Sales and Use Taxes in Minnesota

April 13, 2006

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In Minnesota the sales tax is a general tax levied on the gross receipts from sales at retail of tangible personal property or on its lease or rental. Minnesota also charges sales tax on the furnishing of specified services. Taxable services include renting, producing, fabricating, printing, or processing of tangible personal property, preparation or serving of meals or drinks, entertainment admissions and membership fees, lodging, utilities, telecommunications, parking, cleaning, security, pet care, and lawn care.

Sales and use tax rate. Minnesota's general rate of sales and use tax is 6.5 percent. The tax rate on sales of intoxicating liquor and certain nonintoxicating malt liquor is 9 percent. (In addition, make sure you contact your local governments in Minnesota because they are allowed to assess a local sales and use tax.)

Tax-exempt items. Minnesota has many specific items that are exempt from sales tax — for example, certain prescription medications are exempt from Minnesota sales tax. You'll want to check and see if you are exempt from the sales tax.

Responsibility for paying sales tax. In Minnesota although the sales tax is on a seller's gross receipts, shifting of the tax to the purchaser is mandatory. Sales tax must be separately stated on the invoice, and the tax becomes a debt from the purchaser to the seller.

Use tax. Use tax is imposed on the use, storage, distribution, or consumption in Minnesota of tangible personal property or taxable services. In Minnesota the use tax is a complementary tax and does not apply in situations in which the sales tax is collected.

Responsibility for collecting use tax. The incidence of the use tax is on the purchaser or consumer. The use tax is also a debt from the purchaser to the seller.

Obtaining tax permits in Minnesota. In Minnesota, applications for vendor permits are filed with the Commissioner of Revenue. Permits are valid until revoked and are valid only for the persons in whose name they have been issued and for the transaction of business at the places designated.

Leases. The leasing of tangible personal property is defined as a sale and, consequently, is subject to the sales and use tax.

The following discussions address additional sales and use tax issues that many small business owners face: