ALERT - Minnesota Wants Your Sales Tax Now

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June 11, 2010

Minnesota businesses need to be aware that they may be required to accelerate their sales and use tax payments under a new law, effective for tax payments made in September 2010. Although no new taxes were enacted in Minnesota in 2010, the Legislature did pass a speed-up or acceleration of the sales and use tax payments from the normal due date of the 20th day of the month following the taxable sale; e.g., September sales tax payable October 20. The purpose of this new law is to increase the payments and the cash flow of the state. Businesses need to be on guard because of the two options provided under the new law for making the remittances to the state. Immediate action is required now so that (1) your business does not make an inadvertent election and (2) your software is programmed for the anticipated change.

As previously indicated, under current law, the entire sales and use tax amount is due on the 20th day of the month after the month in which the taxable sale occurs. Under the new law, businesses, who collect and remit $120,000 annually in sales and use taxes, are required to remit payments on an earlier or an accelerated payment schedule.

Companies, who are required to make accelerated tax payments, have two options:

  • Remit 90% of its monthly liability on the 14th of the month after the tax was collected, with the remainder due on the 20th of the same month; or 
  • Remit a percent of the current month’s liability (equal to 67% of the previous month’s liability) in the month in which the taxable sale occurs, with the remainder of the tax due on the 20th of the following month. However, if a business chooses this payment option plan; in the first month the new tax is effective, it must make a payment equal to 167% of the liability for the previous month’s sales and use tax.

The new provision requires that all fees (e.g., 5% registration fees on leased vehicles) and other taxes (e.g., local taxes) reported on the same sales and use tax return must be remitted on the same payment schedule, as well. The law is effective for taxes due and payable after September 1, 2010.

Selecting option one requires two tax payments (on the 14th and the 20th) in the month. The second option only requires one tax payment on the 20th of the month. If a retailer/vendor fails to make an election in the first month, the vendor is deemed to have elected or defaulted to pay under the second option and must make subsequent monthly payments on that basis. That is, the election is permanent as long as the business is required to remit the accelerated tax payments. This could be a “trap for the unwary.”

Lastly, there are 10% penalties for failure to make and remit the accelerated tax payments.

Nothing in the new provision impacts the existing June accelerated payment date, or its associated settle-up date. That acceleration of tax remains as is. Although the new accelerated sales tax payments will be eliminated when the State’s cash flow account reaches $350 million and the budget reserve reaches $653 million; in these recessionary times, it would take an “economic miracle” for those targets to be reached in the near future with the projected deficit of almost $6 billion for biennium 2012-2013.

Best practice is to proactively act now to review your sales tax procedures, check your software constraints, train your employees and install procedures that will best suit your business.

If you have any questions on the new acceleration of payments of sales and use tax, please contact a member of the Tax section or Business Law section.

For a PDF of this alert, click here

This publication is circulated to bring useful and timely information to our clients and colleagues. The publication is for general information purposes only and is not legal advice. You should not rely on any information or views contained in the publication in evaluating any specific legal issues you may have. Please consult your Briggs and Morgan attorney for specific legal advice. Any U.S. Federal tax advice contained in this communication (whether distributed by mail, email or fax) is not intended or written to be used, and it cannot be used by any person for the purpose of avoiding U.S. Federal tax penalties or for the purpose of promoting, marketing or recommending any entity, investment plan or other transaction. (The foregoing legend has been affixed pursuant to U.S. Treasury Regulations governing tax practice.)