SALES TAX TUESDAY 2018: Minnesota

by

We are back ‘on the road again’, in our Sales Tax Seeking R.V. to advise you on things to do and sales tax to pay in each of our 50 states.  As for this week Minnesota is the place, with an endless array of things to do, like ‘get hit in the head with a golf ball.’  The state tourism authorities rave about ‘great golf’ along with fishing and boating and biking. They also emphasize numerous wineries, breweries and distilleries that make themselves available for tasting tours.  Of course, one of the singles biggest attractions is the Mall of America, the largest shopping mall in the United States; literally a plan you can ‘shop till you drop.’

Thanks to our friends at Avalara, the sales tax people, Insightful Accountant is bringing your Sales Tax Tuesday 2018 which is likely to extend into 2019 because I am driving this big old recreational vehicle a lot slower these days.  As we travel from state-to-state exploring ‘the sights’ and paying sales taxes along they way we hope to entertain you with some recreation, food, and cultural ideas that you might find beneficial in planning a trip to state (or perhaps even avoiding a trip to a state) in the near future. With that said let me get back to telling you may ‘hit in the head’ story.

A long, long time ago, while visiting my dad who was working on a job near Waverly, Minnesota I got hit in the head with a golf ball…it’s an event I will never forget.  Well really, I don’t recall it at all, I just know that I was knocked unconscious and was out for days…after that I quit golf, except for ‘put-put’. 

I really admire the way golf courses look, but I simply can’t take myself to visit one in fear of never waking up the next time I am hit in the head.  Still the same, if you are an avid golfer then you might want to check out the Dacotah Ridge Golf Club in Morton, Minnesota.  If you happen to play golf at the Twin Cities Golf Club be sure to ask them for directions to Ted Cook’s 19th Hole BBQ, his beef ribs slow cooked over hickory and cherry wood are considered the best in the state.  Now that’s some eats.

I’m afraid that even though I eat my ribs with my fingers, the state considers them ‘prepared foods’ so they are subject to State and Local Sales Tax.

By the way, have you noticed that Minnesota has a lot of cities and towns that start with the letter, ‘M’; why do you think that is?

If fishing or just seeing the ‘rivers run through it’ are your thing then you may want to visit Boundary Waters Canoe Area Wilderness. This is a million-acre wilderness within the Superior national Forest in Northeast Minnesota operated under the auspices of the U.S. Forest Service. 

Numerous outfitters and lodges are set to take you in for the beauty that this place has to offer.  Canoe, fish, drift and enjoy the sights of the natural surroundings and wildlife.  In fact, much of Minnesota is wet, that’s why they call it the ‘Land of 10,000 Lakes’.  Despite the name Minnesota doesn’t have the most lakes of any state, Alaska actually holds that honor with more than 3-million lakes.

Speaking of lakes, the Museum of Lake Minnetonka operates a restored 1906 Steamboat they call the Minnehaha. You and a few of your friends can enjoy reenactment of a time gone by when boats like this carried passengers between he ports of Excelsior and Wayzata between 1906 and 1926. 

Speaking of old relics, be sure to check out the Kensington Runestone at the Runestone Museum in Alexandria. This 200-pound slab of stone covered in some runes. While there continues to be debate over ‘real or not real’ as to whether it really is some record of 14th century Scandinavian (Viking) explorers. The stone was discovered near the town of Solem more than 100 years ago by a Swedish immigrant who was clearing his land in preparation for farming.  You might also want to have your picture taken with ‘Big Ole the Viking’, and then decide which is the history and which is the lore.

But even bigger than the old Viking is the Mall of America, which unlike many malls across the U.S., is not shrinking.  To the contrary, the MOA is growing with now more than 520 stores, 50 restaurants, a theme park, and an aquarium.  Millions of visitors from the U.S. and Canada flock to the mall to take advantage of trendy shops, entertainment options, great places to eat and any number of events hosted by the mall. If you are a ‘shopaholic’ then this is definitely the place you shouldn’t, but probably will, be.  Can you say, ‘max out your plastic’?

Of course, the state and local governments love the fact that you will spend, spend, spend because they will be collecting as much sales tax as possible on each of your purchases.

Speaking of sales tax, Minnesota like many states relies upon the revenues generated by Sales Tax for much of the tax base supporting essential services.  To ensure that every possible penny of sales tax is collected they make use of monitoring, informal and formal auditing of retailers and other businesses responsible for the collection and remittance of the tax. 

Sales tax consulting isn’t an area that most CPA firms want to specialize in, still the same it’s a necessary evil at times since many clients are faced with sales tax issues.

