Subpart 1.
In general.
A. As provided in
Minnesota Statutes, section
297A.67,
subdivision 23, the sales or use tax does not apply to isolated or occasional
sales of tangible personal property or a service made by a person who is not
engaged in selling such property or service in the normal course of business.
This exemption does not apply to a sale of tangible personal property that is
primarily used in a trade or business.
B. Under Minnesota Statutes, section
297A.68,
subdivision 25, the sale of tangible personal property that is primarily used
in a trade or business is exempt if the sale is not made in the normal course
of business of selling that kind of property and the sale meets one of the
listed conditions.
Subp.
1a.
Definitions.
For purposes of this part, the following definitions
apply:
A. "Isolated" means standing
alone or solitary.
B. "Normal
course of business" is defined in Minnesota Statutes, section
297A.61, subdivision
21. The sale of inventory is considered to be made in the normal course of
business and thus is subject to tax. The lease of tangible personal property is
subject to tax.
Example 1. A bank repossesses secured property. This is part
of the bank's business. Repossessed items are considered to be inventory in
possession of the bank and the sale by the bank is considered to be made during
the normal course of business and is subject to tax.
Example 2. A construction company leases excavating and
hauling equipment without an operator to another business, when not otherwise
in use. The leasing is considered to take place in the normal course of
business and is subject to tax.
Example 3. A luxury boat business sells one or two boats a
year. The sales are taxable because, while the sales are infrequent, they are
made in the normal course of business.
C. "Occasional" means occurring at infrequent
intervals, as incidental, or as casual; that is, as distinguished from events
of a similar nature recurring with some degree of regularity.
Example. A person has a garage sale once each year. The sale
is considered to be occasional.
D. "Trade or business" means any continuous
and regular activity carried on for the production of income from selling goods
or performing services. Organizations exempt from federal taxation under
Internal Revenue Code, subchapter F, such as organizations exempt under section
501(c)(3), are only considered to be engaged in a trade or business to the
extent the activity is unrelated to their exempt purposes. Government
organizations, including public schools, are not considered to be engaged in a
trade or business since most of their activities are conducted to further a
public purpose. However, if the government entity makes sales of surplus
equipment or other tangible personal property on a regular basis, it is
considered to be engaged in a trade or business.
Examples of a trade or business: apartment buildings or other
rental property, home day care centers, farms, law offices, manufacturers,
retail stores, and restaurants.
Examples of entities that are not considered to be engaged in
a trade or business: American Red Cross, churches, nonprofit hospitals, and
government agencies.
Example of an exempt organization engaging in a taxable
activity: a nonprofit hospital also has a gift shop that sells taxable items to
the general public. The gift shop is considered to be engaged in a trade or
business. Sales of items used by the hospital, such as waiting room furniture,
are not subject to tax because the hospital is not a business. However, sales
of items used by the gift shop, such as shelves or computers used in the store,
are taxable, unless one of the exclusions under Minnesota Statutes, section
297A.68,
subdivision 25, applies, since these activities are not related to the
hospital's exempt purpose.
E. "Primarily used" means used in the trade
or business 50 percent or more of its operating time. If it is used less than
50 percent of the time in the trade or business, it is not used primarily in
the trade or business and may qualify for the isolated or occasional sale
exemption. The seller's use of the equipment is the determining factor. It does
not matter how the buyer uses the item.
Example. An owner of a lawn mower has a small business
operation to mow the neighbors' yards. The lawn mower is used 60 percent of the
time for the owner's lawn and 40 percent of the time for the neighbors' lawns.
Since the mower is used less than 50 percent of the time in the owner's
business, it is not considered to be used primarily in a trade or
business.
F. "Substantially
all of the assets of a trade or business," as provided under Minnesota
Statutes, section
297A.68,
subdivision 25, paragraph (a), clause (5), or "substantially all of the
property sold," as provided under Minnesota Statutes, section
297A.68,
subdivision 25, paragraph (b), clause (1), means 90 percent or more of the
total fair market value of tangible personal property and does not include
property that is subject to an ad valorem property tax. It also includes the
assets of a separate division, branch, or other identifiable segment of a
business, if before the sale, the income and expenses attributable to the
separate division, branch, or segment could be separately ascertained from the
records. If the separate division, branch, or segment is leased or rented,
rather than sold, the assets are taxable.
