Collection of Minnesota Sales Tax on Purchases from Out-of-State Companies

What Changed: Physical Presence Is No Longer the Test

If you have been operating on the old rule that a seller with no office, warehouse, or salesperson in a state cannot be made to collect that state’s sales tax, that rule is gone. The Supreme Court held the physical presence rule of Quill Corp. v. North Dakota “unsound and incorrect,” and stated that the decisions in Quill and in National Bellas Hess, Inc. v. Department of Revenue of Illinois “should be, and now are, overruled.” South Dakota v. Wayfair, Inc., 585 U.S. 162, 188 (2018). Substantial nexus with a taxing state is now established, in the Court’s words, “when the taxpayer [or collector] ‘avails itself of the substantial privilege of carrying on business’ in that jurisdiction,” and the Court found that satisfied on the “economic and virtual contacts” of sellers meeting a 200-transaction or $100,000 threshold, with no property or employees in the state. Wayfair, 585 U.S. at 188.

Minnesota rewrote its collection rule the following year. The amendments that created the current thresholds, and that moved the marketplace provider collection duty into its present form in subdivision 2(b) by repealing the earlier provision in subdivision 4b, apply to sales and purchases made after September 30, 2019. Laws 2019, 1st Spec. Sess. ch. 6, art. 3, §§ 4-6, 19. Everything below runs on that framework.

When an Out-of-State Seller Must Collect

The duty sits in Minn. Stat. § 297A.66, subd. 2(a): a retailer maintaining a place of business in Minnesota, and a retailer not maintaining a place of business in Minnesota, that makes retail sales in Minnesota or to a Minnesota destination “shall collect sales and use taxes and remit them to the commissioner under section 297A.77,” other than sales a marketplace provider is required to collect on. Two separate paths lead into that duty.

A Place of Business in Minnesota

The first path has no sales-volume test at all. A “retailer maintaining a place of business in this state,” and since 2019 a “marketplace provider maintaining a place of business in this state,” means one that has or maintains here, directly or through a subsidiary or affiliate, “an office, place of distribution, sales, storage, or sample room or place, warehouse, or other place of business, including the employment of a resident of this state who works from a home office in this state.” Minn. Stat. § 297A.66, subd. 1(a)(1).

The definition also reaches you through other people. It covers a retailer or marketplace provider having “a representative, including, but not limited to, an affiliate, agent, salesperson, canvasser, solicitor, or other third party operating in this state under the authority of the retailer or marketplace provider, or its subsidiary, for any purpose,” including repairing, selling, delivering, installing, facilitating or processing sales, or soliciting orders, “whether the place of business or agent . . . is located in the state permanently or temporarily, or whether or not the retailer or marketplace provider, subsidiary, or affiliate is authorized to do business in this state.” Minn. Stat. § 297A.66, subd. 1(a)(2).

The 200-Sale or $100,000 Threshold

The second path applies when you have no Minnesota place of business. It has two halves, and both must be met.

The first half is solicitation. Under Minn. Stat. § 297A.66, subd. 1(b), a “retailer not maintaining a place of business in this state,” and equally a “marketplace provider not maintaining a place of business in this state,” is one making or facilitating retail sales from outside Minnesota to a destination here, and not maintaining a place of business here under paragraph (a), that “engages in the regular or systematic soliciting of sales from potential customers in this state by”:

1. distribution, by mail or otherwise, of catalogs, periodicals, advertising flyers, or other written solicitations of business to customers in this state;
2. advertisements on billboards or other outdoor advertising in this state;
3. advertisements in newspapers published in this state;
4. advertisements in trade journals or other periodicals the circulation of which is primarily within this state;
5. advertisements in a Minnesota edition of a national or regional publication or a limited regional edition in which this state is included as part of a broader regional or national publication that are not placed in other geographically defined editions of the same issue of the same publication;
6. advertisements in regional or national publications in an edition that is not by its contents geographically targeted to Minnesota but is sold over the counter in Minnesota or by subscription to Minnesota residents;
7. advertisements broadcast on a radio or television station located in Minnesota; or
8. any other solicitation by telephone, computer database, cable, optic, microwave, or any other communication system, including but not limited to a website accessible from within Minnesota.

Minn. Stat. § 297A.66, subd. 1(b)(1)-(8). Item 8 is the one that catches nearly everyone: an ordinary website reachable from Minnesota is qualifying solicitation.

