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Direct Selling Companies

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A direct selling company sells products directly to sellers who resell the products, or has direct sellers who take orders for their products. They are sometimes called multi-level marketing companies. 

A direct seller makes retail sales or takes orders for products. They may sell at parties or by appointment in someone’s home. A direct seller: 

  • Must be in the business for themselves. 

  • Signs up with a direct selling company to sell its products.  

  • May use a different title, such as dealer, distributor, or sales representative. 


Sales Tax Registration  

Every person or company making taxable retail sales in Minnesota must collect and remit sales tax on those sales. Usually, a direct seller must register to collect and remit sales tax.  

However, in certain cases, the Department of Revenue may authorize a direct selling company to remit sales tax for the sales made by their direct sellers. In these cases, direct sellers do not need to register. 

Direct Selling Company Reports and Remits the Tax 

Before a direct selling company can collect and remit Minnesota Sales Tax for their direct sellers, they must receive authorization from the Department of Revenue. To request authorization, use Form ST80, Direct Selling Company Affidavit. 

If the direct selling company will remit the tax: 

  • The direct selling company charges sales tax to the direct seller on the actual selling price paid by the final purchaser, or on the suggested retail-selling price if the actual price is not known. 

  • The direct seller collects sales tax from customers based on the actual selling price of the products. 

  • The direct seller reports adjustments to the direct selling company as necessary. See the Adjustments to Sales Price section. 
     

Direct Seller Reports and Remits the Tax 

If a direct seller has a taxable presence or nexus in Minnesota, they must register and collect sales tax in Minnesota unless the direct selling company has been authorized by the Department of Revenue to remit sales tax for the sales made by their direct sellers.  

If the direct seller will remit the tax: 

  • Before you make any taxable sales in Minnesota, you must register for a Minnesota Tax ID Number and a Sales and Use Tax account. See Registering Your Business.  

  • Collect and remit sales tax from customers based on the actual selling price of the items. 

Sourcing 

The sales tax rate is based on where the sale is sourced and depends on whether the direct selling company or the direct seller reports and remits the tax. 

  • If the direct selling company remits the tax, the sale is sourced to the location where the direct selling company ships the goods. 

  • If the direct seller remits the tax, the sale is sourced to the location where the direct seller delivers the goods. 

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Adjustments to Sales Price 

This section only applies if the direct selling company is collecting and remitting tax on behalf of their direct sellers.  

If the customer pays more than the price paid by the direct seller: 

  • The direct seller must charge the customer sales tax on the actual selling price 

  • The direct seller must notify the direct selling company of the actual selling price 

  • The direct seller must pay the direct selling company the additional sales tax 

  • The direct selling company must report the actual selling price and remit all sales tax collected 
     

If the customer pays less than the price paid by the direct seller, the direct seller may notify the direct selling company of the actual selling price. However, the direct selling company is not required to make an adjustment. 

Advertising and Sales Materials 

Sales of advertising display cases, demo kits, sample cases, brochures, sales catalogs (unless issued four or more times per year), order forms, and similar items, are taxable.  

  • If a direct selling company provides these for free, the direct selling company must pay sales or use tax on their cost of the items.  

  • If a direct selling company sells these items, they must collect sales tax on the selling price. 
     

Bundled Transactions 

A bundled transaction occurs when taxable items and nontaxable items are combined and sold for a single price. The sale is taxable unless the price of the taxable item or service is minimal. 

To be minimal, the seller’s purchase price or sales price for the taxable products must be 10% 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 – not a combination of the two. 

Host Credits and Discounts 

Credits 

Some direct selling companies or direct sellers offer credits to a person who hosts a party. These credits are treated as a form of payment. Sales tax is due on the full sales price of taxable items purchased with credits, regardless of the amount paid.  

Example 

A host earns $45 in merchandise credits. The host purchases taxable items totaling $52, pays $7 and uses $45 in merchandise credit. Sales tax is charged on the full order amount of $52.  

Discounts 

When a host is offered items at a reduced price, tax is due on the amount paid for the item.  

Example 

A host earns a discount to purchase one item at half price. The host purchases a $50 taxable item and pays $25 for it. Sales tax is charged on the discounted price of $25. 

Use Tax 

If you buy equipment, supplies, or other taxable items for your business and the seller does not charge Minnesota sales tax, you owe use tax on the cost of the items.  

You must pay use tax on items you take out of inventory for business or personal use. This includes items you give as a gift, prize, or sample. 

For more information, see Use Tax for Businesses. 

Local Sales and Use Taxes 

If you are located in or make sales into an area with a local tax, you may owe local sales or use tax. For more information, see Local Sales and Use Taxes.  

Legal References and Resources 

Minnesota Statutes 

Minnesota Rules 

Publications