
Key insights
- Minnesota’s governor and state lawmakers propose adding sales tax to professional services.
- Expanding the tax base would help offset the proposed state sales tax rate cut.
- Businesses and individuals should start to consider the impacts of these proposed changes should they become law.
Stay on top of Minnesota sales tax changes.
Governor Tim Walz and Minnesota legislators propose major sales tax changes
Governor Walz has proposed decreasing the state sales tax rate from 6.875% to 6.8% while expanding the sales tax base to include accounting, legal, brokerage, and banking services provided to individuals.
Legislative proposals in the Minnesota House (HF2437) and Senate (SF2374) aim to implement these changes starting October 1, 2025. Minnesota would be one of the few states to tax professional services, joining Hawaii, New Mexico, and South Dakota.
If passed, it would be the first sales tax rate cut in state history. While most Minnesotans would benefit from the lower sales tax rate, individuals who rely on professional services could pay more in sales tax. Accounting firms, law firms, brokerages, and banks would need to begin collecting sales tax from their individual clients and customers in Minnesota.
At CLA, amongst our service lines, tax and wealth advisory services, for examples, provided to our individual clients in Minnesota may be subject to sales tax, effectively raising the cost of these services by up to 9.8% including applicable local sales taxes. Tax preparation services provided to individuals who receive the Minnesota child tax credit or the Minnesota working family credit would be excluded from sales tax, under the proposed legislation.
Uncertainty and complexity abound
The budget recommendation and introduced bills are still proposals and may not become law. The potential impact of these changes has stirred significant opposition from the professional services industry, taxpayers, and lawmakers.
As one of the state’s leading professional services firms, with 10 Minnesota offices and thousands of private clients, we are closely monitoring this legislation and proactively sharing this information.
Should the proposals become law, professional services providers could face considerable compliance challenges. Many professional services providers have never collected sales tax before and don’t have a mechanism to do so.
Other challenges include separating services provided to individuals (taxable) from those provided to a trade or business (nontaxable) and separating services sourced to Minnesota from those sourced to other states. However, separate and apart from this proposed legislation, proposed legislation has also been introduced to impose a 2% gross receipts tax on many business-to-business services.
How CLA can help with Minnesota’s professional services sales tax proposal
Our state and local tax (SALT) professionals are here to help. If the proposals are enacted, we will inform our individual clients and help our business clients in the service industry, including those rendering “professional services” implement changes necessary to comply.
Contact us
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