Number 66 2006 Sales Tax Newsletter November 2006 Contents 1 Hennepin County tax begins January 1 1 New ST3, Certificate of Exemption 1 Three new local sales and use taxes 1 Local Tax Registration 2 Sales and use tax filing and payment schedule 2 You can be penalized for not filing your sales tax return 2 Lowered threshold for mandating electronic payments may affect you 2 e-file Minnesota reminders 3 Update your business information 3 Computer hardware and software 3 Cover charges 3 Motor vehicle towing 3 Pet sales 3 Cigarette retailers 3 Interest rates for 2007 3 Revenue notices and fact sheets 3 Rules 4 Individuals may owe use tax 4 Use tax Web filing 4 Spanish translations 4 Withholding tax 5 Business tax education workshops 6 Reminders For sales and use tax information contact: Minnesota Revenue Corporate and Sales Tax Division Mail Station 6330 St. Paul, MN 55146-6330 Phone: 651-296-6181 Minnesota Relay (TTY) 711 Internet: www.taxes.state.mn.us Hennepin County tax begins January 1, 2007 Beginning January 1, 2007, Hennepin County will have a 0.15 percent sales and use tax that will be administered by the Minnesota Department of Revenue. The tax will be used primarily to finance the new Twins Stadium. The combined state, Hennepin County, and Minneapolis tax rate is 7.15%; state and Hennepin County (outside Minneapolis) is 6.65%. The sales tax applies to retail sales made within the boundaries of Hennepin County. The use tax applies to taxable items used in Hennepin County if the local sales tax was not paid. The tax applies to the same items that are taxable under the Minnesota sales and use tax law. Local governments (cities, towns, counties, instrumentalities, political subdivisions, commissions, special districts, and government boards) are not required to pay local sales or use taxes. No exemption certificate is necessary. However, state sales tax generally applies. For more information about the Hennepin County tax, see the Hennepin County notice on our Web site. For more information about local taxes in general, see Fact Sheet 164, Local Sales and Use Taxes, available on our Web site. New ST3, Certificate of Exemption The Certificate of Exemption, Form ST3, was recently updated to reflect law changes and to conform to Streamlined Sales Tax standards. You do not need to immediately update your files with the new certificate. Exemption certificates do not expire unless the information on the certificate changes; however, we recommend you review your existing exemption certificates to ensure the purchaser fully completed it by providing all required information. If you do not receive a fully completed exemption certificate, you may be held liable for tax found on audit. Three new local sales and use taxes The cities of Austin, Brainerd, and Owatonna will impose local sales and use tax beginning April 1, 2007. The local taxes will follow the same guidelines as the state sales and use tax, and will be administered by the Minnesota Department of Revenue. We will post notices on our Web site with details about each tax in January, 2007. You can be penalized for not filing your sales tax return. See details on page 2 Local Tax Registration The Department of Revenue will automatically register and mail a letter to businesses located in Hennepin County and each city. For other businesses that need to register: Log into e-file Minnesota. Click on Update business information on the Main Menu page. Click on the Sales and use tax link in the left sidebar. Click Continue to advance to the Additional taxes page and add local tax. If you file over the internet, you may register for the local tax on-line when you file your sales tax return. On the File a return page, click Add a sales tax type and check the box for the local tax you are adding. If you file by phone, you must register for local tax before you file your return. Call 651-282-5225 or e-mail us at salesuse.tax@state.mn.us to register. Be sure to include your MN ID number if you send us an e-mail. All retailers who are registered to collect Minnesota sales tax and are doing business in Hennepin County, Austin, Brainerd, or Owatonna, must be registered to collect the local city tax.
