Purchases

You must pay sales tax directly to the vendor and cannot use your Direct Pay Authorization to purchase taxable services.

For more information on taxable services, see below.

• Admissions to places of amusement
• Making available of amusement devices
• Admission to tanning facilities
• Lodging and related services
• Nonresidental parking services except for parking meters
• Membership to a sports or athletic facility
• Motor vehicle towing, washing, waxing, rust-proofing, and cleaning services
• Pet grooming and kenneling services
• Pest control and exterminating services
• Massages
• Building cleaning and maintenance
• Detective, security, and alarm services
• Lawn and garden care services
• Laundry, dry cleaning, and alterations services
• Telecommunications services

Direct Pay Authorization lets state agencies remit tax directly to the Minnesota Department of Revenue instead of paying sales tax to the seller at the time of purchase. State agencies owe tax on most purchases of taxable items.

For more information, see Direct Pay Authorization.

State agencies need to provide their vendor one of the following to purchase items exempt from sales tax:

• A completed Form ST3, Certificate of Exemption, specify the Direct Pay authorization exemption
• A purchase order containing the equivalent information

State agencies must pay the Motor Vehicle Sales Tax on motor vehicle purchases. In addition, the $20 transit excise tax may apply.

For more information, see Motor Vehicle.

Digital products are products you access or obtain through electronic methods (downloading, streaming, email). You may purchase taxable digital products with your Direct Pay Authorization.

Taxable digital products include:

• Digital audio works
• Digital audiovisual works
• Digital books
• Digital codes

Nontaxable digital products include:

• Access to digital news articles
• Charts and graphs
• Digital photos and drawings
• Logos and designs

For more information, see Digital Products.

Optional Maintenance Contracts for Equipment

Optional maintenance contracts for equipment usually include repair labor, replacement parts, cleaning, inspection, or other general services. Optional maintenance contracts are taxable if they include any taxable items, unless the purchase or sales price of those items is insignificant.

Optional Extended Warranty Contracts for Equipment

Optional extended warranty contracts that cover unexpected repair costs are not taxable. However, separate charges for repair parts are taxable if the charge is in addition to the warranty contract and is separately stated on the customer’s bill.

For more information, see Revenue Notice 16-03, Optional Warranty and Maintenance Contracts on Equipment.

There are four types of labor. Whether the labor is taxable depends on the type of work performed.

Real property is land and structures that are attached to the land or building. Construction contracts for real property improvements are not taxable. However, contractors pay sales tax on all inputs that go into the construction. Examples include:

• Building materials
• Electrical wiring materials
• Flooring materials
• Paint

For more information, see Contractor and Other Property Installers.

Use tax applies when you buy, lease, or rent taxable items or services without paying sales tax to the vendor. Use tax is due on the cost of an item.

You may owe use tax if you bring taxable items into Minnesota or take items out of inventory for taxable use, such as an interagency transfer.

If you are located in an area with local taxes, local use tax may also apply. Local use tax is based on where the items are used.

For example, you purchase $1,000 of office supplies. The supplies are delivered to St. Paul and then distributed to different offices. The distributions are:

• 60% to St. Paul
• 15% to Bloomington
• 25% to Duluth

You would report the purchase amount in each of the local use tax lines as follows:

• St. Paul tax line, $600
• Ramsey County Transit tax line, $600
• Hennepin County tax line, $150
• Hennepin County Transit tax line, $150
• Duluth tax line, $250
• St. Louis County Transit tax line, $250

For more information, see Local Sales and Use Taxes.

If you purchased and picked up items in another state and paid that state’s sales tax, you may still owe Minnesota use tax if the other state’s sales tax rate is less than Minnesota’s. No additional tax is due if the other state’s rate is more than the Minnesota rate. No refund is allowed if the other state’s rate is more than the Minnesota rate.

To calculate the variable rate, subtract the other state’s tax rate from the Minnesota tax rate as shown.

Minnesota sales tax rate                                   6.875%
Tax rate paid to another state                          -5.500%
Variable rate                                                      1.375%

Report the difference in tax on the variable rate use tax line of your sales and use tax return. For more information, see Use Tax for Businesses.

Minnesota state agencies and the Minnesota state legislature can only buy from vendors who are registered to collect Minnesota Sales and Use Tax. When selling to a state agency or the legislature, vendors must provide their Minnesota Tax ID Number to show they are registered to collect sales tax in the state.

Note: This does not apply to contracts with Minnesota courts, state colleges, or universities.

Sales to state agencies and local governments outside of Minnesota are exempt if the item would not be taxable in their home state. This exemption does not apply to sales of prepared food, drinks, and lodging.

To claim the exemption, give the seller a completed Form ST3, Certificate of Exemption.