The second half is volume, and it is what keeps that list from sweeping in every seller with a web page. “Regular or systematic soliciting of sales from potential customers in this state” means the seller is engaged in one of those solicitations, and either “(1) makes or facilitates 200 or more retail sales from outside this state to destinations in this state during the prior 12-month period; or (2) makes or facilitates retail sales totaling more than $100,000 from outside this state to destinations in this state during the prior 12-month period.” Minn. Stat. § 297A.66, subd. 1(c). If you run a Minnesota radio spot or mail a catalog into the state, maintain no place of business here, and stay under both numbers, no collection duty attaches. Minn. Stat. § 297A.66, subds. 1(b)-(c), 2(a). The Minnesota buyer then owes use tax on a taxable purchase. Minn. Stat. § 297A.63, subd. 1(a).

Do not plan around where your advertising is produced. The statute closes that route in the same paragraph: the location of independent vendors that provide products or services in connection with your solicitation of Minnesota customers, “including such products and services as creation of copy, printing, distribution, and recording is not considered in determining whether the retailer or marketplace provider is required to collect tax,” and the paragraph “must be construed without regard to the state from which distribution of the materials originated or in which they were prepared.” Minn. Stat. § 297A.66, subd. 1(b).

Shipping method does not move a sale outside Minnesota either. The “destination of a sale” is the location to which the retailer delivers the property, or causes it to be delivered, to the purchaser or the purchaser’s agent or designee, and “[t]he delivery may be made by any means, including the United States Postal Service or a for-hire carrier.” Minn. Stat. § 297A.66, subd. 1(e).

Affiliate and Referral Arrangements

There is a separate and much lower-dollar route in. A retailer “is presumed to have a solicitor in this state if it enters into an agreement with a resident under which the resident, for a commission or other substantially similar consideration, directly or indirectly refers potential customers, whether by a link on an Internet website, or otherwise, to the seller.” That presumption applies once “the total gross receipts are at least $10,000 in the 12-month period ending on the last day of the most recent calendar quarter before the calendar quarter in which the sale is made.” Minn. Stat. § 297A.66, subd. 4a(b). If you run an affiliate program, that presumption can attach at $10,000 of referred gross receipts, measured across the customers all such residents refer to you, and it is an additional route into a collection duty rather than a replacement for the 200-sale or $100,000 threshold. Minn. Stat. § 297A.66, subds. 1(c), 4a(b). The presumption is rebuttable by proof that the Minnesota resident did no in-state solicitation on your behalf that would satisfy the constitutional nexus requirement. Minn. Stat. § 297A.66, subd. 4a(c).

When Collection Starts, and How Long It Lasts

Crossing the threshold does not switch the duty on the same day, and dropping back below it does not switch the duty off. A retailer or marketplace provider with no Minnesota place of business must “begin collecting and remitting sales and use taxes to the commissioner on the first day of a calendar month occurring no later than 60 days after” it engages in regular or systematic soliciting, and must “continue to collect and remit sales and use taxes to the commissioner until at least the last day of the 12th calendar month following the calendar month in which” collection began. Minn. Stat. § 297A.66, subd. 2(d).

After that 12-month period, a seller that no longer solicits Minnesota sales may stop, but only on notice: it “may cease collecting and remitting sales and use taxes under paragraph (e) only after notifying the commissioner that the retailer or marketplace provider is no longer engaged in the regular or systematic soliciting of sales from potential customers in this state.” Minn. Stat. § 297A.66, subd. 2(e)-(f). The same paragraph addresses resumed solicitation: if a retailer or marketplace provider “subsequently engages in regular or systematic soliciting of sales from potential customers in this state, the retailer shall again comply with the requirements of paragraph (d).” Minn. Stat. § 297A.66, subd. 2(f).

