No, Minnesota currently does not tax software-as-a-service (SaaS) products. However, some digital products, including e-books and digital audio files, are subject to state taxation.
| SaaS | |
|---|---|
| Digital Goods | |
| Confused? | Talk to us -> |
| Sales | $100,000 |
|---|---|
| Transactions | 200 |
| Physical? |
| Minnesota | 6.88% |
|---|---|
| Average Total Rate | 8.04% |
| Local Rates Apply |
The statewide base sales tax rate in Minnesota is 6.88%. Local municipalities in Minnesota may apply their own, additional sales tax; the average combined rate, including these local taxes, is 8.04%.
Businesses that have nexus in Minnesota must collect and remit sales tax on sales of taxable items. “Nexus” is a physical or economic connection to a state — such as an office or $100,000 in annual sales there (more on nexus later in this article).
Understanding when sales tax is required on SaaS sales is important for businesses — particularly those operating in multiple states — as misclassifying a product or failing to meet obligations could lead to penalties or fines.
In Minnesota, SaaS products, including remotely accessible or online-hosted solutions, are not subject to sales tax.
SaaS is typically defined as software accessed via the internet, hosted on remote servers, and licensed for use rather than owned outright.
Other types of software, however, are treated differently under Minnesota tax laws. According to Minnesota Statute 297A.61, subdivision 3(f), prewritten, or canned, software is taxable regardless of how it is delivered — electronically, via download, or on physical media.
On the other hand, custom software created for specific customer needs is exempt from sales tax. This distinction is important for businesses offering multiple software solutions or transitioning between product types.
Although SaaS is not taxed, certain digital goods are classified as taxable digital products. This includes content such as music downloads, e-books, and online video games. These are distinct from SaaS because they often involve a purchase or ownership transfer rather than a temporary license.
Access to digital news articles or charts is nontaxable in Minnesota.
There has been little discussion about imposing taxes on SaaS in Minnesota. However, the growing reliance on SaaS and cloud-based services may influence future tax policies.
With this in mind, businesses should also consider how Minnesota’s approach compares with that of other states, some of which have broader definitions of taxable digital products.
While Minnesota exempts SaaS from sales tax, many other states do tax SaaS.
Across the U.S., the taxation of SaaS and digital services is becoming more common as states seek to expand their tax bases. For example, the Joint Subcommittee on Tax Policy had this exact discussion at the end of 2024 in Virginia.
And Minnesota’s neighbors, South Dakota and Iowa, both impose sales tax on SaaS. Businesses with customers in multiple states need to stay informed about varying regulations.
And as more jurisdictions adopt rules that include digital goods and cloud-based services, failing to track changes to sales tax regulations can lead to unexpected tax liabilities.
Nexus thresholds determine when a business has a tax obligation in a state. For SaaS companies, nexus can be established by a physical presence or by economic activity.
Other states have their own nexus rules, complicating compliance efforts for growing businesses. Recognizing where and how nexus applies to a transaction can help companies avoid penalties and remain compliant as they expand their operations.
Businesses offering SaaS and other digital goods must pay close attention to sales tax obligations in the states where they do business. Properly calculating, collecting, and remitting taxes is key to preventing fines, interest penalties, and potential audits.
With each state establishing its own regulations, maintaining compliance can be a challenge for businesses with nationwide operations.
Businesses that sell taxable digital goods or services in Minnesota must follow specific steps to remain compliant with the state’s sales tax laws. While SaaS products are not taxable in Minnesota, these steps are relevant for companies selling other taxable digital goods:
Managing these steps can be particularly difficult for companies that are operating in multiple jurisdictions. SaaS providers often benefit from using automated tools, such as Numeral, that simplify the process, saving time and reducing the risk of errors.
Numeral is a streamlined solution for managing tax compliance. It helps companies of all sizes by automating key tasks like tracking nexus, calculating tax rates, and filing returns — all while adapting to the specific rules of each state.
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The Minnesota Department of Revenue offers a variety of tools to assist businesses with sales tax compliance. These resources provide detailed information on tax laws, filing procedures, and additional educational opportunities:
In addition to state-provided materials, several organizations offer educational content to help businesses navigate sales tax compliance in Minnesota. These resources include articles, webinars, and professional advice:
SaaS remains exempt from sales tax in Minnesota, but businesses selling multiple digital products should remember that certain digital goods, such as music and e-books, are taxable in the state. Compliance can become challenging for businesses operating in multiple states, as many do tax SaaS.
Staying informed about Minnesota’s tax laws and regularly checking for updates can help businesses avoid complications. For companies seeking a more efficient way to handle tax compliance across various states, using tools like Numeral can simplify your reporting processes, reduce potential compliance risks, and save valuable time for your organization.
The trusted solution for U.S. sales tax, VAT, and GST compliance, used by 3,500+ global businesses.
