When it comes to buying and selling alcoholic beverages in Minnesota, understanding the sales and use tax requirements is essential for both businesses and consumers. From the applicable tax rates to exemptions and reporting procedures, this blog aims to provide a comprehensive overview of the sales and use tax regulations for alcoholic beverages in Minnesota.
Sales
Generally, sales of alcoholic beverages are taxable. Alcoholic beverages contain 0.5% or more alcohol by volume.
Beer, wine, and liquor sold by a business with an intoxicating liquor license are subject to the following taxes:
- 6.875% State general rate sales tax
- 2.5% Liquor gross receipts tax
- Any applicable local taxes
Liquor Store Sales
Liquor stores are not allowed to sell alcohol for resale by another business. Also, non-profit organizations are not allowed to purchase liquor exempt from tax from a liquor store.
Some liquor stores also sell other taxable and non-taxable products. While liquor tax does not apply to these products, they may be subject to sales and use tax or other taxes. See the chart below for examples.
| TAXABLE (STATE AND LOCAL SALES TAXES APPLY) | NONTAXABLE (NO TAXES APPLY AT RETAIL SALE) |
| Accessories (bottle openers, glasses, lighters) | Bottled water |
| Alcohol-free wine | Cigarettes (sales and cigarette taxes paid at the wholesale distributor level) |
| Candy | Event admission (wine, beer, or liquor tasting) |
| Chewing tobacco or snuff | Food and food ingredients (jarred cherries, olives, etc.) |
| Cigars | Ice |
| Drink mixes (less than 50% juice by volume) | Juice (contains 50 percent or more juice by volume) |
| E-cigarettes and accessories | Returnable deposit |
| Juice (less than 50% juice by volume) | Sacramental wine for religious ceremonies |
| Keg pumps or coolers (sale, lease, or rental) | |
| Non-alcoholic beers | |
| Soda pop and sweetened water (soft drinks) | |
Liquor Distributor Sales
Liquor sales to a business that provides a completed Form ST3, Certificate of Exemption, are not taxable.
Taxable Purchases and Use Tax
Items you use to operate your business are taxable, unless an exemption applies. Some services are also taxable.
If you do not pay sales tax on a taxable purchase, you must pay use tax.
Taxable Purchases
| TYPE OF TAXABLE PURCHASE | EXAMPLES |
| General items | - Cleaning supplies
- Computer hardware and software
- Dollies
- Furniture and fixtures
- Office equipment and supplies
- Paper towels
- Reusable containers
- Reusable pallets
- Security systems
- Toilet tissue
|
| Retail equipment and supplies | - Cash registers and register tapes
- Price guns and labels
- Shelves and racks
- Shopping baskets and carts
|
| Utilities | |
| Taxable services | For more information, see a list of taxable services. |
| Promotional items | - Bean bag boards
- Business cards
- Calendars
- Cups and mugs
- Flash buttons
- Key chains
- Matches
- Pens
- Umbrellas
|
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
Whether you’re operating a liquor store, working as a distributor, or simply making a purchase, being aware of the applicable taxes and taxable/nontaxable products can help you navigate the complexities of the industry. By adhering to the tax requirements and staying informed, you can ensure compliance and make informed decisions within the realm of alcoholic beverage sales.
For more information, visit Liquor Stores and Liquor Distributors Industry Guide | MN Department of Revenue or contact our tax professionals at Prudent Accountants today!