Example. A company has a retail hardware business, as well as
a building construction division. The records of the businesses are kept
separately. The retail hardware business closes while the construction division
continues to exist. The sale of all the assets of the hardware business is
exempt from tax. Sales of inventory items are taxable.
Subp. 2.
Isolated or
occasional sales by person other than trade or business.
An isolated or occasional sale of tangible personal property
or a service by a person who is not in the business of selling that kind of
property or service is not subject to tax.
The following transactions are considered to be isolated or
occasional sales because they are infrequent sales of a nonrecurring nature
made by a person not engaged in the business of selling tangible personal
property or a service.
Example 1. The sale of a used vacuum cleaner by one neighbor
to another.
Example 2. Payment from a neighbor for mowing a neighbor's
grass or taking care of a pet while the neighbor is on vacation.
Example 3. Sales by executors, administrators, trustees, and
other fiduciaries in the liquidation of an estate, except inventory or stock in
trade or tangible personal property primarily used in a trade or
business.
Example 4. Sales or executions pursuant to a court order or
by a court officer, except inventory or stock in trade or tangible personal
property primarily used in a trade or business.
Subp. 3.
Nonisolated sales.
The following are examples of transactions that are not
considered isolated or occasional sales:
A. The sale of property held primarily for
sales to customers in the ordinary course of trade or business.
Example 1. Leasing company sells to X a bulldozer that was
previously used in its business by leasing to others. Since a lease constitutes
a sale, leasing company is deemed to be in the business of selling this kind of
property. The sale of the bulldozer to X is not an isolated or occasional
sale.
B. The infrequent
sale of an inventory item by a retailer, jobber, or other vendor, even though
such sales do not happen often and only comprise an insignificant part of the
vendor's total business.
Example 1. Sporting goods store sells one power cruiser
during the calendar year. The sale is taxable.
C. Sales that constitute an integral part of
a business even though the sale of such tangible personal property is not the
primary business of the seller (as the sale of repossessed property by a
finance company).
D. The sale of
by-products, waste, scrap, and other obsolete and used equipment by a person
engaged in a business, when sales are regularly made to employees or to the
public to dispose of these items.
Subp. 3a.
Sale of property used in
trade or business in transactions qualified and reported under Internal Revenue
Code.
A. The sale of tangible personal
property primarily used in a trade or business is exempt if the sale is not
made in the normal course of business of selling such property; the sale occurs
in a transaction subject to, or described in, section 118, 331, 332, 336, 337,
338, 351, 355, 368, 721, 731, 1031, or 1033 of the Internal Revenue Code, and
the following conditions are met:
(1) the sale
must qualify, as well as be reported, as a transaction occurring under one of
the Internal Revenue Code sections listed in this item; and
(2) the transfer must be between partnerships
and their partners or between corporations and their shareholders or, if the
sale is under section 1563(a) of the Internal Revenue Code, between members of
a controlled group.
B.
Limited liability companies are generally treated as either corporations or
partnerships for federal income tax purposes and transfers between limited
liability companies and their members are covered by one of the Internal
Revenue Code sections listed in Item A. Single member limited liability
companies that elect to be treated as a corporation are also covered by one or
more of the Internal Revenue Code sections listed in item A. However, when a
single member limited liability company does not elect to be treated as a
corporation for federal income tax purposes, the limited liability company is
neither a partnership nor a corporation and transfers between the limited
liability company and its one member are not exempt from sales tax under this
subpart.
Subp. 3b.
Sale of substantially all assets of a trade or business.
A. The sale of tangible personal property
primarily used in a trade or business is exempt if the sale is not made in the
normal course of business of selling such property and the sale is a sale of
substantially all of the assets of a trade or business, as defined in Minnesota
Statutes, section
297A.68,
subdivision 25, paragraph (b), clause (3), and as defined in subpart
1a, item F. A buyer of
property is not subject to use tax if the buyer has a written statement from
the seller confirming that the sale of the property is a sale of substantially
all of the assets of the business, as defined in subpart
1a. If the buyer has a
written statement from the seller to that effect and the seller does not sell
substantially all of the assets of the trade or business, the seller is subject
to tax on the total amount received.
