Exemptions Announced for the Minnesota Educational Digital Tax
Beginning July 1, 2013, certain educational and online products became taxable in Minnesota when transferred electronically to the participant. The change created confusion when the same training sessions, seminars, and similar programs attended in-person were exempt from the tax.
Questions quickly arose: What does this interpretation mean for an education provider and its online students? The Minnesota Department of Revenue addressed this problem in a recently updated Sales Tax Fact Sheet Number 177, Digital Products.
“According to the fact sheet, tuition is not taxable for classes attended online. Digital textbooks and web-based instructional materials are also exempt,” says Mike Herold, a state and local tax principal with CliftonLarsonAllen. “But some qualifiers are necessary to obtain these exemptions.”
“For both the tuition and instructional material exemption the school must be recognized as a post-secondary school, college, university, or private career school,” Herold says.
This restriction prevents other industry, training, or education providers from using this exclusion for online courses.
Student must pursue the exemption
The school does not make the determination who is eligible for the exemption. Similar to the sales tax exemption for textbooks (and now digital books), the eligibility is created when a student completes Minnesota Sales Tax Form ST3: Certificate of Exemption, and presents it to the school. Schools should assume the online course or instructional materials are taxable until an exemption certificate is presented and on file. Also, the student must be enrolled in a course of study to receive the online tuition exclusion.
Taxable: online professional continuing education
Many schools offer online professional continuing education and digital products in these programs are taxable since these programs fail to fall under the tuition or instructional material exclusions.
Minnesota vs. other states
The Minnesota tax on digital products only applies to participants with a Minnesota address, however care should be taken to review the taxation of digital products in all states since many states have begun to tax digital products, but what qualifies as a “digital product” varies from state to state. A school does not need to have a physical location in another state to have a requirement to collect and remit sales tax.
How we can help
We can help you verify how this tax applies to your particular educational and state situation.