Alert
Prepare for Proposed Changes to Minnesota Sales Tax Legislation
In Minnesota, Governor Tim Walz proposed a 2026-2027 budget that includes a first-ever sales tax cut—6.875% to 6.8%—but also expands the sales tax base to include certain professional services.
The proposed changes represent a significant shift towards a taxation system that reflects the state’s service-oriented economy. While the proposal will be evaluated when it comes before the Minnesota House and Senate Tax committees in the form of a bill, its application could have a significant effect on taxpayers and businesses that transact in Minnesota.
Learn more about the proposed changes, who may be affected and actionable next steps with the following insights.
Background on the Tax
Minnesota's current sales tax rate is 6.875%, which has remained unchanged for several years. The state’s tax code primarily focuses on taxing goods, which Minnesota lawmakers contend doesn’t reflect an economy that has shifted significantly towards services.
Minnesota Revenue Commissioner, Paul Marquart, highlighted that in 1967, approximately 60% of the economy was goods-based, while today, services account for roughly 60% of economic activity. Walz’s administration has explained that this shift necessitates a reevaluation of the sales tax structure to ensure fairness and sustainability in revenue generation.
Who’s Affected
If passed, the proposed changes to Minnesota's sales tax legislation will impact a wide range of stakeholders within Minnesota, including:
- Consumers. Individuals using legal, accounting, brokerage, and certain banking services will see new sales taxes applied to these services.
- Service Providers. Businesses offering services in the aforementioned sectors will need to adjust their systems and pricing structures to account for the new tax implications.
- Taxpayers. All Minnesota taxpayers may experience changes in their overall tax burden due to the proposed tax rate reduction and base expansion.
New Changes Created by the Tax’s Imposition
The proposed legislation includes several key changes:
- Sales Tax Rate Reduction. The general sales tax rate will be reduced from 6.875% to 6.8%. This marks the first sales tax rate cut in Minnesota's history.
- Expansion of Tax Base. The sales tax will now apply to various services, including legal, accounting, and brokerage services as well as certain banking service charges.
- Exemptions. Specific services will remain exempt from sales tax, including advice regarding the child tax credit and working family credit, Legal Aid attorney services, pension services, and banking overdraft and late fees.
The changes are expected to generate an additional $185.2 million in revenue for the 2026-27 biennium.
Next Steps for Taxpayers
Taxpayers should take the following steps to prepare for the proposed changes:
- Review Service Contracts. Businesses should assess their service contracts to understand how the new tax implications may affect pricing and profitability.
- Adjust Accounting Practices. Companies will need to update their accounting systems to incorporate the new tax rate and ensure compliance with the expanded tax base.
- Stay Informed. Taxpayers should monitor legislative developments as the proposals are discussed in committee and be prepared to adapt to any changes that may arise.
We’re Here to Help
To learn more about Minnesota’s proposed sales tax legislation, how it can impact your business, and how to prepare effectively, contact your Moss Adams professional.