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Minnesota Income and Sales Tax Changes

Legislation was signed into law on May 23rd revamping Minnesota's income and sales tax laws.  The legislation is projected to raise $2.1 billion dollars and eliminate the state budget deficit. The scope of the new bill is very large, and will affect almost all Minnesota taxpayers, individuals and businesses alike.  Here are the highlights…

Individual Changes

The bill added a fourth tax rate of 9.85% to higher income taxpayers.  The new income and rate brackets are:



Also the AMT (alternative minimum tax rate) for individuals, estates, and trusts will increase from 6.4% to 6.75%

It may be necessary for any taxpayers paying MN estimates based on actual income to adjust their 4th qtr payment. No penalties will be assessed for underpayment in quarters 1-3.

Business Changes

The minimum franchise rate which is based on the sum of the entity's Minnesota property, payroll and sales has increased.  The new rates are:



Sales Tax

Currently, a purchase of a taxable item by a MN business or individual made from an out-of-state company that does not have a presence or "nexus" in the state does not include a charge for sales tax. Instead, taxpayers are expected to report these purchases on a "use tax" form which is mostly ignored and rarely enforced.  Minnesota adopted the "Amazon Rule" effective July 2013 for out-of –state retailers which requires a business to collect MN sales tax if any individual or business directly or indirectly solicits on their behalf and $10,000 of sales in MN are generated by the referrals.

Digital Tax

There will be a new digital tax on specified digital products and digital products transferred electronically. This will include music, ring tones, audio books, movies, e-books, and online video games, to name the big ones. This tax will begin in July of 2013.

Business-to-Business Sales Tax

Repairing electronic and precision equipment such as computer-related hardware, TVs and radios, communication equipment, scientific instruments, and medical equipment are going to be subject to sales tax starting July 2013. Repairing and maintaining commercial and industrial equipment is also subject to the new sales tax but excludes furniture and fixtures.

Effective April 2014, sales tax will be charged on warehousing and storage services of tangible personal property, excluding agricultural products, refrigerated storage, electronic data, and self-storage services.

Please contact your tax advisor if you are concerned about how these new taxes will affect you.

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