Marketplace Sales: The Platform Collects

If you buy from a small out-of-state seller through Amazon, Etsy, or eBay and still see Minnesota tax on the receipt, this is why. A marketplace provider that facilitates retail sales in Minnesota or to a Minnesota destination “shall collect sales and use taxes and remit them to the commissioner under section 297A.77,” whether it maintains a place of business here or, without one, meets the solicitation and volume test in the definition, unless “(1) the retailer provides a copy of the retailer’s registration to collect sales and use taxes in this state to the marketplace provider; and (2) the marketplace provider and retailer agree that the retailer will collect and remit the sales and use taxes on marketplace sales facilitated by the marketplace provider.” Minn. Stat. § 297A.66, subd. 2(b). A provider with no Minnesota place of business is covered only if it engages in one of the listed solicitations and facilitates 200 or more retail sales, or more than $100,000 of retail sales, from outside Minnesota to Minnesota destinations in the prior 12-month period. Minn. Stat. § 297A.66, subds. 1(b)-(c). The provider “is deemed the retailer or seller for all retail sales it facilitates, and is subject to audit on the retail sales it facilitates” when it carries that duty. Minn. Stat. § 297A.66, subd. 3(a).

Two consequences follow. If you sell through a platform that is required to collect, your own duty reaches “all retail sales other than those facilitated by” that provider. Minn. Stat. § 297A.66, subd. 2(a). If you buy through a platform required to collect, the platform collects and remits the tax on that sale, Minn. Stat. § 297A.66, subd. 2(b), and once the tax imposed by section 297A.62 has been paid on the sales price, “[n]o tax is imposed under paragraph (a)” of the use tax section. Minn. Stat. § 297A.63, subd. 1(b).

Which Rate Applies: The Delivery Address Controls

The seller’s own city and state rate is irrelevant to a shipped Minnesota sale. When a product “is not received by the purchaser at a business location of the seller, the sale is sourced to the location where receipt by the purchaser or the donee designated by the purchaser occurs, including the location indicated by instructions for delivery to the purchasers or the purchaser’s donee, known to the seller.” Minn. Stat. § 297A.668, subd. 2(c). A local tax then follows that sourcing: taxable goods or services “are subject to a political subdivision’s sales tax, if they are sourced to the political subdivision pursuant to section 297A.668.” Minn. Stat. § 297A.99, subd. 4(b).

The flip side matters if you drive across a border to buy. “When the product is received by the purchaser at a business location of the seller, the sale is sourced to that business location.” Minn. Stat. § 297A.668, subd. 2(b). Sending your own freight company does not achieve the same thing: “receive” and “receipt” mean taking possession or making first use, and they “do not include possession by a carrier for hire on behalf of the purchaser.” Minn. Stat. § 297A.668, subd. 2(g).

The State Rate, and What Sits on Top of It

The state rate comes from the statute, not from a rate chart. Minnesota imposes “a sales tax of 6.5 percent . . . on the gross receipts from retail sales . . . made in this state or to a destination in this state by a person who is required to have or voluntarily obtains a permit under section 297A.83, subdivision 1.” Minn. Stat. § 297A.62, subd. 1. A second subdivision adds “an additional sales tax of 0.375 percent, as required under the Minnesota Constitution, article XI, section 15,” on the same sales, and that additional tax “expires July 1, 2034.” Minn. Stat. § 297A.62, subd. 1a. Wherever chapter 297A refers to the rate under subdivision 1, “the rate to be applied is the combined rate under subdivisions 1 and 1a until the additional tax imposed by subdivision 1a expires.” Minn. Stat. § 297A.62, subd. 4. That is the 6.875 percent figure.

Local tax rides on top of the state rate rather than replacing it, and it is not discounted for a remote seller: “[t]he full political subdivision rate applies to any sales that are taxed at a state rate, and the political subdivision must not have more than one local sales tax rate or more than one local use tax rate.” Minn. Stat. § 297A.99, subd. 5(b).

Two metro-wide taxes were added in 2023 and reach destination sales. The Metropolitan Council “must impose a regional transportation sales and use tax at a rate of three-quarters of one percent on retail sales and uses taxable under this chapter made in the metropolitan area or to a destination in the metropolitan area.” Minn. Stat. § 297A.9915, subd. 2. It “must impose a metropolitan region sales and use tax at a rate of 0.25 percent on retail sales made in the metropolitan counties or to a destination in the metropolitan counties.” Minn. Stat. § 297A.9925, subd. 2. The regional transportation tax is effective “for sales and purchases made on or after October 1, 2023,” and applies “in the counties of Anoka, Carver, Dakota, Hennepin, Ramsey, Scott, and Washington.” Laws 2023, ch. 68, art. 3, § 29. The metropolitan region tax is effective for sales and purchases made after October 1, 2023, and applies in the same seven metropolitan counties. Minn. Stat. § 297A.9925, subd. 2 (enacted by Laws 2023, ch. 37, art. 5, § 2). Those two metro-area rates, Minn. Stat. § 297A.9915, subd. 2, and Minn. Stat. § 297A.9925, subd. 2, added to the 6.875 percent combined state rate, Minn. Stat. § 297A.62, subds. 1, 1a, and 4, bring a shipment into those seven counties to 7.875 percent before any city or county tax.