Sales and use tax filing and payment schedule Use the following schedule as a reminder of when to file your sales and use tax returns and to pay tax. Due date for Period of return filing and paying December 2006 (monthly and quarterly) Jan. 22, 2007 Annual (year 2006) Feb. 5, 2007 January 2007 Feb. 20, 2007 February 2007 March 20, 2007 March 2007 (monthly and quarterly) April 20, 2007 April 2007 May 21, 2007 May 2007 June 20, 2007 June accelerated payment 2007* June 28, 2007 June 2007 (monthly and quarterly) July 20, 2007 July 2007 Aug. 20, 2007 August 2007 Sept. 20, 2007 September 2007 (monthly and quarterly) Oct. 22, 2007 October 2007 Nov. 20, 2007 November 2007 Dec. 20, 2007 December 2007 (monthly and quarterly) Jan. 21, 2008 Annual (year 2007) Feb. 5, 2008 * June accelerated payment. If you have a sales and use tax liability of $120,000 or more in the state s fiscal year (July 1 June 30) you must make an accelerated payment in June of 2007. (Note: Beginning with June 2007, the June accelerated payment is reduced from 85 percent to 78 percent.) The following estimated tax payment provisions apply to the June payment only. You must pay one of these amounts: 78 percent of your actual June liability, or 78 percent of your May liability, or 78 percent of your average monthly liability for the previous calendar year. The June 2007 accelerated payment is due June 28, 2007 and the remaining payment and return for June is due August 20, 2007. If you do not make an estimated payment by June 28, 2007, you will be subject to a penalty. You are also subject to a penalty if you underpay your estimated tax. That penalty is 10 percent of the difference between what you are required to pay and what you did pay. If you were required to make an accelerated payment in the past but your tax liability is now below $120,000 for the prior fiscal year, you are not required to make a June accelerated payment. You must file your June return and pay your June tax in July (see the filing and payment schedule). It is important to review your account to assure that you are filing and paying properly in order to avoid possible penalties and interest. (Note: if your tax liability is under $120,000, but at least $10,000, you are still required to pay electronically see the change in threshold for mandating electronic payments in the following article for more information.) 2 Lowered threshold for mandating electronic payments may affect you If you have a liability of $10,000 or more in the state s fiscal year ending June 30, 2006, you are required to pay all taxes electronically beginning with payments due for periods in calendar year 2007 and in calendar years thereafter. For sales tax purposes you need to make your payments electronically beginning with the January 2007 return due February 20, 2007. When you log into e-file Minnesota to file your sales tax return on the Internet, you should see a message notifying you that you are required to pay electronically. Although this message will appear for a short time to initially notify you of the requirement, it is your responsibility to review your tax liability for the previous year and determine if you are required to pay electronically. Penalties will be assessed for filers who meet the threshold but do not pay electronically. You can make your payment electronically using e-file Minnesota. You can be penalized for not filing your sales tax return Paying sales tax does not mean that you filed a sales tax return. To avoid penalty, you must do two things: (1) file your return electronically either over the Internet or by telephone by the due date - you must correctly complete your return by reporting your taxable sales and purchases on the proper lines; and (2) pay the tax due by the due date The sales and use tax return is required by law. Failure to file a return, or incorrectly completing a return, can result in penalties being assessed, revocation of the sales tax permit and other enforcement actions being taken to ensure compliance with the law. You are subject to a penalty if you do not file a tax return within 30 days after we notify you in writing that you have not filed your return. The penalty is five percent of the tax not paid prior to our written notice, or $100, whichever amount is greater. For more information on how to file your return, see Fact Sheet 170, A Step-by-Step Guide to Filing and Paying Sales and Use Tax Electronically, available on our Web site. e-file Minnesota reminders When you log into e-file Minnesota to file or pay taxes, be sure to check the screens for messages. We periodically add messages to tell you important information. For example, you may be notified that you have some returns missing, that you are required by law to
pay your taxes electronically, or that your filing cycle has changed. In the past, letters were sent to inform you of changes. Now these messages are shown on the Internet in e-file Minnesota. You can view a history of the returns you ve filed or payments you ve made through e-file Minnesota. On the Main Menu, click on View history. If you do not owe any tax, you must still e-file your sales and use tax return. However, payment vouchers should never be sent with zero amounts due. Payment vouchers are only used to process checks if you do not owe any tax, you may discard the voucher. If you have e-file questions or need to have your password reset, send an e-mail to salesuse.tax@state.mn.us or call our office at 651-296-6181. Include your Minnesota tax identification number in your e-mail. Update your business information When you log into e-file Minnesota to file or pay taxes, you can add local taxes or make other updates to your Minnesota sales or use tax account. Click on Update business info on the Main Menu page. Check your address, phone numbers, e-mail address, and other information. Make any changes, or add any missing information by clicking on the appropriate link in the left sidebar. To add local taxes, click on the Sales and use tax link in the left sidebar. Click Continue to advance to the Additional taxes page and add local taxes. Computer hardware and software Charges for consultation in conjunction with the installation and configuration of computer hardware and software are taxable. In many cases, we see invoices that show an hourly charge for many activities (installation, reinstallation, troubleshooting, data migration, etc.) however, the charges are not broken out by activity. When there is one charge for both taxable and nontaxable items or services, the entire charge is taxable. When activities are itemized, only the taxable items and services are taxable. See Revenue Notice 06-11, Labor Charges, for more information on installation charges. Cover charges Admissions charges are taxable. Admission charges include charges commonly known as cover charges. The facility owner is responsible for reporting cover charges and the sales tax collected