If you are a small business owner in Minneapolis, you know how important it is to keep track of your sales tax obligations. Sales tax is a tax imposed on the sale of taxable goods and services within a jurisdiction. In Minnesota, sales tax is collected by the state and local governments, such as counties, cities, and special districts. Sales tax is used to fund various public services, such as education, transportation, health care, and public safety. Sales tax rates and rules vary by location and type of product or service. As a business owner, you are responsible for collecting and remitting the correct amount of sales tax to the appropriate authorities.
But how do you know what sales tax rate to charge your customers? And how do you keep up with the changes that may affect your business? In this blog post, we will explain some of the basics of sales tax in Minnesota, highlight some of the recent and upcoming changes that are relevant to local businesses, and show you how working with Haworth & Company, Ltd. can help you stay compliant and avoid penalties.
Note: we will not be discussing use tax in this blog post. Please refer to MN DOR Fact sheet 146 for details.
Sales Tax Basics in Minnesota
The 2023 state general sales tax rate in Minnesota is 6.875%. However, this is not the only rate that you need to consider. Depending on where your business is located and where you sell you may also have to collect local sales taxes. Local sales taxes are imposed by counties, cities, and special districts for specific purposes, such as transit, public safety, or environmental projects. The highest current sales tax rate in Minnesota is 8.875% in Cloquet, Duluth, Hermantown, and Walker.
Not all products and services are subject to sales tax in Minnesota. Some items are exempt from both state and local sales taxes, such as groceries and clothing, while others are subject to one and not the other. Some are also subject to special tax rates, such as liquor sales.
As a business owner, you need to know what items are taxable and at what rate in each location you sell. Check out Minnesota’s suggested resource, the sales tax rates and boundaries tables from Streamlined Sales Tax, that can be incorporated into your point of sale system.
Who has to file sales tax returns in Minnesota?
If you sell taxable goods or services in Minnesota, you have to register for a Minnesota Tax ID Number and file sales tax returns with the Minnesota Department of Revenue.
You have to file sales tax returns even if you do not have a physical presence in Minnesota because Minnesota has economic nexus rules for remote sellers as a result of the South Dakota vs. Wayfair Supreme Court decision. Economic nexus means that you have to collect and remit sales tax if you meet certain thresholds of sales or transactions in a state or a local jurisdiction. In Minnesota, the economic nexus threshold is $100,000 of gross revenue or 200 transactions in a 12-month period.
How often do you have to file sales tax returns in Minnesota?
The frequency of filing sales tax returns depends on your average monthly tax liability. The DOR assigns you a filing frequency based on your estimated or actual tax liability when you register for a Minnesota Tax ID Number. The filing frequencies are:
- Annual: if your average monthly tax liability is less than $100
- Quarterly: if your average monthly tax liability is $100 or more but less than $500
- Monthly: if your average monthly tax liability is $500 or more
How do you file sales tax returns in Minnesota?
You can file your sales tax returns online using the MN DOR’s e-Services system. You can also file by phone using the MN DOR’s TeleFile system or by mail using paper forms. You have to file your returns by the due date regardless of whether you owe any tax or not. The due dates are:
- Annual: February 5 of the following year
- Quarterly: April 20, July 20, October 20, and January 20 of the following year
- Monthly: 20th day of the following month
Keeping up with changes
As a business owner, you need to be aware of any changes in sales tax rates, rules, or exemptions that may affect your business. Sales tax changes can occur at the state or local level, and they can be temporary or permanent. You can find information on the MN DOR website for fact sheets and industry guides, legislative bulletins, and revenue notices, as well as local sales tax notices.
Working with Haworth & Company, Ltd.
As you can see, sales tax compliance can be complex and challenging for small business owners in Minneapolis. You have to keep track of multiple rates, rules, and exemptions that may change over time. You have to collect, file and pay your sales tax returns timely and accurately. You have to avoid errors and audits that may result in penalties and interest.
Working with Haworth & Company, Ltd. can make your life easier. We are a small business accounting, tax, payroll, and consulting firm that specializes in serving small business owners in Minnesota. We have the expertise and experience to help you with all aspects of sales tax compliance, such as:
- Registering for a Minnesota Tax ID Number
- Assisting you in determining taxable vs. non-taxable sales
- Filing and paying your sales tax returns on time and accurately
- Responding to notices and audits from the DOR or local jurisdictions
- Applying for refunds or credits for overpaid or exempt sales tax
- Staying updated on any changes in sales tax rates, rules, or exemptions that may affect your business
By working with us, you can save time and money, reduce stress and risk, and focus on growing your business. Contact us today to schedule a free consultation and find out how we can help you with your sales tax needs.
