On May 24th, 2023, Gov. Tim Walz signed the 2023 tax bill into law. Although there were tax decreases to targeted populations such as reduction in taxation of social security, tax rebates, and credits to working families, there were some tax revenue raisers as well. One tax increase that goes into effect October 1, 2023, is to the metro sales tax rate in the seven metro counties of Anoka, Carver, Dakota, Hennepin, Ramsey, Scott, and Washington. This 1% increase is split between two different types. The first is a .25% “Metro Area Sales & Use Tax for Housing” which is earmarked to reduce homelessness by funding affordable housing programs in the metro. The second is a .75% “Metro Area Transportation Sales & Use Tax” which will fund projects such as light rail and bus systems, roads, etc. Below are the links to the Department of Revenue General Notices for the Transportation and Housing sales taxes.
For Businesses Selling or Using Taxable Products and Services to Customers Located in the Seven Metro Counties:
- If you use a mapping sales tax software to calculate sales tax on your product or service, test your system on October 1st to make sure it’s calculating and collecting the correct tax rate.
- If you currently calculate sales tax at the point of sale manually, you will want to be sure to update your formula for the manual calculation you do.
- If items are purchased outside of these counties, but used within them, the variable use tax will be due and should be tracked and paid. For example, you are a construction contractor and purchase lumber in Wright County and are not charged the new Metro taxes, but you bring the lumber into Anoka County to use in a construction project. Your business would need to self-assess the additional 1% on these materials used in the metro and pay it on your next Use tax filing. To simplify this, you could instead purchase the lumber in the locality it will be used to be charged the correct local rate at time of sale.
For Businesses Buying Taxable Products or Services in the Seven Metro Counties:
- Just as you should already be doing, have an internal process in place to verify sales tax is being charged if it’s a taxable sale, and that being charged the correct rate.
- This is especially true if you work all over the state and use items in various counties.
- Make sure you are being charged the correct local tax rates on items purchased on or after October 1st, 2023. If you are buying items online and they shipped into one of the metro counties, the seller may not have updated their systems to collect the additional tax. Alert them of the issue so they can correct your invoice, or track and pay the additional use tax if needed.
The Department of Revenue sent out letters in July to those they assume are affected, explaining they are now registered for a new Local Tax. Also, you may see some communication when you next log into the MN E-services account to show you how to register if you were not automatically registered. https://www.revenue.state.mn.us/add-local-tax-and-other-taxes-sales-and-use-tax-return. Be sure to report these collected metro taxes on your next sales and use tax return. For Monthly filers- October sales tax is due November 20, 2023. Quarterly filers October/November/December is due January 22nd, 2024. Annual filers are due February 5, 2024.
Please contact Sara Johnston, CPA if you are unsure if/how this change affects you.