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Local Sales Tax in Minnesota Attachment C Determination of the Local Tax Rate The local tax rate is set in the legislation authorizing the tax. The statute clarifies that the full local tax rate applies to all taxable sales. SSUTA allows lower rates to apply to certain items but 5 all current local sales taxes have only one rate. (Minn. Stat. § 297A.99, subd. 5) Definition of the Tax Base for the Local Tax The statute provides that the local sales tax applies to the same tax base, with the same exemptions, as the state sales tax. A taxable service is subject to the local tax if more than one- half of the service, based on the cost, is performed within the local jurisdiction. (Minn. Stat. § 297A.99, subds. 4 and 7) The following sales made within the local taxing jurisdiction are exempt from the local tax: Purchases shipped outside the taxing jurisdiction for use in a trade or business outside of the jurisdiction Purchases temporarily stored in the taxing jurisdiction before being shipped by common carrier for use outside of the jurisdiction Purchases that are subject to the direct pay provisions for interstate motor carriers under Minnesota Statutes, section 297A.90 Requirements of a Complementary Use Tax 6 A complementary use tax is required in all jurisdictions with a local sales tax. The use tax is imposed on the consumption or “use” of taxable items for which no sales tax was paid. The tax is imposed mainly on purchases by resident buyers from sellers located outside of the local taxing jurisdiction. The use tax removes the disadvantage to local businesses from competition with businesses located outside of the taxing area that are not required to collect the local sales tax. (Minn. Stat. § 297A.99, subd. 6) The statute also allows a credit against the use tax owed for a local sales or use tax paid to another political subdivision. This is similar to the credit against state sales and use tax for the amount of sales taxes paid to another state. (Minn. Stat. § 297A.99, subd. 8) A political subdivision with a local sales and use tax must notify its citizens about the local use tax and provide information or electronic links to allow persons to get information and forms needed to pay the tax. The political subdivision must post the information on the main page of its website and provide an annual notice with the billing statement for any public utilities provided by the jurisdiction. (Minn. Stat. § 297A.99, subd. 12a) 5 The one-rate-per-taxing-jurisdiction requirement in SSUTA does not apply to the sale of the following items: electricity, gas, or other heating fuels delivered by the seller, or the transfer of motor vehicles, aircraft, watercraft, modular homes, manufactured homes, or mobile homes. 6 Four local taxes enacted before 1997 did not include a complementary use tax—in Cook County and the cities of Hermantown, Mankato, and St. Paul. A local use tax was imposed in these political subdivisions beginning January 1, 2000. Minnesota House Research Department Page 4