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Minnesota updates its sales tax rules for out-of-state sellers

In 2018, the U.S. Supreme Court ruled in South Dakota v. Wayfair, Inc., Overstock.com, Inc., and Newegg, Inc. that states can require out-of-state sellers and so-called "marketplace facilitators" to collect sales tax on their behalf. Previously, the rule had been that a seller or facilitator had to have a physical presence in the state before it could be required to collect that state's taxes.

Since that ruling, more than 40 states have adopted changes to their tax laws to facilitate the collection of taxes by remote sellers and marketplace facilitators. Marketplace facilitators are companies like Amazon that match up small sellers with buyers, allowing the small seller to take part in the online marketplace without setting up its own sales platform.

As of Oct. 1, new sales tax laws went into effect in many states across the nation, including in Minnesota. Two new Minnesota laws went into effect that spell out the amount of activity companies have to engage in before they are required to collect Minnesota sales taxes.

What do the new Minnesota laws say?

Previously, out-of-state sellers were required to collect taxes if they made 10 or more retail sales that totaled $10, or 100 transactions overall. The new law increased the economic threshold for these sellers. Now, they don't have to collect Minnesota sales taxes unless they reach $100,000 in retail sales or complete 200 transactions.

The rule is essentially the same for market facilitators like Amazon. They also have to collect Minnesota sales taxes if they complete 200 transactions or reach $100,000 in income from Minnesota sales. However, the market facilitators have up to three years to reach full compliance, whereas remote sellers need to start complying right away.

Advice for online retailers: Consult a tax attorney

You may be unsure of when you need to collect Minnesota sales taxes. Tax software can be helpful, but you need to be sure you're tracking the right types of sales and transactions. An experienced tax lawyer can help you understand the details of the law so that you minimize your overall sales tax liability while ensuring you have complied with state law.

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