tax Guide
Chapter 8: Understanding Minnesota sales tax rules for shipping & handling
Minnesota’s sales tax rate starts at 6.875 percent, going as much as a percentile higher in some areas of the state, since some areas charge additional local taxes on that rate. When it comes to shipping and handling, the state has a set of policies that are fairly straightforward. However, because many items sold in the state are tax-exempt, including food and clothing, working out sales tax rates can sometimes be complicated.Is Shipping Taxable in Minnesota?
Like most states (and most everything in the world of sales and use tax), the answer is…it depends. There are a number of factors that impact whether the Minnesota Department of Revenue will require you to collect sales tax on shipping and handling. We’ll outline some of those situations below. As is always the case, specific questions on shipping in Minnesota and sales tax should be taken directly to a tax professional familiar with Minnesota tax laws.Sales Tax on Delivery
In Minnesota, the taxability of shipping, handling, and delivery charges depends on how the products are delivered. If a business delivers the goods itself, those charges are considered part of the purchase price and are therefore taxed with the rest of the purchase. This means that if the items in the sale are taxable, so are all handling and delivery charges.
However, when a business uses a third-party delivery service or a postal carrier to get the goods to customers, shipping, handling, and delivery costs are tax-exempt. One major exception to this is the delivery of aggregate materials and concrete block, which are subject to sales tax on both product and delivery. If a business merely moves these materials from one site to another, delivery charges are not taxable unless the delivery is connected to a purchase.Non-Taxable Items
In Minnesota, there are quite a few items that are exempt from sales tax. When a customer purchases a tax-exempt item, the delivery charge is also exempt, even when the seller is handling the delivery. Tax-exempt items in Minnesota include prescription medications for humans, food, and clothing, as well as items that have been purchased with a complete exemption certificate.
In some cases, a business will make a sale that includes both tax-exempt and taxable items. In this case, the seller should either charge a percentage based on the purchase price or a percentage based on the weight of the taxable items. To determine this amount, the seller should divide the cost or weight of the taxable items by the total items in the shipment.Out-of-State Sales
Minnesota does not charge a sales tax on items shipped outside of Minnesota, although businesses may be required to pay sales tax in the destination state. This applies whether the seller or a third-party service delivers the item. For items shipped to Minnesota residents by an out-of-state business, sales tax depends on whether the business has nexus in that state or not.
If a business has nexus in Minnesota, it must charge sales tax in accordance with state laws.
This means that if the business delivers the item, delivery is taxable, but if a third-party provider handles the delivery, delivery charges are tax-exempt. Whether delivery charges apply or not also depends on whether the items themselves are taxable or tax exempt. An out-of-state business with nexus in Minnesota who sells food to a Minnesota resident does not have to pay tax on delivery unless the item was combined with taxable items.Words of Caution
When asked for any words of caution to businesses, a spokesperson for the department emphasizes that businesses must register through Streamlined Sales Tax (SST). At that point, a business must collect the sales tax rate based on the destination of the taxable item or service being sold.
“You must apply the sales tax rates to the delivery charges,” a representative of the Minnesota Department of Revenue says. “For sellers with a physical presence in Minnesota, all nexus provisions apply to the sale of taxable items or services. If you do not charge sales tax to the purchaser of a taxable item or service, the purchaser must pay use tax on the item or service.”
For businesses shipping products in Minnesota, sales tax must be applied to all delivery charges on taxable items. So it’s important to first determine which products are tax-exempt in the state. Once a business has worked that out, it can be easy to calculate sales tax on shipping and delivery based on the state’s current rates.