What Is MN Sales Tax and What Does It Cover?

Minnesota sales tax is a consumption tax levied on the retail sale of goods and certain services within the state. This tax is typically added to the purchase price at the point of sale by the seller. The revenue generated from sales tax helps fund various state and local government services and programs. It contributes to the financial health of the state.

What is Subject to Sales Tax

Minnesota sales tax primarily applies to the sale, lease, or rental of most tangible personal property. This encompasses a wide array of physical goods. Common examples include electronics, furniture, and general merchandise purchased by consumers. Prepared food, such as restaurant meals and takeout orders, is also subject to sales tax.

Beyond tangible items, sales tax also applies to specific digital products transferred electronically to the customer. This can include items like downloaded software, streaming services, and certain digital media. While many services are not taxable in Minnesota, the state designates a list of taxable services. These include telecommunications services, utilities, cable television, and admissions to amusement and athletic events.

Other taxable services include:
Building cleaning and maintenance
Laundry and dry cleaning
Lawn and garden care
Lodging
Massages
Motor vehicle services like washing or rustproofing

Common Exemptions

Not all purchases are subject to Minnesota sales tax, as certain items and transactions are specifically exempt by law. A significant exemption for consumers includes most food and beverages purchased for consumption at home, commonly known as groceries. Prescription drugs and many medical devices are also exempt from sales tax.

Clothing for general use is another exemption in Minnesota. Purchases made by qualifying non-profit organizations and government agencies for their official use are exempt. Items purchased for resale are also exempt. Certain agricultural and manufacturing equipment or materials used directly in production processes also qualify for exemptions.

Understanding Sales Tax Rates

The statewide Minnesota sales tax rate is 6.875% of the taxable sales price. However, the total sales tax rate paid by a consumer often includes additional local sales taxes imposed by cities, counties, and special taxing districts. These local rates are added to the state rate, meaning the combined sales tax can vary significantly depending on the specific location of the purchase. Local sales tax rates can range from 0% to 2%, with combined rates reaching up to 8.875% or higher in some areas.

To determine the exact sales tax rate for a specific location, consumers and businesses can utilize resources provided by the Minnesota Department of Revenue. The department offers online tools such as sales tax rate calculators and interactive maps that allow users to search by address or nine-digit ZIP code. Minnesota operates as a destination-based sales tax state, meaning the tax rate is determined by the location where the product is received or the service is performed.

Minnesota Use Tax

Minnesota’s use tax functions as a complementary tax to the sales tax. It applies to the storage, use, or consumption of taxable goods or services within Minnesota when the state’s sales tax was not collected at the time of purchase. The use tax ensures fair tax treatment and prevents tax avoidance, particularly for purchases made from out-of-state retailers or online sellers who may not be required to collect Minnesota sales tax.

Common situations where use tax applies to consumers include purchasing an item online from a seller who does not charge Minnesota sales tax and having it shipped to a Minnesota address. It also applies if an item is bought in another state with a lower sales tax rate, or no sales tax, and then brought into Minnesota for use. The use tax rate is the same as the sales tax rate that would have applied if the purchase had been made in Minnesota. Consumers are responsible for self-reporting and paying use tax, often by filing an individual use tax return or reporting it on their annual state income tax return. Individuals are not required to pay use tax if their total taxable purchases subject to use tax are $770 or less in a calendar year; however, if this threshold is exceeded, the entire amount becomes taxable.