Sales and Use Tax Misunderstandings

By: Anthony L. Barthel

“Sales and Use Taxes are due at the end of each month”

It would be easy to think that Sales and Use Tax Returns are due at month-end. However, monthly returns and quarterly returns are due the 20th of the month following the close of the period. Annual filings are due February 5th of each year.

“Goods are taxable, services are not”

The general rule of Sale and Use Tax is that everything, goods and services, is taxable unless the subject of an exemption. Some exemptions are very broad, such as “items purchased for resale” by a merchant. Some exemptions are very narrow, such as advertising materials shipped into Minnesota but then sent out of Minnesota or used at a non-Minnesota trade show. One should also note also that delivery charges are exempt if the material delivered is exempt.

“Software is taxable only if I receive media.”

Software is taxable even if it is downloaded; no media is required. This includes the right to use software for which a periodic payment is made. Converting data from one physical format to another or one electronic format to another is taxable, but compressing or zipping a file is not taxable. Accessing remote data is not taxable, but if the data is in the form of a book, it is taxable.

“Technical services are not taxable.”

Installation of software and computer upgrades is taxable. Big box stores are not infallible. At least one big box store appears to be facing a major audit because of its failure to tax computer upgrade installations and related services.

“If I didn’t buy it in Minnesota, I do not owe the tax.”

The determining fact is not the source of the purchase but the destination of the goods or services. Internet purchases originating outside of Minnesota and subsequently shipped into Minnesota require the purchaser to report and pay the tax.

“It is the responsibility of the seller to collect the tax - if they don’t collect tax, I’m home free.”

It may be the responsibility of the seller to collect sales tax. However, if the Sales Tax is not collected, the buyer has a responsibility to pay Use Tax, even if Sales Tax was not collected by the seller.

Conclusion

These examples serve only to demonstrate that Sales and Use Tax Rules are not intuitive. The Sales and Use Tax rules are very specific and depend upon an ever changing factual scenario. The practice used by another business in what appears to be a similar situation should not simply be adopted in determining the correct tax treatment for your business. The Minnesota Department of Revenue maintains a set of publications at: http://www.taxes.state.mn.us/taxes/sales/index.shtml. While these publications are very good, please remember that all publications by a taxing authority are that authority’s interpretation of the law. Substantive questions should always be discussed with legal counsel.