Finding the Right Local Rate

Minnesota gives a zip-code safe harbor and then conditions it on your diligence. “The lowest combined tax rate imposed in the zip code area applies if the area includes more than one tax rate in any level of taxing jurisdictions,” and where a nine-digit zip code is unavailable or cannot be determined “after exercising due diligence,” you may apply the five-digit zip code rate. Minn. Stat. § 297A.99, subd. 10. A 2025 amendment tightened what due diligence means. For a sale that requires a full street address, there is now “a rebuttable presumption that a seller has exercised due diligence” if the seller “attempted to determine the nine-digit zip code designation by utilizing (1) the look-up application from the United States Postal Service; (2) software certified by the Coding Accuracy Support System; or (3) other software approved by the governing board.” Minn. Stat. § 297A.99, subd. 10(c). And “[f]or a sale that does not require a full street address to be completed, a seller has not exercised due diligence unless the seller has obtained or requested from the purchaser (1) the complete street address, including the five-digit zip code; or (2) the nine-digit zip code.” Minn. Stat. § 297A.99, subd. 10(c). The penalty for skipping it is stated plainly, and it governs zip-code sourcing for local taxes under that section: “A seller that has not exercised due diligence is not relieved from any additional liability that may be due as a result of incorrect sourcing.” Minn. Stat. § 297A.99, subd. 10(c). That change applies to sales and purchases made after June 30, 2025. Laws 2025, 1st Spec. Sess. ch. 13, art. 10, § 6.

You also get warning before rates and boundaries move. A political subdivision may change its rate “starting only on the first day of a calendar quarter, and only after the commissioner has notified sellers at least 60 days prior to the change,” with 120 days’ notice where the purchaser computed the tax from rates printed in a catalog, and the same quarter-start and 60-day notice rules govern boundary changes. Minn. Stat. § 297A.99, subd. 12(c)-(e).

Registering with the Department of Revenue

Minnesota administers local sales taxes at the state level rather than at the city level. Minn. Stat. § 297A.99, subd. 9(a). A retailer required to collect and remit sales taxes under section 297A.66 must file with the commissioner an application for a permit. Minn. Stat. § 297A.83, subd. 1(a). The state collects them: “[t]he commissioner of revenue shall collect the taxes subject to this section. The commissioner may collect the tax with the state sales and use tax.” Minn. Stat. § 297A.99, subd. 9(a). The Department accordingly directs a seller with a taxable presence in a local area to “register and collect Minnesota local sales and use tax” on its Minnesota account. Minnesota Department of Revenue, Local Sales and Use Taxes: Who Must Register and Collect Local Tax? (last updated Jan. 18, 2023). The permit statute itself states a filing duty rather than a permission. “A retailer required to collect and remit sales taxes under section 297A.66 shall file with the commissioner an application for a permit,” and “[a] retailer making retail sales from outside this state to a destination within this state who is not required to obtain a permit under paragraph (a) may nevertheless voluntarily file an application for a permit.” Minn. Stat. § 297A.83, subd. 1(a)-(b). Registration follows the collection duty rather than preceding it: the application requirement attaches to “[A] retailer required to collect and remit sales taxes under section 297A.66,” and a refusal or cancellation of a permit on the ground that the tax can be collected more effectively from the persons using the property in Minnesota “does not affect the retailer’s right to make retail sales from outside this state to destinations within this state.” Minn. Stat. § 297A.83, subds. 1(a), 3(a).

