Most purchases made by the University are exempt from sales tax. However, taxable property and taxable services sold by the University are subject to sales tax (unless the purchaser is exempt from sales tax or an item is shipped out of Minnesota). This means that University departments must charge sales tax when making sales of taxable items.
Many people have the misconception that because the University is exempt from paying sales tax, they do not have to be concerned about sales tax. However, since we must charge sales tax on sales, like any other business, we need to be aware of what items are taxable and the appropriate tax rate that applies to the sales.
If your department makes sales (frequent or occasional, including "one time" transactions to dispose of old equipment) you should consult the administrative policy "Selling Goods and Services to External Customers" and the related procedure "Unrelated Business Income Tax Procedures, and Collecting and Remitting Minnesota Sales Tax on External Sales Transactions."
Sales Tax When Selling
Minnesota laws impose a sales tax rate based on the destination of the sale. If a buyer picks up an item at the seller’s location, the rate at the seller’s location applies. If the goods are shipped to another location in Minnesota, the rate at the “shipped to” address applies. If the items are shipped out of Minnesota, Minnesota sales tax does not apply.
The Minnesota Department of Revenue provides information on local tax rates in Fact Sheet 164, entitled Local Sales and Use Taxes. Contact the University Tax Management Office if you need assistance in determining the appropriate tax rate to charge.
Sales Tax When Purchasing
The University of Minnesota is exempt from state and local sales taxes on many of its purchases. This exempt status does not apply when purchasing any of the following:
- Prepared food
- Soft drinks
- Motor vehicles
- Waste disposal services
- Airfare (see explanation)
These exclusions from the U’s exempt status are listed on the Form ST3, Certificate of Exemption. Tax should be paid when charged by the seller on these items.
Although a University buyer needs to understand when the University’s exempt status does not apply, it would be unreasonable to expect University employees to try to determine the correct tax treatment of various food items. The definitions of prepared food, candy and soft drinks are extremely complicated. The best approach when buying food items is to separate food items from nonfood items and inform the seller that we are not exempt on any of the food purchases. You may want to make two charges on your PCard, one for nonfood items on which the seller should not charge tax, and one for the food items, some of which will likely be subject to sales tax as determined by the seller. The food sellers will know whether the specific items they are selling are taxable or not. As long as the University buyer does not represent to the seller that the U is exempt on the food items, the seller will charge tax when applicable.
Making Exempt University Purchases
The University of Minnesota can purchase many items exempt from state and local sales taxes.
In the state of Minnesota, this exemption does not apply to lodging, prepared food, candy, soft drinks, motor vehicles, waste disposal services, or alcohol. It is the buyer's responsibility to understand which items the University can purchase exempt from MN sales tax.
The procedure for making University tax exempt purchases in Minnesota is simple:
1. Use your University Purchasing Card
To benefit from the University's exempt status, payment must be made DIRECTLY by the University. This means that the only acceptable forms of payment are the University issued purchasing card and University issued check. The exemption CANNOT be used when an employee pays for items with personal funds (cash, check, or credit card) EVEN IF the employee will be reimbursed by the University later. Nor can the exemption be used with gift cards or gift certificates. Penalty for improper use of the University's tax exemption may be a fine to the user in the amount of $100 per transaction.
Remember, if cash is used to purchase a taxable item, the U's exempt status will not apply and tax will need to be paid on the transaction.
The ST3 Form is the Minnesota Department of Revenue Certificate of Exemption. You can download and print a copy of this certification that is signed by the University Tax Director here. Fill in the seller name and address as appropriate. DO NOT change the address or name, though you may wish to draw the vendor's attention to the note regarding billing/correspondence address at the bottom of the page.
3. Check for exemption numbers, accounts, or special procedures for some popular retailers.
Some retailers have their own additional processes for verifying tax exempt sales. You can click here for a list of some known retailers that have assigned the University customer codes or other important numbers, or who require specific procedures to be followed.
4. Inform the cashier of your tax exempt status.
This step is often missed. Remember to inform the cashier of your tax status before beginning your sale.
Additional Tax Information
Sales Tax Calculator Link
What is the tax rate for...? Find out at the MN Department of Revenue by using their Sales Tax Calculator