United States

Minnesota: Omnibus Tax Bill Expands Sales and Use Tax Nexus Requirements; Captures Marketplace Providers

Jun 05, 2017
From KPMG TaxWatch

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House File One, which was recently signed into law by Governor Dayton, makes numerous changes to Minnesota’s tax laws, including revising the circumstances under which a retailer is considered to have a sales and use tax collection obligation on sales to in-state customers. The bill also imposes a collection requirement on certain marketplace providers. First, the definition of a “retailer maintaining a place of business” in Minnesota has been expanded in a couple different ways. The first part of the definition captures retailers that have or maintain (directly or through an affiliate) an office, place of distribution, sales or sample room, or other place of business in the state. This prong of the definition has been expanded to include (1) retailers that directly or indirectly have a storage facility or room in the state and (2) retailers that employ an in-state resident working from his or her home office.

The second prong of the definition of “retailer maintaining a place of business” in Minnesota addresses retailers that have representatives in the state performing certain activities. Under existing law, engaged in business in the state means having a representative, including, but not limited to, an affiliate, agent, salesperson, canvasser, or solicitor operating in Minnesota under the authority of the retailer or its subsidiary, for any purpose, including the repairing, selling, delivering, installing, or soliciting of orders for the retailer's goods or services, or the leasing of tangible personal property located in Minnesota. It does not matter whether the place of business or person is located in Minnesota permanently or temporarily or whether the entity is authorized to do business in Minnesota.  House File One expands the definition of who is considered a “representative” of the retailer to include having a marketplace provider or other third party operating in Minnesota under the authority of the retailer or its subsidiary. A retailer is represented by a marketplace provider in Minnesota if the retailer makes sales in Minnesota facilitated by a marketplace provider that maintains a place of business Minnesota. "Marketplace provider" is defined as any person who facilitates a retail sale by a retailer by (1) listing or advertising for sale by the retailer in any forum, tangible personal property, services, or digital goods that are subject to tax in Minnesota; and (2) either directly or indirectly through agreements or arrangements with third parties collecting payment from the customer and transmitting that payment to the retailer. It is irrelevant, for purposes of determining whether the retailer has nexus, whether the marketplace provider receives compensation or other consideration in exchange for its service. There is a small seller exception. Specifically, a retailer with total taxable retail sales to customers in Minnesota of less than $10,000 in the most recent 12-month period is not required to collect and remit sales tax if it is considered a “retailer maintaining a place of business” in Minnesota solely because it made sales through one or more marketplace providers. In addition to dictating that using a marketplace provider with in state nexus can create nexus for an out-of-state retailer, House File One imposes collection responsibilities on marketplace providers under certain circumstances. Specifically, such entities must collect and remit sales and use taxes for all facilitated sales into Minnesota for a retailer and will be subject to audit on the retail sales it facilitates unless one of the following conditions are met: (1) the retailer provides a copy of its Minnesota sales and use tax registration to the marketplace provider before the marketplace provider facilitates a sale; or (2) upon inquiry by the marketplace provider or its agent, the Commissioner discloses that the retailer is registered to collect Minnesota sales and use taxes. A marketplace provider is not liable for failure to file and collect and remit sales and use taxes if the marketplace provider demonstrates that the error was due to incorrect or insufficient information given to the marketplace provider by the retailer, provided that the marketplace and the retailer are not related entities.

House File One also expands the definition of who is considered an “affiliate” of a retailer for purposes of determining whether the retailer has a representative or affiliate operating in the state and is thus considered a retailer maintaining a place of business in Minnesota. Specifically, the concept of what constitutes an affiliate is expanded to include an entity that: (a) has a same or similar business name and sells, from a location in the state, similar products as the retailer; (b) maintains a facility in the state to facilitate the delivery of property to the purchaser; (c) maintains a place of business in the state and uses trademarks, service marks or trade names that are substantially similar to those used by the retailer; (d) delivers, installs or assembles property or performs maintenance or repair services for property sold by the retailer; (e) allows the pickup of products sold by the retailer at a location of the affiliate in the state; or (f) shares management, business systems, business practices or employees with the retailer or engages in intercompany transactions with the retailer related to the activities that establish or maintain a market in the state for the retailer.

All of these changes are effective the earlier part of July 1, 2019 or when the Quill physical presence requirement is overturned by the Court or Congress. Please stay tuned to TWIST for future updates on sales and use tax nexus legislation.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.