Minnesota has a 6.875 percent general sales tax rate. (The rate increased from 6.5 percent to 6.875 percent, effective July 1, 2009.) The sales tax applies to retail sales of taxable services and/or tangible personal property made in Minnesota. Businesses collect the sales tax due on items and services sold at retail on behalf of the state.
Use taxes come usually come into play when you buy a taxable item for your own personal use, without paying sales tax. The tax rate is the same for both sales and use tax, and all of the same exemptions apply. The general use tax rate is the same as the state’s general sales tax rate, 6.875 percent. Use tax is due on taxable items and services used in Minnesota if no sales tax was paid at the time of purchase.
All general local sales taxes also have a corresponding use tax at the same rate. While sales tax is collected by the seller and paid to the state by the seller, use tax is self-assessed and paid by the purchaser (end user). The purchaser pays the tax directly to the state. Examples of when sales tax are due include:
- You buy taxable items by mail order, from a shopping channel, over the Internet, etc., and the seller doesn’t collect Minnesota tax from you.
- You buy something exempt intending to resell it in your business, but instead take it out of inventory for business or personal use.
- A seller in another state or country does not collect any sales tax from you on a sale of an item that is taxed by Minnesota’s law.
- A Minnesota seller fails to collect sales tax from you on a taxable item.
- An out-of-state seller properly collects another state’s sales tax at a rate lowe than Minnesota’s. In this case, you owe the difference between the two rates.
It is important to keep track of your purchases subject to use tax and report them when you report your sales tax. Also, keep a record of the purchases on which you paid use tax, noting the date reported and paid. If you are located in an area that has one or more local taxes, be sure to also report the local use tax due.
Individuals as well as businesses owe use tax on taxable purchases when they have not paid sales tax. An individual, however, can purchase up to $770 in taxable items for personal use without owing use tax. If the individual buys more than $770 in a calendar year, that person owes use tax on all taxable items purchased that year. This exemption does not apply to purchases from a seller who is required to collect Minnesota sales or use tax and does not. Individuals who owe use tax, but are not required to hold a sales tax permit, can file a use tax return annually, regardless of the total amount of purchases. These returns are due by April 15 of the following year.
Written by former law clerk Sean Taylor