Local tax then attaches through the tax base and sourcing rules rather than through a second registration. The local tax “applies to sales taxable under this chapter that occur within the political subdivision,” reaching goods and services sourced there under section 297A.668. Minn. Stat. § 297A.99, subd. 4. The state, not the city, administers it: “[t]he commissioner of revenue shall collect the taxes subject to this section. The commissioner may collect the tax with the state sales and use tax. All taxes under this section are subject to the same penalties, interest, and enforcement provisions as apply to the state sales and use tax.” Minn. Stat. § 297A.99, subd. 9(a). Minnesota also set a local-burden condition on joining the streamlined sales and use tax agreement: the streamlined agreement must reduce local compliance burdens by “requiring states to administer any sales and use taxes levied by local jurisdictions within the state so that sellers collecting and remitting these taxes will not have to register or file returns with, remit funds to, or be subject to independent audits from local taxing jurisdictions.” Minn. Stat. § 297A.995, subd. 6(f)(2).

Registering a local tax is still something you do, on your Department of Revenue account, and the Department’s current guidance expressly reaches remote sellers: “All sellers, including out-of-state retailers or marketplaces, that have a taxable presence (nexus) in a local area must register and collect Minnesota local sales and use tax.” Taxable presence includes having a place of business in the local area, performing taxable services there, shipping “taxable items into the local area, including all sales made using the internet, mail order, or telephone,” and being “an out-of-state retailer that exceeds Minnesota sales tax thresholds and make sales into the local area.” Minnesota Department of Revenue, Local Sales and Use Taxes: Who Must Register and Collect Local Tax? (last updated Jan. 18, 2023). That material now lives in the Department’s unnumbered Local Sales and Use Taxes industry guide.

Practical Points on the Application

Know who inside the business signs. The application “must be made on a form prescribed by the commissioner and indicate the name under which the applicant intends to transact business, the location of the applicant’s place or places of business, and other information the commissioner may require,” and it “must be filed by the owner, if a natural person; by a member or partner, if the owner is an association or partnership; or by a person authorized to file the application, if the owner is a corporation.” Minn. Stat. § 297A.83, subd. 2.

A permit is not guaranteed, and losing one does not close the Minnesota market to you. The commissioner “may decline to issue a permit to a retailer not maintaining a place of business in this state, or may cancel a permit previously issued to the retailer, if the commissioner believes that the tax can be collected more effectively from the persons using the property in this state,” and “[a] refusal to issue or cancellation of a permit on such grounds does not affect the retailer’s right to make retail sales from outside this state to destinations within this state.” Minn. Stat. § 297A.83, subd. 3(a).

If you reach Minnesota through independent representatives, watch the next paragraph. Where the commissioner considers it necessary for efficient administration to treat “a salesperson, representative, trucker, peddler, or canvasser as the agent of the dealer, distributor, supervisor, employer, or other person under whom that person operates,” the commissioner may do so “and may regard the dealer, distributor, supervisor, employer, or other person as a retailer for the purposes of collecting the tax.” Minn. Stat. § 297A.83, subd. 3(b). The permit requirement can also reach buyers: the commissioner “may require any person or class of persons obligated to file a use tax return under section 289A.11, subdivision 3, to file an application for a permit.” Minn. Stat. § 297A.83, subd. 1(c).

Whatever you collect is not yours to keep. Tax collected by a retailer “must be remitted to the commissioner as provided in chapter 289A and this chapter.” Minn. Stat. § 297A.77, subd. 3. A retailer required to collect and remit under section 297A.66 files an application for a permit with the commissioner. Minn. Stat. § 297A.83, subd. 1(a).

Once you are registered and collecting, report by jurisdiction rather than in a lump: “Report local taxes you collected on your Minnesota Sales and Use Tax return in e-Services. You must report taxable sales for each local area separately.” Minnesota Department of Revenue, Local Sales and Use Taxes: Charging Local Tax (last updated Jan. 18, 2023).

When No Local Tax Is Due

The Department’s current guidance lists three situations in which you do not charge local sales tax: the customer gives you a completed Form ST3, Certificate of Exemption; you sell direct-to-home satellite (DBS) services, which carry the state general rate but not local tax; or you sell to a local government. Minnesota Department of Revenue, Local Sales and Use Taxes: Charging Local Tax. Shipping outside a local area is no longer on that list. The same result now comes from sourcing instead. The Department states the working rule this way: “You must collect local sales tax based on where your customer receives the taxable product or service.” Minnesota Department of Revenue, Local Sales and Use Taxes: Charging Local Tax (last updated Jan. 18, 2023). That tracks the statutory sourcing rule, Minn. Stat. § 297A.668, subd. 2(c), and a political subdivision’s tax applies to sales taxable under chapter 297A that occur within the subdivision and are sourced to it. Minn. Stat. § 297A.99, subd. 4.