B. Under Minnesota Statutes, section
297A.68,
subdivision 25, paragraph (b), clause (3), the sale of substantially all of the
assets has to take place within the period of 12 months. This means that the
seller must sell 90 percent or more of the total fair market value of tangible
personal property within the 12-month period in order to be exempt from
tax.
Subp. 3c.
Sale of property used in trade or business in transaction with $1,000
gross receipts limitation.
The sale of tangible personal property primarily used in a
trade or business is exempt if the sale is not made in the normal course of
business of selling such property and the total amount of gross receipts from
the sale of trade or business property made during the calendar month of the
sale, as well as sales of property made in the previous 11 months, does not
exceed $1,000, as provided under Minnesota Statutes, section
297A.68,
subdivision 25, paragraph (a), clause (6). A buyer of property is not subject
to use tax if the buyer has a written statement from the seller confirming that
the sale of the property meets this requirement. In this case, if the seller
sells property for an amount exceeding $1,000, the seller is subject to tax on
the total amount received, including the first $1,000. The limitation of $1,000
does not apply when the business sells substantially all of its assets.
Example. A company sells some cabinets and desks for $12,000
during a period of 12 months but it is not a sale of substantially all the
assets of the business. The sale of these fixtures does not qualify for the
exemption since the amount received exceeds $1,000.
Subp. 3d.
Farm auctions.
The sale of tangible personal property sold at a farm auction
is exempt if substantially all the property sold is used in the trade or
business of farming, or is other nonbusiness property. However, inventory sold
by another trade or business is subject to tax.
Example. The following farming equipment is sold at a farm
auction: tools, lawn mowers, and other supplies. A neighboring home improvement
business sells patio furniture at the farm auction and the auction also
includes personal items owned by various individuals. The farming equipment and
the personal items consist of 95 percent of the fair market value of the items
sold; the home improvement inventory consists of five percent of the items
sold. The farming equipment and the personal items are exempt. The items sold
by the home improvement business are subject to tax.
Subp. 4.
Garage sale or personal
sale.
A "garage sale or personal sale" is a sale by a person or
persons selling their personal belongings. A garage sale or personal sale does
not include flea markets, craft shows, antique shows, coin shows, stamp shows,
comic book shows, convention exhibit areas, or similar selling events, as
provided under Minnesota Statutes, section
297A.87.
A garage sale includes moving sales, estate sales, and other similar sales. If
a person does not regularly hold garage sales or personal sales and the items
sold have not been collected or purchased for the purpose of resale, the sales
are isolated or occasional. A person who collects or purchases items for resale
is deemed to be in business, and must obtain a sales and use tax permit and
collect and remit tax on sales of taxable items.
If any trade or business assets are sold at the garage sale,
sales tax is due on those items.
Example 1. A person sells personal belongings at an annual
neighborhood garage sale that was advertised through word-of-mouth, notices on
a bulletin board, or an advertisement in the classified section of a newspaper.
No sales tax applies.
Example 2. A person sells new or used items that were
purchased for the purpose of resale, as well as personal items, at a garage
sale. The personal items include some children's toys and a lamp. The person is
considered to be carrying on a trade or business and sales tax must be charged
on all sales of taxable items that were purchased for resale. The sale of the
lamp and the toys is not subject to tax.
Subp. 5. [Repealed,
L
2005 c 151 art 7
s
23]
Subp.
6. [Repealed,
L
2006 c 259 art 6
s
32]
Subp.
7. [Repealed, 33 SR 771]
Subp.
8.
Auctions.
A. For
purposes of this part, an auction is a method of selling tangible personal
property in a public forum through open and competitive bidding conducted by an
auctioneer licensed under Minnesota Statutes, chapter 330. An auction does not
include a consignment auction or consignment sale, as defined in subpart
10.
B. The sale of items held in inventory,
taxable services, and property primarily used in a trade or business is
generally subject to tax, as provided in Minnesota Statutes, section
297A.68,
subdivision 25.
C. When tangible
personal property is sold in an auction, the sale qualifies as an isolated or
occasional sale under Minnesota Statutes, section
297A.67,
subdivision 23, if it would qualify as an isolated or occasional sale when sold
by the owner of the property, and if the following conditions are met:
(1) the title is exchanged directly between
the owner and the buyer;
(2) the
auctioneer does not carry insurance on the property; and
(3) the auctioneer and the owner of the
property to be sold have entered a written agreement as provided under
Minnesota Statutes, section
330.10.
