Minnesota has provided updated guidance on how it handles sales tax on food, dietary supplements, cannabis containing products, and gift baskets. What's new is that as of July 1st, 2023, edible cannabanoid products are subject to the Minnesota Cannabis tax.
Sales Tax on Cannabanoid Containing Products in Minnesota
As of July 1, 2023, Minnesota has introduced a new regulation regarding the sale of edible cannabinoid products. While currently legal to sell, these products will be subject to the newly implemented 10% Cannabis Tax. This means that in addition to the Cannabis Tax, edible cannabinoid products will also be subject to the standard 6.875% state general rate sales tax, as well as any applicable local sales taxes based on the location of the transaction.
According to Minnesota's definition, Taxable Cannabis Products means cannabis flower, cannabis product, cannabis solution product, hemp-derived consumer product, lower-potency hemp edible, and any substantially similar item. Hemp-derived consumer product means a product intended for human or animal consumption that does not contain cannabis flower or cannabis concentrate and (1) contains or consists of hemp plant parts or (2) contains hemp concentrate or artificially dervied cannabinoids in combination with other ingredients. More information on definitions and what is included or excluded from the Cannabis Tax can be found in the bill language.
On the other hand, nonintoxicating topical products will not be subject to the 10% Cannabis Tax. However, they will still be subject to the standard 6.875% state general rate sales tax, as well as any applicable local sales taxes based on the location of the transaction.
This new regulation aims to ensure that the sale of these products is properly regulated and taxed, providing a clear framework for businesses and consumers alike. You can learn more on the Minnesota Cannabis Tax Website.
Nontaxable Food and Food Ingredients in Minnesota
The following items are generally exempt. However, if any of these items are prepared by the seller or sold with eating
utensils provided by the seller they are taxable.
- Baking powder
- Baking soda
- Beverage powders (unless dietary supplement)
- Cakes and cake icing
- Cereal bars with flour
- Chip dip
- Chips (potato, corn, etc.)
- Cooking oil
- Dairy products
- Dried fruit (without sweeteners)
- Food coloring
- Frozen meals
- Fruit juices (more than 50% juice)
- Herbs (seasoning)
- Ice cream, sherbet, and frozen yogurt, including prepackaged novelties
- Ice cubes or blocks
- Malted milk powder
- Salad dressing
- Spray candy
- Sugar (including colored)
- Sunflower Seeds
- Tea (bags, leaves, or powdered)
- Trail Mix (prepackaged with candy)
Taxable Food and Food Ingredients in Minnesota
The following are examples of products that are taxable in Minnesota because they fall within a category that is specifically excluded from the food exemption in Minnesota.
- Baking chips, sweetened baking bars, candy-coated items (candy)
- Beer (alcoholic beverage)
- Beer nuts (candy)
- Breath mints (candy)
- Cake decorations (candy)
- Cereal bars without flour
- Dried fruit with sweeteners (candy)
- Fruit drinks with 50% or less fruit juice (soft drink)
- Gum (candy)
- Herbal supplements (dietary supplement)
- Honey roasted and honey coated nuts (candy)
- Marshmallows (candy)
- Party trays (prepared food)
- Soda pop (soft drinks)
- Sweetened baking bars or chips (candy)
- Sweetened bottled water (soft drink)
- Tea (with "supplement facts" label)
- Tobacco products, except cigarettes which are not taxed at retail (tobacco)
- Vitamins and minerals (dietary supplement)
Sales Tax on Gift Baskets and Combination Products in Minnesota
When a gift basket or any other bundled transaction includes food and food ingredients, there are specific rules that determine whether the sale is taxable or not. In order for the sale to be taxable, two conditions must be met: firstly, the seller's purchase price of the taxable items in the transaction must exceed 50% of the total purchase price of all items in the transaction, and secondly, the seller's sales price of the taxable items must exceed 50% of the total sales price of the transaction.
It's important to note that sellers cannot use a combination of the purchase price and sales price to determine the 50% threshold. Additionally, if the retail sale of the bundled transaction is not taxable, and the seller's purchase price of all taxable items in the bundle exceeds $100, then use tax is due on the seller's cost of the taxable items included in the bundle.
- A grocery store assembles and sells fruit baskets. The store purchases the baskets for $5 each and puts a variety of fruit into each basket that cost the store $7 per basket. Each fruit basket is sold for $20. The fruit baskets are not taxable because the taxable item (the basket) costs less than 50% of the total purchase price of all of the items in the transaction. The store does not owe use tax on the purchase of the fruit baskets, because the store’s purchase price of the basket included in each sale is less than $100.
- A children’s store makes gift packages for new parents. The package sells for $300 and includes baby formula, other nontaxable items, a baby monitor, and a car seat. The transaction qualifies for the 50% test because baby formula is a food or food ingredient. The store’s purchase price of the nontaxable items in the gift package is less than 50% of the total purchase price of all the items in the package. The sale of the gift package is taxable. Since the retail sale is taxable, the store does not owe use tax on the taxable items included in the gift package.
- Same as Example 2, except that the store’s purchase price of the taxable items in the package is less than 50% of the total purchase price of all the items in the package. However, the cost of the taxable items in the package is more than $100. In this situation, the sale of the gift package is not taxable, but the store owes use tax on their cost of all taxable items included in the gift package.