That distinction matters more than it sounds. Shipping from one Minnesota local tax area into another does not produce a no-local-tax sale; the sale is sourced to the location where the purchaser receives the item, Minn. Stat. § 297A.668, subd. 2(c), and taxable goods are subject to a political subdivision’s sales tax if they are sourced to that subdivision. Minn. Stat. § 297A.99, subd. 4(b). A Minneapolis seller shipping a taxable item to a customer in another Minnesota city that imposes a local tax charges that city’s tax rather than Minneapolis’s, because the sale is sourced to where the customer receives it. Minn. Stat. § 297A.668, subd. 2(c); Minn. Stat. § 297A.99, subd. 4(b). The rule turns on where your customer receives the item, not on where you sit. And when the customer receives the item outside Minnesota, the sale is sourced to that out-of-state location, Minn. Stat. § 297A.668, subd. 2(c), and the state sales tax reaches only retail sales “made in this state or to a destination in this state.” Minn. Stat. § 297A.62, subd. 1. No local tax applies either, because a political subdivision’s tax reaches only sales taxable under chapter 297A that are sourced to that subdivision. Minn. Stat. § 297A.99, subd. 4.

Whether the buyer’s state can require you to collect its tax is a question of that state’s law, not Minnesota’s, bounded by the same constitutional test: the tax must apply to an activity with a substantial nexus with the taxing state, which exists when the seller “avails itself of the substantial privilege of carrying on business” there. Wayfair, 585 U.S. at 188. Under Minnesota’s own statute, shipping alone does not create that duty. Minn. Stat. § 297A.66, subds. 1(b)-(c), 2(a). Minnesota’s own analog reaches a retailer with no Minnesota place of business only when it engages in one of the listed solicitations and makes 200 or more retail sales, or more than $100,000 of retail sales, into Minnesota in the prior 12-month period; a retailer that does maintain a place of business here collects with no volume threshold at all. Minn. Stat. § 297A.66, subds. 1(a)-(c), 2(a).

When the Seller Does Not Collect, You Owe Use Tax

Minnesota imposes a use tax “[f]or the privilege of using, storing, distributing, or consuming in Minnesota tangible personal property or taxable services purchased for use, storage, distribution, or consumption in this state,” on the purchase price “at the rate of tax imposed under section 297A.62.” Minn. Stat. § 297A.63, subd. 1(a). Because the use tax rate is set by cross-reference to the sales tax rate, Minn. Stat. § 297A.63, subd. 1(a), it carries the same combined state rate, 6.875 percent for as long as the additional 0.375 percent tax runs. Minn. Stat. § 297A.62, subds. 1, 1a, and 4.

The trigger is whether the sales tax was actually paid, not whether the seller happened to be registered: “No tax is imposed under paragraph (a) if the tax imposed by section 297A.62 was paid on the sales price of the tangible personal property or taxable services.” Minn. Stat. § 297A.63, subd. 1(b). The use tax fills the gap; it does not stack on a purchase that was already taxed. Because the statute keys the offset to payment, a registered seller that fails to collect leaves you owing use tax, and a seller with no duty that voluntarily collects and remits eliminates it. Minn. Stat. § 297A.63, subd. 1(b).

Individuals get a narrow de minimis exemption, and it works as a cliff rather than a floor. “No tax is imposed under paragraph (a) if the purchase meets the requirements for exemption under section 297A.67, subdivision 21,” which exempts an individual’s purchases for personal use until they exceed $770 in a calendar year. Minn. Stat. § 297A.63, subd. 1(c); Minn. Stat. § 297A.67, subd. 21. Once the year’s purchases pass that line, the individual “must pay the use tax on the entire amount,” not only the excess. Minn. Stat. § 297A.67, subd. 21. That exemption “does not apply to purchases made from retailers who are required or registered to collect taxes under this chapter.” Minn. Stat. § 297A.67, subd. 21.