D. When the sale is taxable, the
person receiving the payment is responsible for collecting and remitting the
sales tax on the total sales price of the property.
Example 1. An auctioneer conducts an estate sale and sells
personal belongings of the deceased person. No tax is due if the conditions
provided under this subpart are met.
Example 2. An auctioneer purchases 50 tires from an
individual. The tires are auctioned to the general public. The sale is subject
to tax since the auctioneer took title of the tires and, therefore, is
considered to be selling the tires in the normal course of business.
Example 3. An insurance company contracts with an auctioneer
to sell its used office furniture at an annual auction. The items sold are
subject to tax, unless the sales meet the exceptions provided in subparts
3a to
3d. The insurance company is
a business and thus Minnesota Statutes, section
297A.67,
subdivision 23, does not apply.
Subp. 9.
Brokered sales.
A. For purposes of this part, a broker is a
person who sells tangible personal property owned by others and who receives a
fee or a commission for selling the owner's property. A broker is not an
auctioneer.
B. The sale of items
held in inventory, taxable services, and property primarily used in a trade or
business is generally subject to tax, as provided in Minnesota Statutes,
section
297A.68,
subdivision 25.
C. When tangible
personal property is sold by a broker, the sale qualifies as an isolated or
occasional sale under Minnesota Statutes, section
297A.67,
subdivision 23, if it would qualify as an isolated or occasional sale when sold
by the owner of the property, and the following conditions are met:
(1) the title to the property passes directly
from the owner to the buyer;
(2)
the payment does not pass through any accounts of the broker;
(3) the broker does not carry insurance on
the property; and
(4) the rights to
accept or reject any offer are retained by the owner.
D. When the sale is taxable, the person
receiving the payment is responsible for collecting and remitting the sales tax
on the total sales price of the property.
Example 1. The owner of a boat marina sells a boat on behalf
of a boat owner who is not in the trade or business of selling boats. The
marina owner advertises the boat for sale and obtains offers to purchase the
boat. The marina owner informs the buyer of the offers. The boat owner retains
the power to accept or reject the offers. Title to the boat passes directly
from the owner to the buyer. Payment is made directly to the owner. Upon sale
of the boat, the marina owner receives a commission from the seller. This sale
is exempt from tax.
Example 2. A boat marina negotiates the sale of a boat for
the owner of a boat. The owner has no involvement in the negotiation of the
sale. Payment for the boat is deposited in the marina's account. The sale is
subject to tax.
Subp.
10.
Consignment sales and consignment auctions.
A. For purposes of this part, consignment
sales are sales in which a retailer maintains a place of business where
tangible personal property owned by others is sold by the retailer in the
normal course of business. The retailer may also sell property owned by the
retailer. A consignment sale is not an auction, as defined in subpart
8.
B. Consignment auctions are events that are
regularly scheduled, are open to members of the public to sell their items, and
are held at the same location. Consignment auctions are not selling events, as
provided under Minnesota Statutes, section
297A.87.
Consignment auctions are not auctions, as defined in subpart
8.
C. The sale of items held in inventory,
taxable services, and property primarily used in a trade or business is
generally subject to tax, as provided in Minnesota Statutes, section
297A.68,
subdivision 25.
D. Consignment
sales and consignment auctions are exempt from tax if:
(1) the title to the property passes directly
from the owner to the buyer;
(2)
the payment does not pass through any accounts of the retailer or
auctioneer;
(3) the retailer or
auctioneer does not carry insurance on the property; and
(4) the rights to accept or reject any offer
are retained by the owner.
E. When the sale is taxable, the person
receiving the payment is responsible for collecting and remitting the sales tax
on the total sales price of the property.
Example 1. A person sells used books on consignment at a
retail store. Under the contract, the store determines the selling price of the
books. The sale is taxable.
Example 2. A person sells a lawn mower at a consignment
auction. Title passes from the owner directly to the buyer. Payment is
deposited in the auction company's books. The company deducts its fee and then
pays the owner a share of the payment. The sale is subject to tax.
Example 3. A person rents space from the operator of a craft
show to sell craft items. The seller participates in the event for four days.
The sales at the show are taxable since the selling event lasts more than three
days, as provided under Minnesota Statutes, section
297A.87,
subdivision 3.
