Key figures
Minnesota payables
2026, with sources
1099s
Minnesota asks for W-2s and 1099s that report Minnesota withholding by January 31, and it wants 1099s with Minnesota withholding filed directly even when the payer participates in the Combined Federal/State program. More than ten forms in total must be filed electronically through e-Services, and Revenue can assess $50 for each W-2 or information return not provided when required.
Wage allocation is the related trap: a Minnesota resident’s wages are all Minnesota wages on the W-2, wherever the work was done, and a nonresident’s are Minnesota wages for work physically performed in Minnesota — unless they are a Michigan or North Dakota resident who gave you Form MWR.
Use tax reaches software
Minnesota treats prewritten computer software as tangible personal property however it is delivered — download, electronic delivery or load-and-leave — and taxes payments for it whether billed weekly, monthly, yearly or per use. Custom software is not taxable, and charges to access data in a remote database are not. For a software startup that means its own vendor invoices need review: taxable software bought without Minnesota tax carries use tax at 6.875% plus local rates.
A Minneapolis company paying $3,000 a month to an out-of-state vendor that doesn’t collect Minnesota tax on a licensed analytics tool would accrue use tax each month and report it on its sales and use tax return.
Contractors and earned sick time
Independent contractors are outside earned sick and safe time and Paid Leave, which is why misclassification costs more in Minnesota: a reclassified contractor brings back UI tax, Paid Leave premiums and ESST accruals as well as withholding.
The federal baseline
This page covers what Minnesota adds. The federal rules underneath it apply here too.
Common questions
Do we send 1099s to Minnesota?
Only those that report Minnesota withholding, by January 31, and those must be filed directly even if you participate in the Combined Federal/State program. A startup paying contractors without Minnesota withholding files those 1099s federally.
Do we owe Minnesota use tax on software we buy?
Often, yes. Minnesota treats prewritten software as tangible personal property no matter how it is transferred, and taxes payments for it whether billed monthly, yearly or per use. If a software vendor doesn’t charge Minnesota tax, the company owes use tax at the state rate plus applicable local rates.
Payables next door
- IAIowa payablesIowa wants 1099s only when they show Iowa withholding, filed electronically by February 15. Business SaaS purchases are generally exempt; computers are not.
- NDNorth Dakota payablesNo contractor withholding and 1099s only where North Dakota tax was withheld. Use tax applies to prewritten software and equipment bought untaxed.
- SDSouth Dakota payablesNo state 1099s and no contractor withholding. Use tax reaches SaaS and services bought without South Dakota tax, because almost all of them are taxable.
- WIWisconsin payablesWisconsin wants copies of 1099s of $600 or more paid to its residents, and charges use tax on untaxed goods and downloaded software — not on SaaS.
Founder guides on this
- PeopleContractor or employee? Classification for startupsContractor or employee depends on control, not the contract. The IRS test, state rules, 1099s, payroll registration and the cost of getting it wrong.
- The closeWhy startups should close their books every monthA monthly close turns a bank balance into numbers an investor, an auditor or a 409A firm will accept. What it is, and why it gets expensive to skip.
- Sales taxSales tax nexus for startups: when you owe tax in a stateSince Wayfair, selling into a state can create a sales tax obligation. How economic nexus works, why SaaS is taxable in some states and when to register.
More of the Minnesota guide
- AccountingAccounting and state tax in MinnesotaCorporate tax, conformity to federal rules, apportionment and what it does to your books
- ReceivablesReceivables and sales tax in MinnesotaSales tax registration, economic nexus, whether SaaS is taxable, and collecting from customers
- PayrollPayroll taxes and employer rules in MinnesotaWithholding, unemployment insurance, paid leave, minimum wage and the rules on paydays
- ComplianceCompliance and filings in MinnesotaRegistering to do business, annual reports, franchise tax and the filing calendar
- AdvisoryAdvisory: credits and decisions in MinnesotaCredits, incentives and the decisions that are cheaper to get right the first time
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA or the agency before you act on them.