Minnesota to Require Remote Sellers and Marketplace Providers to Collect Sales Tax

The change, which is due to the U.S. Supreme Court decision in South Dakota v. Wayfair, could increase local sales tax collections by 2.5 to 3.5 percent.
(Published Jul 30, 2018)

The Minnesota Department of Revenue announced last week that remote sellers and marketplace providers that facilitate sales into Minnesota must begin collecting state and local sales taxes beginning on Oct. 1, 2018.

The announcement comes in the wake of the June U.S. Supreme Court decision in the South Dakota v. Wayfair lawsuit that reversed previous Supreme Court decisions that limited sales tax collection responsibility to sellers with a physical presence within the state.

Efforts to streamline sales tax
Minnesota and 23 other states have been working together for nearly 18 years to address issues raised in earlier U.S. Supreme Court decisions that concluded that a state can only require sellers physically located in that state to collect sales tax. The work of that multi-state effort, called the Streamlined Sales and Use Tax Project (SSUTP), was referenced in the Supreme Court’s Wayfair decision.

Under the streamlined sales tax system, each participating state must enact sales and use tax changes that simplify, standardize, and modernize their sales and use taxes with the goal of substantially reducing the burden of sales tax administration for all sellers and all types of commerce.

The streamlined sales tax effort also allows retailers to register to collect sales taxes for all participating states through a single online registration system.

Although remote retailers will be required to collect Minnesota state and local sales taxes, the Minnesota law has an exception to the general remote seller collection requirement for small sellers. Under the exception, a remote seller is not required to collect Minnesota state and local sales taxes until one of the following is true:

  • The seller’s sales during a period of 12 consecutive months total 100 or more retail sales shipped to Minnesota.
  • The seller’s sales during a period of 12 consecutive months total 10 or more retail sales shipped to Minnesota that total more than $100,000.

Impact on state and local budgets
The state budget impact of the new sales tax collection responsibility will not be officially acknowledged in the state budget forecast until the next forecast is released around Dec. 1.

However, according to initial estimates prepared by the U.S. Government Accounting Office, the decision could result in a roughly $132 million to $206 million increase in annual state and local revenues under the expanded tax collection responsibility to non-Minnesota retailers. That range of estimates suggests sales tax collections will increase by roughly 2.5 to 3.5 percent over current collections, which cities can use as a ballpark estimate of the local impact.

Concerns raised at SSUTP meeting
In a related development, the governing board of the multi-state SSUTP met July 19-20 in St. Paul to discuss next steps in the process of responding to the U.S. Supreme Court decision in the Wayfair case. The SSUTP includes 24 member states, including Minnesota.

One concern raised in that meeting is that there are currently 21 states with sales tax that have not participated in the SSUTP streamlining effort, leading to concerns that additional, new legal arguments could be raised by sellers or others. In some states, administration of the existing state and local sales taxes is complicated by the fact that local sales taxes may, in some instances, be applied to different products and services and exemptions are not always uniform, making administration for sellers more challenging.

The executive director of the SSUTP stressed that the multi-state effort will continue to work with the business community to ensure that implementation of the U.S. Supreme Court decision is fair, efficient, and transparent for all taxpayers and administrable for sellers, purchasers, and the states.

For more background information about this topic, read a previous Cities Bulletin article.

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