USA: Digital products and remote sales subject to sales tax in Minnesota

On May 23, 2013, Minnesota Governor Mark Dayton signed H.F 677, which makes significant changes to Minnesota’s sales and use tax, including taxing digital goods, adding click-through nexus provisions, authorizing multiple points of use exemption certificates, and requiring remote sellers to collect and pay sales and use tax consistent with federal legislation.

Digital products

Effective July 1, 2013, the sale and purchase of ‘specified digital products’ and ‘other digital products’ are subject to sales and use tax. The legislation defines ‘specified digital products’ as “digital audio works, digital audiovisual works, and digital books that are transferred electronically to a customer” and defines ‘other digital products’ to mean electronically delivered greeting cards and online video or electronic games.

Click-through nexus

Current law provides that a retailer is doing business in Minnesota if it has a solicitor operating in the state. Effective July 1, 2013, H.F. 677 provides a definition of ‘solicitor,’ which means a person, whether an independent contractor or other representative, who directly solicits business for the retailer.

The legislation also provides that a retailer is presumed to have a solicitor in Minnesota if the retailer “enters into an agreement with a resident under which the resident, for a commission or other substantially similar consideration, directly or indirectly refers potential customers, whether by a link on an Internet Web site, or otherwise, to the seller.” The total gross receipts from sales to referred Minnesota customers must be at least $10,000 in a 12-month period.

The above presumption may be rebutted by proof that the resident with whom the retailer has an agreement did not engage in any solicitation in the state on behalf of the retailer that would satisfy the nexus requirements of the US Constitution during the 12-month period in question.

Multiple points of use exemption certificate authorized

Effective July 1, 2013, H.F. 677 authorizes a purchaser that does not have a direct pay permit to use an exemption certificate indicating multiple points of use if: (1) the purchaser knows at the time of its purchase of a digital good, computer software delivered electronically, or a service that the good or service will be concurrently available for use in more than one taxing jurisdiction; and (2) the purchaser delivers to the seller the exemption certificate indicating multiple points of use at the time of purchase.

Remote sellers

H.F. 677 requires retailers without a Minnesota place of business to collect and remit sales and use tax “in accordance with the terms and conditions of federal remote seller law.” This allows the state to subject remote sellers to its sales and use tax consistent with federal legislation (like the Marketplace Fairness Act), if enacted.

For additional information, including other changes enacted as part of H.F. 677, please click here.

About Jennifer Jensen

email: Mobile: +1 240 678 0226 Office: +1 202 414 1741

Jennifer is a state and local tax director in PwC Washington National Tax Services specializing in sales and use and indirect taxes. Her industry focus is in technology, entertainment, media, and communications. Jennifer helps lead the firm's cloud computing initiative and is the state and local subject matter expert in this area. Jennifer provides both internal firm and external client sales and use tax training in such issues as eCommerce, the taxation of digital products, and, of course, cloud computing. She also summarizes relevant legislation or other tax law changes to disseminate both externally and internally and writes thought leadership pieces for external publication by the firm.