Two variations catch business buyers. Taking delivery out of state and driving the goods home does not work: “A person that purchases property from a Minnesota retailer and returns the tangible personal property to a point within Minnesota, except in the course of interstate commerce, after it was delivered outside of Minnesota, is subject to the use tax.” Minn. Stat. § 297A.63, subd. 1(a). And untaxed materials you build with are reached too: a use tax applies to a person “who manufactures, fabricates, or assembles tangible personal property from materials, either within or outside this state and who uses, stores, distributes, or consumes the tangible personal property in Minnesota,” imposed on “the purchase price of retail sales of the materials contained in the tangible personal property.” Minn. Stat. § 297A.63, subd. 2. If you buy steel or components from an out-of-state supplier without tax and fabricate with them here, the materials carry use tax.

Credit for Tax You Paid Another State

Buying in a lower-tax state does not eliminate the Minnesota tax, and buying in a higher-tax state does not create one. Where property “has already been taxed by another state and any subdivision thereof . . . in an amount less than the tax imposed by this chapter,” the Minnesota use tax “applies only at a rate measured by the difference between the rate imposed under section 297A.62 and the rate by which the previous tax was computed.” If the other jurisdiction’s tax “is equal to or greater than the tax imposed in this state, then no tax is due.” The credit “shall be applied first against the amount of any use tax due the state, and any unused portion of the credit shall then be applied against any use tax due a subdivision.” Minn. Stat. § 297A.80. Note that the statute counts tax paid to the other state “and any subdivision thereof,” so the other state’s city and county taxes count toward the offset, and you should compare full combined rates rather than state rates alone.

Local Use Tax

The local layer has its own buyer-side counterpart. “A compensating use tax applies, at the same rate as the sales tax, on the use, storage, distribution, or consumption of tangible personal property or taxable services.” Minn. Stat. § 297A.99, subd. 6. The Department describes when it bites: “Local use tax applies when you buy items or services in a local area without paying local sales tax to the seller. . . . Local use tax is based on where the item is used,” including online purchases and items bought in another Minnesota city or county with a lower local tax or none. Minnesota Department of Revenue, Local Sales and Use Taxes: Local Use Tax. State use tax applies to a taxable purchase for use in Minnesota on which the tax imposed by section 297A.62 was not paid, unless an exemption applies. Minn. Stat. § 297A.63, subd. 1(a)-(c). Local use tax is an additional tax, at the local sales tax rate, on the use, storage, distribution, or consumption of the item in a jurisdiction that imposes a local tax. Minn. Stat. § 297A.99, subd. 6.

You will not be taxed twice at full rate on the same item, though the relief is a credit rather than an exclusion: tax you paid one Minnesota locality is credited against the second locality’s tax, so if the second rate is higher you still owe the difference. “If a person paid sales or use tax to another political subdivision of this state on an item subject to tax under this section, a credit applies against the tax imposed under this section. The credit equals the tax the person paid to the other political subdivision for the item.” Minn. Stat. § 297A.99, subd. 8.

Why the Use Tax Exists, and What Limits It

The use tax is a backstop for the sales tax, not a second tax. The Supreme Court described Minnesota’s version this way: “Like the classic use tax, this use tax protects the State’s sales tax by eliminating the residents’ incentive to travel to States with lower sales taxes to buy goods rather than buying them in Minnesota.” Minneapolis Star & Tribune Co. v. Minnesota Commissioner of Revenue, 460 U.S. 575, 577 (1983). The Court stated the mechanic and its limit a few pages later: a use tax “requires the resident who shops out-of-state to pay a use tax equal to the sales tax savings,” and “in general, items exempt from the sales tax are not subject to the use tax, for, in the event of a sales tax exemption, there is no ‘complementary function’ for a use tax to serve.” Minneapolis Star, 460 U.S. at 581-82.

The Minnesota Supreme Court put the same point in competitive terms: “The goal of use taxes is to place in-state and out-of-state sellers on the same footing.” Morton Buildings, Inc. v. Commissioner of Revenue, 488 N.W.2d 254, 257 (Minn. 1992). That court applies a three-element test for when the tax attaches, reasoning in Morton Buildings “that taxpayers are liable for use taxes on tangible personal property if (1) the property is used, stored, distributed, or consumed in Minnesota; (2) the property is purchased; and (3) the purchase was made for use, storage, distribution, or consumption in Minnesota.” Custom Ag Service of Montevideo, Inc. v. Commissioner of Revenue, 728 N.W.2d 910, 914 (Minn. 2007).

