Let’s get physical in Minnesota (for sales tax purposes only)
- Oct 17, 2019 | Gail Cole
As the buzz around South Dakota v. Wayfair, Inc. and economic nexus continues, it’s important to remember that having a physical presence in a state still triggers an obligation to collect and remit sales tax.
To recap: The Supreme Court of the United States overruled a long-standing physical presence rule with its decision in South Dakota v. Wayfair, Inc. As a result, states now have the authority to require remote businesses — those with no physical tie to the state — to collect and remit sales tax. This is big.
However, the Wayfair decision didn’t alter the fact that states can and do require businesses with a physical presence in the state to collect and remit sales tax. Physical nexus existed before Wayfair, and it still exists.
You might think it would be simple to determine when you have physical presence in a state and when you don’t, but sometimes it isn’t. While having a brick-and-mortar store in a state guarantees nexus (the connection that triggers a tax obligation), attending a trade show in a state may or may not. It depends on the level of activity in the state and each state’s law.
The Minnesota Department of Revenue recently updated the criteria that determine when a business or marketplace is a “retailer maintaining a place of business in this state.” According to Revenue Notice 19-03, physical nexus is created in Minnesota when a retailer or marketplace provider:
- Delivers tangible personal property (aka, stuff) into Minnesota in their own vehicles
- Has or maintains a distribution center, office, sales space, warehouse, or other place of business in the state, either directly or by a subsidiary
- Has a permanent or temporary agent, canvasser, salesperson, solicitor, representative, or other third party operating in the state under the authority of the retailer or marketplace provider (or subsidiary) for any purpose
- Leases tangible personal property located in Minnesota
Conducting business activity in Minnesota
Furthermore, physical nexus is established when a remote retailer or marketplace provider “conducts business activity in Minnesota on at least four days during a 12-month period.” The collection requirement kicks in on the fourth day of such activity, and affected retailers and marketplaces must continue to collect and remit through the following 11 calendar months.
The following activities constitute a “business activity”:
- Engaging in convention or trade shows, or conducting seminars or similar events for the purpose of conducting or promoting business activity in Minnesota;
- Installing or assembling products in Minnesota;
- Investigating, handling, or otherwise assisting in resolving customer issues or complaints while in Minnesota;
- Making repairs, doing warranty work, or providing or arranging for maintenance or service in Minnesota;
- Owning, leasing, or maintaining tangible personal property or real property located in Minnesota;
- Providing customers any kind of service or technical assistance while in Minnesota (e.g., consulting service, design service, engineering assistance, product inspection, quality control, or other);
- Providing delivery into Minnesota in vehicles owned, leased, or maintained by the retailer or marketplace provider; or
- Providing taxable services while in Minnesota.
The following activities do not constitute a “business activity”:
- Advertising in Minnesota through media, including but not limited to a website accessible from within the state;
- Attending — not as a seller — conferences, board meetings, retreats, and seminars in Minnesota;
- Holding recruiting or hiring events in Minnesota;
- Meeting with Minnesota suppliers of goods and services;
- Meeting in Minnesota with government representatives in their official capacity; or
- Setting up or tearing down displays before and after trade shows, seminars, and similar events.
Revenue Notice 19-03 provides examples of a variety of physical nexus-triggering activities. However, it should not be used to determine when a remote retailer has economic nexus with Minnesota, an obligation to collect based only on sales or transactions in the state.
It’s tricky to determine nexus, especially for businesses that have a foot (or employee or truck) in more than one state. The first step is figuring out each state’s requirements. In this, Avalara’s Sales tax laws by state resources can help — navigate to state-by-state guides to economic nexus, physical presence nexus, and more.