Minnesota changes economic nexus thresholds

As have several other states, Minnesota is changing its sales tax economic nexus threshold.

Economic nexus laws base a sales tax collection obligation on a remote seller’s economic activity in a state. Currently, out-of-state sellers that regularly or systematically solicit sales from Minnesota customers are required to register with the Minnesota Department of Revenue and collect and remit tax on their Minnesota sales if, during a period of 12 consecutive months, they made 10 or more retail sales totaling more than $100,000 or at least 100 retail sales shipped into the state.

Effective October 1, 2019, the threshold changes to more than $100,000 in sales or at least 200 transactions in the state during the prior 12-month period. This is based on all remote retail sales into Minnesota, including sales made through a marketplace.

This new threshold applies to all remote sellers: individual businesses and marketplaces. Once nexus is established, a remote seller or marketplace must register with the tax department and commence sales tax collection and remittance on the first day of a calendar month occurring no later than 60 days after the threshold has been met.

A remote seller with economic nexus must collect and remit taxes on all sales into the state unless a marketplace provider is collecting and remitting sales tax on its behalf. If a marketplace collects sales tax on behalf of a remote third-party seller, and the seller doesn’t sell into Minnesota through any other channels, the third-party seller isn’t required to register with the tax department or collect sales tax. However, if that remote seller sells through other channels such as its own website, it’s responsible for the tax on those sales.

Marketplace providers are required to collect and remit tax on all sales made through the marketplace if they have nexus with the state (i.e., physical presence or economic nexus). However, a marketplace provider and seller may enter into an agreement whereby the seller will collect and remit the sales tax on its marketplace sales.

Having the ability to tax remote sales is relatively new for states: Until June 21, 2018, they could only impose a sales tax collection obligation on businesses with a physical presence in the state. (Learn more about South Dakota v. Wayfair, Inc., the United States Supreme Court decision that repealed the physical presence rule, here.)

Since being granted the authority to tax remote sales, more than 40 states have adopted economic nexus. In more than half of those states, the small seller exception matches the one in South Dakota, which the Supreme Court praised. Come October 1, 2019, Minnesota will be among them.

Learn more about state remote seller sales tax laws.