on them and for remitting the sales tax to the state. This is true even if an entertainment promoter collects cover charges from the facility patrons on behalf of the facility owner. Motor vehicle towing Charges for towing motor vehicles are taxable. Towing businesses sometimes bill separately for charges that are part of the sales price of the towing service. Examples include: processing fees; road clean up fees; administrative and management fees; dolly use; flat bed fees; risk fees; credit card use fees; winching fees; pulling; recovery services; parking fees; and environmental fees. These charges are all taxable when associated with a taxable towing service, even if they are separately stated. Charges for storing vehicles at impound lots are exempt, if stated separately. Pet sales Sales of pets, including dogs, cats, fish, gerbils, birds, and any other animals (except horses) are taxable. Pet supplies are also taxable. This is true whether the animals are sold by pet dealers, brokers, breeders, or any person that breeds animals for direct or indirect sale to the public. Cigarette retailers The Department of Revenue can revoke a sales and use tax permit for violation of the cigarette and tobacco product laws. A permit may be revoked if the retailer buys more than 20,000 cigarettes or $500 of tobacco products from an unlicensed seller for resale. The Department can also revoke a permit if a retailer, directly or indirectly, purchases cigarettes for resale without the proper stamp affixed. Interest rates for 2007 The interest rate on delinquent sales and use taxes will increase to eight percent in 2007. By law, the interest rate on unpaid tax is adjusted each year according to the adjusted prime rate charged by banks to businesses, as determined by the Board of Governors of the Federal Reserve System. The interest rate on refunds will also be eight percent. Revenue notices and fact sheets Visit our Web site to see our current revenue notices and fact sheets. Revenue notices are interpretations of law or statement of policy, procedures or audit position. These notices are binding on the Department of Revenue, but not on taxpayers. Fact sheets contain general information about specific, tax-related topics. These publications are reviewed on an ongoing basis and modifications are made when necessary. Rules Rules are used to explain the laws that we administer. Adopted rules have the force and effect of law. Check the Legal and Research Info page on our Web site to see proposed Rules that the department is working on or Rules that have been recently adopted.
Individuals may owe use tax Use tax is the counterpart of sales tax. If you buy a taxable item for your own use without paying sales tax, you probably owe use tax. The use tax rate is the same as the sales tax rate (6.5%) and the same exemptions apply. If you are located in an area with a local tax, local use tax also applies (see Fact Sheet 164, Local Sales and Use Taxes). Here are some examples of when use tax is due because sales tax was not charged: Purchases over the Internet, by mail order, or from a shopping channel. Purchases of an uninstalled ready-to-move home or log home, or building materials from outside Minnesota when you are responsible for the attachment to real property (hookup of electrical and plumbing, and masonry work). Purchases of jewelry, boats and motors, snowmobiles, ATVs, art, furniture, tools or appliances. An out-of-state seller properly collects another state s sales tax at a rate lower than Minnesota s. In this case, you owe the difference between the two rates. Purchases from retailers in other countries regardless of whether foreign taxes or duty have been paid. There is an exemption from the Minnesota use tax for purchases for personal use if the individual s purchases subject to use tax are not more than $770 in a calendar year. For example, a husband and a wife may each purchase $770 of goods without paying use tax. You must keep track of your untaxed purchases for the calendar year and report and pay any use tax due by the following April 15. If your individual purchases subject to use tax total more than $770 in a year, you owe Minnesota use tax at the 6.5% rate on the entire amount. This exemption does not apply to purchases from businesses that are required to collect Minnesota sales tax or purchases for use by a business. If you are an individual and have been registered as a business with a Minnesota tax identification number, but have no business activity, you may cancel your Minnesota tax identification number and begin filing use tax using the new on-line Use tax return (see the article below). Contact our office by e-mail or phone, or use the Update business information in e-file Minnesota, to cancel your business account. See Update your business information on page 3. If you fail to report use tax on taxable items, penalty and interest may be assessed in addition to the tax. Use tax Web filing 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. (See the previous article for examples of when you owe use tax.) Individuals who owe state and/or local use tax can now file their annual tax return and pay tax using e-file Minnesota. On the Welcome to e-file Minnesota page, enter your return under your social security number and follow the steps through confirmation. Spanish translations The Department of Revenue continues to translate publications into Spanish. The following are currently available in Spanish: Sales Tax Fact Sheets 128, Contractors; 121, Lawn and Garden Care, Tree and Bush Service; 112, Building Cleaning and Maintenance; and 120, Laundry and Cleaning Services. In addition to fact sheets, we recently translated the classroom instructional materials for the basic Basis Sales and Use Tax class that is part of our Minnesota Business Tax Education Program. Please watch our Web site to see future translations. Withholding tax New electronic filing option to submit W-2s The Minnesota Department of Revenue is in the process of creating an application that will give you the ability to electronically submit W-2s for your business. We plan to have the system available to use by the end of 2006. You will log into e-file Minnesota and have the option to submit W-2s with or without your year-end withholding return. You will have three options to submit your W-2 information: key and send (no more than 25 W-2s) upload a file using the MMREF format upload a file using a spreadsheet or text format. (Your file will need to contain employee SSN, first name, middle initial, last name, MN wages, MN withholding, 1099 income and federal withholding.) There will be a separate electronic option for those who will be submitting: more than 10,000 W-2s or businesses that have the capability to submit W-2s in an unattended mode. (You program your computer to talk to our computer.) Watch the Withholding page of our Web site for further information.
