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Sales tax exemptions
The most significant change in the governor’s budget in terms of generating new revenue is in the area of sales taxes. The governor broadens the sales tax base by eliminating many current exemptions, including the following.
Selected consumer goods and services, including clothing items over $100, over-the-counter drugs, digital goods, repair services (including auto repair), personal care and instruction services, and legal and accounting services.
Selected business services, including legal, accounting, computer, advertising, architecture, employment, specialized design, management consulting, and business support services.
Goods sold over the Internet through Minnesota-based affiliates. (This change, referred to as “affiliate nexus,” eliminates a competitive disadvantage between main-street businesses — which must charge a tax on their sales — and on-line retailers with a Minnesota presence — which frequently do not collect taxes on similar sales.)
Certain types of digital video recorder and programming services sold by a direct satellite service provider and charges for the use of pre-written software if the customer does not have title to or control of the software.*
Selected other items, including telecommunications equipment, advertising materials and publications, and court reporter documents.
While taxpayers will start paying a tax on a variety of goods and services that were previously exempt, the sales tax rate itself will fall from 6.875 percent to 5.5 percent,† thereby reducing Minnesota’s sales tax rank from 7th highest in the nation to 27th. As a result of this rate reduction, the tax on goods that are already taxable under current law — items ranging from school supplies and shampoo to hockey sticks and hula hoops — will fall by 20 percent.