There is a real limit on the buyer-owes-use-tax rule, and it is worth knowing. A seller’s failure to collect does not by itself make you liable. In Dahlberg Hearing Systems, the Minnesota Supreme Court concluded “that the use tax statute cannot be used under these facts to collect from Dahlberg the sales tax that should have been paid by Hewlett-Packard,” reasoning that although the sales and use taxes are complementary, “this does not mean that each tax serves as a substitute for the other.” Dahlberg Hearing Sys., Inc. v. Comm’r of Revenue, 546 N.W.2d 739, 743-44 (Minn. 1996). You owe use tax when your own conduct meets the statutory definition of storage or use in Minnesota, not merely because the seller got its collection duty wrong.

The same case held that computer equipment brought into Minnesota only to have software installed and to be tested, then shipped to out-of-state franchisees, fell within the processing exception then codified at Minn. Stat. § 297A.01, subd. 7 (1990). Dahlberg, 546 N.W.2d at 743. Do not apply that result directly today. Minn. Stat. § 297A.01 was repealed in the 2000 recodification of chapter 297A. 2000 Minn. Laws ch. 418, art. 1, § 45. The current outstate-transport exemption is Minn. Stat. § 297A.68, subd. 13, which exempts tangible personal property only if, among other conditions, the property is “either (i) not subject to tax in the state or country to which it is transported for storage or use, or (ii) to be used in other states or countries as part of a maintenance contract.” In Custom Ag Service of Montevideo the Minnesota Supreme Court applied the Morton Buildings three-element test and cited Dahlberg with approval. Custom Ag, 728 N.W.2d at 914, 916 n.4.

Conclusion

If you sell into Minnesota from another state, the questions to answer in order are these. Do you maintain a place of business here, counting a warehouse, a representative, or one Minnesota resident employee working from a home office in this state? Do Minnesota residents you pay a commission refer you at least $10,000 of gross receipts in the 12-month period ending on the last day of the most recent calendar quarter before the quarter in which the sale is made? Minn. Stat. § 297A.66, subd. 4a(b). If not, did you solicit Minnesota customers in any of the ways the statute lists, a website reachable from Minnesota included, and make 200 or more sales, or more than $100,000 in sales, into Minnesota in the last 12 months? A yes to any of those means you must collect, subject in the affiliate case to rebutting the presumption, Minn. Stat. § 297A.66, subds. 1(a)-(c), 2(a), 4a(c), and a retailer required to collect must file an application for a permit with the commissioner. Minn. Stat. § 297A.83, subd. 1(a). A seller with a Minnesota place of business, including one reached through the solicitor presumption, collects on its Minnesota sales with no grace period. Minn. Stat. § 297A.66, subds. 2(a), 4a. A seller with no Minnesota place of business that engages in one of the listed solicitations and crosses the 200-sale or $100,000 threshold begins within 60 days and continues at least through the 12th calendar month after collection began. Minn. Stat. § 297A.66, subds. 1(b)-(c), 2(d). Charge the 6.875 percent combined state rate, Minn. Stat. § 297A.62, subds. 1, 1a, and 4, plus whatever local and metro-area taxes apply at each delivery address, Minn. Stat. § 297A.99, subds. 4 and 5(b), and report each local area separately. Minnesota Department of Revenue, Local Sales and Use Taxes: Charging Local Tax. Sales you make through a marketplace that is itself required to collect, meaning it maintains a place of business here or meets the solicitation and volume test, are the platform’s to collect on unless you give the marketplace a copy of your Minnesota registration and the two of you agree that you will collect and remit. Minn. Stat. § 297A.66, subds. 1(a)-(c), 2(a)-(b).

If you buy from an out-of-state company and no Minnesota tax appears on the invoice, the obligation moves to you: use tax on the purchase price at the same rate, Minn. Stat. § 297A.63, subd. 1(a)-(b), plus local use tax where you use the item, Minn. Stat. § 297A.99, subd. 6, reduced by tax already paid to another state and its subdivisions, Minn. Stat. § 297A.80, or to another Minnesota political subdivision, Minn. Stat. § 297A.99, subd. 8. The de minimis exemption runs only to an individual’s purchases for personal use, so a business has no such threshold. Minn. Stat. § 297A.67, subd. 21.

This article is general information about Minnesota sales and use tax, not legal advice for any particular situation.