Professional Services Industry Guide – Minnesota Department of Revenue

Examples of services:

• Advising and representing clients
• Communicating with clients and others
• Interpreting laws, rulings, and regulations
• Preparing and filing legal documents (wills, contracts, deeds)

Copies

Sales and purchases of copies are taxable unless an exemption applies. However, an exemption applies to the following copies:

• Certified documents
• Documents protected by the Freedom of Information and Data Practices Act
• Court reporter documents to parties in the legal proceeding
• Patent copies

Taxable Copy Sales

You must charge sales tax on copies when:

• You provide additional copies that were not included in the original charge for legal services
• You charge for copies of depositions made by one law firm for another law firm
• You charge a third party for copies who is not receiving legal services

Note: The “pass through” of reimbursable expenses for copies is not taxable, even if the pass through is a higher fee than what you paid for the copies

Taxable Copy Purchases

You must pay sales tax or accrue use tax on all taxable copies you purchase to provide legal services. Examples include:

• Unemployment claims
• Medical records
• Insurance claims
• Accident reports

Accounting Services

Accounting services involves recording, reporting, and analyzing financial transactions of a business or individual. Fees charged for accounting services are not taxable.

Examples of services:

• Auditing
• Bookkeeping
• Business and personal tax planning
• Financial statement services
• Payroll services

Software Sales

Some accounting firms sell accounting software to their clients. Sales of prewritten computer software are taxable. Software updates may also be taxable. For more information, see Computer Software.

Do not pay sales tax or use tax when you purchase prewritten computer software to resell to clients. Instead, give your supplier a completed Form ST3, Certificate of Exemption. Specify the resale exemption.

Copy Sales

Sales of copies are taxable.

You must charge sales tax on copies when:

• You provide additional copies that were not included in the original charge for accounting services
• You charge a third party for copies who is not receiving accounting services

Personal Financial Planning Services

Personal financial planning is the management of money and financial decisions for a person or family by a licensed professional. Fees charged for personal financial planning are not taxable.

Examples of services:

• Meeting with clients to discuss their financial goals
• Educating clients about investment options and potential risks
• Monitoring clients’ accounts
• Researching investment opportunities
• Helping clients plan for education expenses or retirement

Architectural Services

Architectural services include businesses involved in the architecture design of buildings, open areas, communities, and other environments for clients. Fees charged for these services are not taxable.

Examples of services:

• Creating design concepts
• Researching building code regulations
• Preparing drawings and documents
• Managing construction contracts

Sales of Models, Prototypes, and Blueprints

The “pass through” of charges for models, prototypes, and blueprints at the time of service is not taxable. However, if you sell additional models, prototypes, or blueprints after you completed your services, the sale is taxable.

Example: Your original contract states that you provided one copy of the blueprint to your customer at the completion of your services. A year later, your customer requests two additional copies of the blueprints. The sale of blueprint copies is taxable.

Land Surveying Services

Land surveying is the measurement of altitudes, angles, and distances on the Earth’s surface to locate property boundaries, prepare construction layouts, and create maps. Fees charged for these are not taxable.

Examples of services:

• Analyzing survey reports, maps, and other data
• Staking out boundaries and layouts
• Recording survey measurements
• Updating maps

Insurance Agency Services

Insurance agencies typically sell a variety of insurance policies, including property, casualty, life, health, disability, and long-term care. Fees charged for insurance coverage are not taxable.

Any commission received by the insurance agent is also not taxable.

Insurance agency services may include:

• Contacting clients to discuss insurance policy coverage
• Renewing policies
• Settling claims for policyholders

Taxable Sales

• Charges for copies of insurance claims
• Fire extinguishers
• Radon detectors
• Smoke detectors

Note: Do not pay sales or use tax when you purchase these items for resale in your business. Instead give your supplier a completed Form ST3, Certificate of Exemption. Specify the Resale exemption.

Real Estate Agencies and Property Management Services

Real estate agencies use real estate agents to help clients sell or rent buildings and land.

Agents receive a commission for their services. Their commission fees are not taxable.

Property Management

• Showing properties to possible renters
• Collecting monthly fees from tenants
• Maintaining rental records
• Paying bills for property expense
• Handling tenant complaints and violations

Taxable Sales

Charges for short-term or overnight lodging in an apartment complex or other residential rental property is taxable. For more information, see the Hotels and Other Lodging Establishments Industry Guide.

Certain services are taxable when they are billed separately from other real estate or property management services. Examples include:

• Building cleaning and maintenance
• Lawn and garden care
• Pest control
• Other taxable services

Temporary Employment Services

Items you use to operate your business are taxable unless an exemption applies. Several services are also taxable.

If you do not pay sales tax on a taxable purchase, then use tax is due.

Taxable Purchases

Employee Purchases

Purchases made for the business by an employee that you later reimburse are taxable. Taxable items purchased and placed on the employee’s expense report or company credit card are also taxable.

Use Tax

If you buy equipment, supplies, or other taxable items for your business and the seller does not charge Minnesota sales tax, you owe use tax on the cost of the items. If your business is located in an area with a local tax, you may also owe local use tax.

Some common situations where you may owe use tax include:

• You buy taxable items or services online without paying sales tax
• You withdraw an item from inventory to use (instead of selling it), donate, or give away
• You buy taxable items outside of Minnesota
• You buy taxable items in another Minnesota city or county with a lower (or no) local sales tax

For more information, see Use Tax for Businesses and Local Sales and Use Taxes.

Computer Software and Digital Products

This section provides information on the sale and purchase of computer software and digital products.

Prewritten Computer Software

Prewritten computer software is the sale, lease, or license to use a canned or prewritten computer software program. Prewritten computer software is taxable.

For more information, see Computer Software.

Custom Software

Custom software is a program created for the needs of a specific customer. It generally requires a consultation and analysis of the customer’s requirements. Fees charged for custom software are not taxable.

For more information, see Computer Software.

Online Hosted Software

Online hosted software is software where users do not take any ownership or possession of the software. Online hosted software is:

• Accessed through the Internet
• Installed at and hosted from a remote server or location
• Owned by the software manufacturer or third-party vendor

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.

Digital Products

Digital products are products provided to a customer electronically. Usually, a customer is given access to the product through the Internet or email.

Taxable digital products include:

• Digital audio works (music, audio books, ring tones)
• Digital audiovisual works (movies, music videos)
• Digital books
• Digital codes that give a purchaser access to taxable digital products
• E-Greeting cards
• Online video or computer gaming

Nontaxable digital products include:

• Access to digital news articles
• Charts and graphs
• Data or financial reports
• Digital photos and drawings

For more information, see Digital Products.

Filing Returns and Record-Keeping

Filing Returns

How to Report Sales and Use Tax

Record-Keeping