What’s New in 2013
Certain digital products are taxable
Starting July 1, 2013, certain digital products are subject to Minnesota sales and use tax. Some exemptions apply; see below for more information.
What are digital products?
A “digital product” can be any product that is transferred electronically to a customer.
Common examples of digital products include music or movie downloads, ring tones for a cell phone, digital books – often called “e-books” – and online games.
“Transferred electronically” means the purchaser accesses or obtains the product in a way other than tangible storage media (such as a USB drive or DVD disk). Common ways to do this include:
- Downloading a product from the Internet
- Viewing a product that is streamed over the Internet
- Receiving a product by email from the retailer
Note: Prewritten computer software is always considered a physical good – known as “tangible personal property” for tax purposes. This is true no matter how the software is transferred to the purchaser. See Fact Sheet 134, Computer Software.
Taxable Digital Products
Minnesota sales and use tax applies to specified digital products, other digital products, and digital codes.
Specified digital products include:
- Digital audio works such as live or recorded music, songs, speeches, audio books, ring tones, or other sound recordings.
- Digital audiovisual works such as movies, music videos, news and entertainment, or live or recorded events. This does not include digital photos.
- Digital books such as novels, biographies, or dictionaries. This does not include periodicals, magazines, newspapers, blogs, or other news and information products.
Other digital products include:
- e-Greeting cards
- Online video or computer gaming
Digital codes include:
- Codes that give the purchaser access to the digital products listed above. (This does not include gift cards or similar products.)
Note: All digital audio and audiovisual courses, training sessions, seminars, lectures, conferences, workshops, and similar presentations are taxable when transferred electronically to the participant.
Bundled transactions. When taxable digital products are bundled with nontaxable items and sold for one lump-sum price, the entire sale is taxable unless the price of the taxable item or service is de minimis.
For bundled transactions, “de minimis” means the seller’s purchase price or sales price for the taxable products is10 percent or less of their total purchase or sales price for the bundled products.
Note: To determine if a transaction is taxable, sellers must use their purchase price or the sales price – and not a combination of the two.
Nontaxable and Exempt Digital Products
The following digital products are not taxable:
- Access to digital news articles
- Charts and graphs
- Digital photos and drawings
- Logos and designs
The following exemptions apply to taxable digital products.
- Textbooks and instructional materials
1. Textbooks for use in a course of study at a school, college, university, or private career school
2. Instructional materials, including digital audio clips and audiovisual clips, for use in a course of study at a post-secondary school,college, university, or private career school
Note: Tuition is not taxable for classes attended online as part of a course of study by students at a post-secondary school, college, university, or private career school.
- Industrial production
Materials used or consumed in the industrial production of retail product, including digital products, are exempt from Minnesota sales tax.
1. To buy these materials exempt from tax, the purchaser must provide a completed exemption certificate (Form ST3). Select the “Industrial production” exemption.
2. For more information, see Sales Tax Fact Sheet 145, Industrial Production
Businesses purchasing digital products that will be resold can purchase them exempt from Minnesota sales tax. The purchaser must provide a fully completed exemption certificate (Form ST3). Select the “Resale” exemption.
- Capital Equipment
When you buy or lease machinery and equipment used to make digital products, you must pay sales or use tax. However, it will qualify for the capital equipment refund. For more information, see Sales Tax Fact Sheet 103, Capital Equipment.
Sourcing Digital Products
The sale or purchase of a digital product takes place when the seller transfers possession to the purchaser or when the product is first used, whichever comes first.
For tax purposes, the sale of a digital product occurs at – or is “sourced to” – the purchaser’s address the seller has on file.
Minnesota sales tax does not apply to items a seller delivers to customers outside the state, whether transferred electronically or by other means. See Fact Sheet 110, Items for Use Outside Minnesota.
Multiple points of use (MPU)
Starting July 1, 2013, someone who buys digital products may source the sale to multiple locations. This is permitted only if buyer knows at the time of purchase that the items will be used concurrently in more than one taxing jurisdiction.
For purposes of this exemption, “concurrently available for use” means that employees or other agents of the buyer may use the digital products simultaneously in locations both inside and outside of Minnesota. This also applies to digital codes, if the product(s) to be obtained with the code will be used both inside and outside of the state.
The buyer must provide a completed exemption certificate (Form ST3). Select the “Multiple points of use” exemption.
The buyer is responsible to apportion and remit the tax due to each taxing jurisdiction. Any reasonable apportionment method can be used. The buyer must apply the method in a consistent, uniform manner and be able to justify it through supporting records.
Local sales taxes might also apply. For more information, see Fact Sheet 164, Local Sales and Use Taxes.
This fact sheet is intended to help you become more familiar with Minnesota tax laws and your rights and responsibilities under the laws. Nothing in this fact sheet supersedes, alters, or otherwise changes any provisions of the tax law, administrative rules, court decisions, or revenue notices.
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The content of this and any related posts has been copied or adopted from the Minnesota Department of Revenue Sales Tax Fact Sheet #177