Business tax education workshops 2007 Winter/Spring Sales Tax Workshops Classes will be held this winter and spring throughout Minnesota and border cities. Registration will begin January 16, 2007. To register for one or more of these free classes, please call 651-297-4213, or e-mail us at: mdor.mbe@state.mn.us Duluth Basic Sales & Use Tax 3/13/07 9 am - 12:30 pm MN/WI Contractor Issues 4/17/07 9 am - 12:30 pm Fargo, ND MN/ND Border Issues March date to be announced - check Web site at: http://www.taxes.state.mn.us Hudson, WI MN/WI Border Issues 4/17/07 9 am - 12:30 pm Mankato Basic Sales & Use Tax 3/29/07 9 am - 12:30 pm Onalaska, WI MN/WI Border Issues 3/27/07 9 am - 12:30 pm Rochester Basic Sales & Use Tax 3/15/07 9 am - 12:30 pm Sioux Falls, SD MN/SD Border Issues 3/28/07 9 am - 12:30 pm MN/SD Contractor Issues 3/28/07 1 pm - 4 pm Spirit Lake, IA MN/IA Border Issues MN/IA Contractor Issues May date to be announced - check Web site at: http://www.taxes.state.mn.us May date to be announced - check Web site at: http://www.taxes.state.mn.us St. Cloud Basic Sales & Use Tax 3/21/07 9 am - 12:30 pm Capital Equipment/Industrial Production 4/18/07 9 am - 12:30 pm St. Paul Basic Sales & Use Tax 2/13/07 9 am - 12:30 pm Capital Equipment/Industrial Production 2/27/07 9 am - 12:30 pm Basic Sales & Use Tax 3/13/07 9 am - 12:30 pm Basic Sales & Use Tax 4/10/07 9 am - 12:30 pm Capital equipment/industrial Production 4/24/07 9 am - 12:30 pm Basic Sales & Use Tax 5/5/07 9 am - 12:30 pm PLEASE REGISTER IN ADVANCE FOR THESE FREE WORKSHOPS Minnesota Business Tax Education Program 651-297-4213. For TTY: Minnesota Relay Services at 711. Fax: 651-556-3102
Corporate and Sales Tax Division, St. Paul MN 55146-6330 2006 Minnesota Sales Tax Newsletter PRSTD STD U.S. POSTAGE PAID ST. PAUL, MN PERMIT NO. 171 Reminders Local tax must be collected at selling events - When vendors sell items at selling events such as craft fairs, flea markets, sports shows, etc., they must collect any applicable local taxes, in addition to the state sales tax. Please refer to Fact Sheets 164, Local Sales and Use Taxes, and 148, Selling Event Exhibitors and Operators. Vending machine sales All food and drinks sold through vending machines, snack boxes or honor boxes, and powdered beverage dispensers are taxable. These sales are taxable even if made on school premises. Liquor gross receipts tax - A law change in 2005 replaced 2.5 percent of the 9 percent sales tax on alcoholic beverages with a 2.5 percent gross receipts tax on retail liquor sales. Beginning January 1, 2006, retailers are required to report their liquor sales on both the 6.5 percent general rate tax line and on the 2.5 percent liquor gross receipts line on their sales and use tax return. Purchases by exempt entities - Certain purchases by qualified exempt entities are exempt when purchased and paid for directly by the exempt entity. Purchases made by employees of the exempt entity are taxable, even though the exempt entity will reimburse the employee. In addition, exempt entities cannot make exempt purchases for employees who will later reimburse the exempt entity. Prefinishing woodwork - Charges for prefinishing woodwork are taxable fabrication charges. See Revenue Notice 06-10, Fabrication Labor Prefinishing Woodwork. Sales Price Consulting services, whether or not they are separately stated, are part of the taxable sales price when they result in the sale of a taxable item or service. Installation and delivery (freight) of taxable items are also part of the taxable sales price. Window treatments - Installation of window treatments such as blinds and draperies are generally taxable. The installer should charge sales tax on the sale of the items and on the installation labor. Installation of window treatments, such as cornices and shutters that are attached to real property, are not subject to sales tax; however, the installer owes tax on all materials used. 6