Minnesota Sales and Use Tax
Will your business be engaging in sales of taxable goods and services? If so, you will need to collect sales tax for each qualifying item for every transaction. Why are sales tax important to consider when creating a business? Because each city has its own rate, and extra taxes can apply to certain products, while there are products that are tax-free. The fact that a tax can be higher or lower could affect your business plan. For example, could you be as competitive if your taxes are higher than your neighbor across the street in a lower tax zone? In this blog, we discuss what sales and use taxes are, where they go, and how businesses pay them.
What Is My Sales Tax Rate?
Your sales tax will depend on where your business is located. The State of Minnesota has an online calculator that allows consumers and businesses to check the local sales tax rate. You can find that website by clicking here or going to: revenue.state.mn.us/sales-tax-rate-calculator.
Using the zip code 55119-3614, which is the part of Maplewood that border Oakdale, the Sales Tax rate is 7.375%, which breaks down to the Minnesota General State Sales Tax 6.875% + the Ramsey County Transit tax .5%. This tax rate applies to the period of July 2020 through September 2020. See the image below.
Furthermore, alcohol sales may require an additional tax. In the zip code example, we used above, the sales tax for alcohol sales is an extra 2.5%. This means that every time a customer purchase liquor, they will have to pay the 6.875% Minnesota General State Sales Tax + .5% Ramsey County Transit + 2.5% Liquor Tax = 9.875%. As a business owner, you will be responsible for keeping up-to-date with the current tax rates. If you do not, or you forget to update your computer software to reflect the new rate, you may end up paying out-of-pocket instead of collecting the tax from the consumers.
Items That Are Exempt
When setting up your computer software in which you will be using to ring your goods and services, you will also be responsible for setting the tax rates and applying the correct ones to each barcode. It is especially important to not apply tax rates to tax-exempt products:
- Food and food ingredients
- Exceptions: soft drinks, candy, baking ingredients, gum, vitamins, etc.
- Gift baskets and other combination packages
- Items for agricultural use or farming
- Technically, there are sales tax in cigarettes. However, since cigarettes are heavily regulated, sales tax from cigarettes are collected from distributors when they purchase Cigarettes Tax stamps from the Minnesota Department or Revenue.
- And more. To find a complete list, visit the Minnesota Revenue website by clicking
What Is Use Tax?
Use Tax apply when you purchase a taxable product or service for your business and paid no sales tax at the time of purchase. For example, you are on vacation in a different state and you purchase some really unique gift bags to bag your goods for your customers. You pay the seller cash and she did not charge you any sales tax. Technically, you would owe Minnesota use tax on that purchase.
Another example is if you purchase taxable items in another Minnesota city or county with a lower or no sales tax, then you would owe sales tax in the county you do business in on those items you purchased.
The city of St. Paul currently charges a .5% use tax.
Where Do These Taxes Go?
The State of Minnesota’s portion of the sales tax, 6.875%, goes into what is called a general fund. Using the example above, Ramsey County’s 2.5% portion will go into their general fund as well. A general fund is the primary and largest fund for the state and the county. Another deposit that contribute to the general fund comes from individual income taxes. By law, Minnesota must balance its general fund over a two-year period. This means that the state government cannot spend more than it deposits into the general fund.
In general, the general fund is used for the general operation of the state or county. The majority of the funds, almost 90%, is used on K-12 education, higher education, health and human services, and aid to local governments.
How Do I Pay My Sales Tax?
Although you yourself are not “paying” the sales tax (your customers are), many business owners use that term because they link the sales tax payment directly to their business checking account.
Paying your sales or use tax late will cost you a 5% late penalty on any tax that is not paid by the due date.
In order to pay your sales and use tax, you will need to create an account through the Minnesota Department of Revenue. Once your account is created, you will need to apply the correct tax rate codes that pertains to your specific business. You will have to link a checking account or possibly a credit card to your account for payment each month. Also, in your account you will have the option to send and receive correspondence from the state, ask for a reduced penalty, for a refund on overpayment, etc.
Thooft Law – Here to Help Your Business Succeed
The tax part of your business can be complex and boring. Let us help. At Thooft Law, your business is our business. We are in the business to help your business succeed, thrive, and be around for generations to come. Attorney Derek Thooft is an experienced business attorney having knowledge if daily operations, employment law, trademarks, partnerships, startups, and more. Attorney Thooft has helped clients form small businesses throughout Minnesota, North Dakota, Texas, Nebraska, New Mexico, Colorado, and more. He has aggressively litigated business lawsuits in court, negotiated business deals, and helped write fair and equitable partnership agreements.