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Optional maintenance contracts are taxable if they include any taxable items, unless the cost of those items is insignificant. The sales tax is due when the contract is sold, not when the maintenance is performed. Used car dealers in Minnesota must provide a warranty with the sale of certain used cars.
A maintenance agreement for custom software is not taxable. Optional maintenance contracts are taxable if they in- clude any taxable items, unless the cost of those items is insignificant. These contracts provide: 2022 repair and replacement parts; and 2022 consumable items at no cost to the customer.
Examples: Intuit TurboTax; Microsoft Office; Adobe Acrobat. What's the significance? States generally impose sales tax on the licensing of canned software. In some states, the licensing of canned software is only taxable when delivered in tangible form.
Canned software, also referred to as prewritten, "shrink-wrapped" or standards software, is computer software that is designed for and distributed "as is" for multiple persons who can use it without modifying its code and which is not otherwise considered custom software.
The charge for a software maintenance contract, which provides updates and future releases, is a contract for the sale of tangible personal property and is taxable.
Subscriptions to use online-hosted software are not taxable. Charges for maintenance or upgrades to online hosting software are not taxable, even if separately stated.
Retail sales of new or used data processing equipment are taxable.
For more accurate rates, use the sales tax calculator. The Minnesota (MN) state sales tax rate is currently 6.875%. Depending on local municipalities, the total tax rate can be as high as 8.375%.
Sales of canned software - downloaded are subject to sales tax in Minnesota. Sales of custom software - delivered on tangible media are exempt from the sales tax in Minnesota. Sales of custom software - downloaded are exempt from the sales tax in Minnesota.
Repair labor is generally exempt from sales tax in Minnesota if the repair charges are separately stated from taxable repair parts or other taxable items on the bill to the customer. A charge to replace a malfunctioning component part of an item with a comparable part is considered nontaxable repair labor.