Join Monika Miles on June 14 (2018) at 1PM Eastern for a webinar to help you ‘start the Sales and Use Tax conversation with your clients’.  This webinar is brought to you by Insightful Accountant and Surgent under the sponsorship of Avalara. 

You can sign-up for the webinar here.

Sales taxes can vary significantly from one jurisdiction to another because local governments have the authority to tack-on sales taxes above the state’s 6.875% rate to as much as 8.375 total. Minnesota has 35 different sales tax jurisdictions, fortunately the Mall is encompassed within only one of those jurisdictions.  Theoretically with a Mall this big, one section of the mall could have had one rate of tax, while a different rate applied in other areas of the mall.  Thank goodness that isn’t the case at the Mall of America.

But taxable or non-taxable products can both be found in the mall.  For example, the store that sells Beef Jerky doesn’t have to collect sales tax on the Jerky because it is ‘food’ but isn’t considered prepared food since it is packaged for consumption outside of the seller’s location.  On the other hand, the store that sells lemon drops, chocolate peanuts, gummy bears and jelly beans must charge sales tax because ‘candy’ isn’t considered food.  The place that sells their own version of the Minneapolis favorite, ‘the Juicy Lucy’ burger in the food court, well they have to charge sales tax too because even though the burger is food, it’s considered prepared food intended for on-site consumption.

By the way, if you have never had a ‘Juicy Lucy’ then be sure to track down the cheese filled burger at the 5-8 Club one of the two places that claim to have invented the burger way back in 1928.  There are literally dozens of burger places that will claim to make the ‘best JL’ in town, and many are almost as good but there is something about crowding into the 5-8 to get ‘an original’.  Long before Adam Richman of Travel Channel fame ranked this as the #1 burger in all of America, I had discovered that their JL-burger with just the bun and a touch of mustard was like ‘nothing else.’ Unfortunately, you will pay sales tax on your Juicy Lucy at the 5-8.

When it comes to sales tax, Minnesota has one of the longest laundry lists of Sales Tax Facts of any state we visit, so check out these not so delightful details.

Minnesota Sales Tax Facts:

  • Minnesota is a member of the Streamlined Sales Tax (SST)
  • Minnesota has 35 different sales tax jurisdictions.
  • The State Sales Tax rate is 6.875% and the total rate can be as high as 8.375% inclusive of local sales taxes.
  • Minnesota has an average sales tax rate of 7.30% (including local) making it the 17th highest average sales tax rate in the country.
  • Sales tax in Minnesota is sourced at the destination address.
  • Some common Nexus creating activities are: place of business, agents of the business operating permanently or temporarily (contract workers or sales force).
  • Systematic solicitation can create Nexus (categorized by more than 100 sales in 12 consecutive months OR 10 or more sales totaling in over $100,000 in 12 consecutive months)
  • Minnesota has a click-through Nexus statute - direct or indirect referrals of potential customers via link on a website that results in $10,000 or more in sales over a 12-month period.
  • The state has an extensive list of taxable vs. non-taxable products and services including:
  • Food, food ingredients and candy are non-taxable in Minnesota, but “candy” cannot list flour as an ingredient or require refrigeration. Prepared foods are taxable (As a general rule, if the seller provides you with eating utensils for your food then the food is taxable).
  • Optional maintenance contracts on equipment are taxable. Optional maintenance contracts on software are taxed at 20% of the total rate. Optional warranty contracts remain non-taxable.
  • Minnesota issues exemptions certificates for the following business: distributors and manufacturers, those qualified under the Minnesota Job Expansion refund program, local government entities, and for purposes of resale. There is no expiration for state exemption certificates.
  • SAME: Certain non-profits are exempt from sales tax including churches, schools, and museums, but such exemptions do NOT include chambers of commerce, home-owners associations, social clubs (fraternities/sororities), medical clinics, hospitals or outpatient surgical centers.
  • Minnesota Sales Tax returns must be remitted to the Minnesota Department of Revenue on either a monthly, quarterly or annual basis depending on the average tax per month remitted, but if the business reported more than $250,000 in the previous fiscal year, they will also be required to remit a bi-annual accelerated payment on June 26th of each year.

From a government perspective, making sure every sales tax dollar is collected, through audits, fines, penalties rates and rules, is an exercise for income. It’s easy to be lured into a false sense of compliance when it comes to sales tax, this series is intended to ensure that you are aware of the key sales tax facts for YOUR state.

Manual sales and use tax management is prone to error and consumes staff time in pass-through rather than revenue-generating activities. Despite the complexity and intricacies of sales taxes anywhere Avalara provides solutions for sales tax automation, including tax calculation, exemption certificate management, returns processing and 1099 filing and reporting. Automation via Avalara allows businesses to be fully sales tax compliant without sacrificing productivity.