Business FAQs
Note: Every effort has been made to make this information accurate and complete, but the formal requirements for business start-up and operations may change from time to time. This information is not presented as, and should not be regarded as, legal advice. Before engaging in any business venture, it is advisable to seek both legal counsel and advice from an accountant. Both professionals can provide advice as to the best course to take in establishing and operating a business. The information provided here is not intended to replace that kind of advice and assistance.
- What do I have to do to organize a new business?
- What do I have to do to hire an employee?
- Who has to register to collect and remit sales (and use) tax?
- Will my business require a license?
- Where can I get a copy of A Guide to Starting a Business in Minnesota or An Employer's Guide to Employment Law Issues in Minnesota?
1. What do I have to do to organize a new business?
One of the initial tasks you will face as a new business owner will be to choose the form of business organization. There are many choices available, but every choice involves three principal steps.
Initially, identify the available choices and then determine which of these organizational forms is the best from a nontax viewpoint-meaning, normally, from the viewpoint of statutory and nonstatutory business organization laws.
Secondly, evaluate the impact each of these will have from the viewpoint of federal and state tax.
Finally, if nontax factors favor one business organization form and tax factors another, you must decide which set of factors predominates.
In any given start-up process, all areas interact in complex ways. The new business owner must make the best choices to simultaneously control all the options.
A Guide to Starting a Business in Minnesota contains a comprehensive discussion of the various tax and nontax considerations in business organization.
2. What do I have to do to hire an employee?
The following information generally outlines federal and state tax and other requirements that apply to the employment relationship. More detailed information can be found in A Guide to Starting a Business in Minnesota and
An Employer's Guide to Employment Law Issues in Minnesota.
- Determine whether the worker is an employee.
While both federal and state tax laws require that workers be classified as either an employee or an independent contractor, there appears to be no clear definition of either term. However, some guidance does exist, and business owners are strongly urged to look at the factors suggested from the IRS, the Minnesota Department of Revenue, the Minnesota Department of Employment and Economic Development and the Minnesota Department of Labor and Industry in making this determination. More information on this area is found in the above referenced publications. - Obtain a federal employer identification number by completing form SS4,
Application for Employer Identification Number. It is available from the
Internal Revenue Service.
- Obtain a Minnesota taxpayer identification number by completing form ABR,
Application for Business Registration. It is available from the Minnesota
Department of Revenue.
- Obtain Minnesota workers' compensation insurance. Coverage is obtained
through the employer's insurance company.
- Obtain a Minnesota unemployment compensation employer identification number
by completing form MDES-13, Report to Determine Liability. It is available
from the Minnesota Department of Employment and Economic Development.
- Verify compliance with immigration laws by completing form I-9, Employment
Eligibility Verification, with accompanying publication M-274, Handbook for
Employers with Instructions for Completing Form I-9. These are available
from the U.S. Immigration and Naturalization Service.
- Obtain employee withholding information (Form W-4 for federal and state income tax withholding; note that child support and spousal maintenance obligations must also be reported and amounts must be withheld to satisfy those obligations). Form W-4, Employee's Withholding Allowance Certificate is used for both federal and Minnesota withholding. It is available from the Internal Revenue Service. Additionally, employers must provide certain information to the Minnesota Department of Human Services related to child support, medical support, maintenance and related payments.
Additional information on each of these areas and employer withholding and filing information can be found in A Guide to Starting a Business in Minnesota.
3. Who has to register to collect and remit sales (and use) tax?
Anyone who makes, or intends to make, taxable retail sales, or provides taxable services in Minnesota must register to collect and remit Minnesota sales (and use) tax. This includes all sellers in Minnesota, and any seller located outside Minnesota who:
- Has an office, place of distribution, sales or sample room, warehouse or other place of business in Minnesota, either directly or by a subsidiary;
- Has an agent, representative, member, sales person, canvasser, solicitor or employee (either temporary or permanent) in Minnesota for any purpose, including the repair, sale, delivery, installation, or solicitation of orders for taxable items, or the leasing of tangible personal property located in Minnesota;
- Delivers taxable items into Minnesota in their own vehicles; or
- Provides taxable services in Minnesota.
The sales tax is a tax on the gross receipts from selling, leasing or renting tangible personal property at retail, or providing taxable services in Minnesota. The end user of the personal property or services is responsible for paying the tax. The seller is responsible for remitting (i.e., collecting it from the end user and transferring it to the Department of Revenue) the tax. Generally, a sale is at retail unless the customer purchases the property for purposes of reselling it, or plans to incorporate the property purchased into a new product for sale at retail. Sales by a manufacturer or wholesaler to customers who are not in the business of reselling the items purchased are sales at retail.
The use tax complements and is similar to the sales tax. It applies when a buyer does not pay Minnesota sales tax on tangible personal property purchased for storage, use or consumption in Minnesota, e.g., taxable purchases made from an out of state company.
Both individuals and businesses are subject to sales and use tax. If you are required to remit sales or use tax, you must apply for a Minnesota tax ID number and register for sales and use tax filing. The name of the form that you will use to do this filing is "Application for Business Registration". If you only sell nontaxable items, or provide nontaxable services, you do not need to register for sales and use tax.
After you register for the Minnesota tax ID number, you will be sent a letter from the Department of Revenue that provides you with your ID number and a list of tax types for your business. This letter is used in place of a sales tax permit. With this letter, you will also receive sales and use tax instructional pamphlets, rate charts, and fact sheets that apply to your business. You will also be sent sales tax returns customized with your name, address, and tax ID number. The date you fill in on the registration form will determine when you will receive your sales and use tax returns. Your filing cycle is based on the average amount of sales tax you collect and the amount of use tax you owe in one month. If you will be making taxable sales from more than one permanent location, you must register each location.
Please note that, with the exception of the City of Duluth, the Department of Revenue administers and collects local taxes on behalf of several local governments. If you are doing business in a city or county that imposes a local tax, you must register to collect and remit that city's or county's taxes as well as the state sales tax. If you are doing business in Duluth, contact that city for information on collecting and remitting local sales tax to that city.
For more information on the sales and use tax, to determine if you are subject to sales or use tax, obtain a list of cities or counties that impose local taxes, or for rates, special filings or exemptions, contact the sales tax division of the Minnesota Department of Revenue, (651) 296-6181.
A Guide to Starting a Business in Minnesota, provides valuable information on areas of business tax liability including federal and state income taxes, state sales and use tax, FICA (social security and Medicare) tax, FUTA (federal unemployment) tax, state unemployment tax, and tax withholding.
4. Will my business require a license?
The startup, operation or expansion of a business in Minnesota may involve securing one or more business, occupational or environmental licenses or permits. The need for a license is determined by the specific activity of the business, i.e., what the business makes, does, buys or sells.
The Minnesota Small Business Assistance Office publishes a list of state licenses and permits. A copy of that list is reprinted in A Guide to Starting a Business in Minnesota. A more extensive list is also available on-line via the Licenses and Permits section of this web site.
In addition to the licensing requirements imposed by the state, some local governments also require certain kinds of business activities to be licensed on the local level. Please contact the licensing department in the municipal office where you are planning to conduct your business for further information.
Contact the Minnesota Small Business Assistance Office to request a copy or you may order a copy on-line via the Publications section of this web site.