Minnesota, Iowa and Sales Tax – SaaS, Software & Other - Multi State Tax Solutions

This month, we continue our blog series with a contrast of a couple of central states – Minnesota and Iowa – specifically their treatment of technology items for sales tax purposes.

Here’s an overview:

SaaS Taxation in Minnesota vs. Iowa

Minnesota:
- Cloud Computing Services are not taxable in Minnesota.
- Sales of prewritten software, regardless of delivery method, are subject to tax.
- No specific statute or regulation has addressed cloud computing in detail.
- A 2004 Minnesota Department of Revenue publication clarified that charges for remote database access are not taxable.
Iowa:
- SaaS is taxable unless sold to a commercial enterprise for exclusive use.
- Sales tax on SaaS was implemented effective Jan. 1, 2019.

Prewritten Software in Minnesota vs. Iowa

Minnesota:
- Prewritten software sold electronically is subject to sales tax.
- Custom software delivered electronically is not taxable.
Iowa:
- Prewritten software sold electronically is subject to sales tax, with exceptions for commercial use.
- Custom software delivered electronically is taxable as of Jan. 1, 2019.

Digital Goods in Minnesota vs. Iowa

Minnesota:
- Digital products (e-books, music, etc.) are taxable.
Iowa:
- Digital products are taxable with some exceptions, effective Jan. 1, 2019.
- Focus on retail sales of digital products to end users.

Sales Tax Holidays

Minnesota:
- No sales tax holidays.
Iowa:
- Iowa offers a sales tax holiday for clothing and footwear under $100 on August 1-2, 2025 (excluding accessories).

Economy Overview

Minnesota:
- Historically agricultural, now includes tech and biomedical industries.
- Home to major landmarks like the Mall of America and historic flour mills.
- Largest producer of sugar beets, sweet corn, and green peas.
Iowa:
- Diverse economy with strengths in manufacturing, biotech, finance, and government services.
- Major food processing hub, home to companies like ConAgra Foods and General Mills.
- Largest producer of ethanol and corn in the U.S.

Wait! Already know you need help with Minnesota or Iowa issues? Please reach out to us at info@milesconsultinggroup.com

1. Software as a Service (SaaS) in Minnesota vs. SaaS in Iowa

Software as a Service (SaaS) is subject to sales tax in several jurisdictions across the country. Approximately half of states do tax the SaaS revenue stream. As you’ll see below, both states differ regarding their treatment of sales tax.

Cloud Computing Services are not taxable in Minnesota.

Minnesota has not addressed cloud computing by statute or regulation. The sale, lease, or license of prewritten computer software is subject to tax, regardless of whether the software is delivered electronically. In a publication dated in 2004, the Minnesota Department of Revenue noted that charges to access data from a database at a remote location are not taxable.

SaaS is taxable with exceptions in Iowa.

Effective Jan. 1, 2019, sales of software as a service is taxable unless sold to a commercial enterprise for use exclusively by that commercial enterprise.

2. Software in Minnesota vs. Software in Iowa

Minnesota does impose sales and use tax on prewritten computer software sold electronically.

Prewritten software delivered to the customer via any electronic medium is subject to sales and use tax.

Prewritten computer software delivered electronically is subject to tax in Iowa.

Prewritten computer software delivered electronically in Iowa is subject to sales and use tax, unless sold to a commercial enterprise for use exclusively by that commercial enterprise.

The sale of custom computer software delivered electronically is not subject to tax in Minnesota.

Custom software delivered to the customer electronically is not subject to sales and use tax.

The sale of custom computer software delivered electronically is subject to tax in Iowa.

Effective Jan. 1, 2019, Iowa imposes sales tax on custom computer software delivered electronically.

3. Digital Goods

States vary in their treatment of electronically delivered goods including e-books, music, and streaming video. Some states consider all of these types of products to be taxable or not, while others call out specific taxability depending upon the product.

In Minnesota, digital products are taxable.

Digital products are generally subject to Minnesota sales and use tax.

In Iowa, digital products are taxable with some exceptions.

Effective Jan. 1, 2019, Iowa taxes the retail sale of specified digital products sold in the state to end users.

4. Sales Tax Holidays

States often offer sales tax holidays during specific times of the year, during which certain items are sold tax free. These holidays vary greatly by state. Here’s how Minnesota and Iowa shake out.

Minnesota does not have any sales tax holidays.

In Iowa, on August 1-2, 2025 there is a sales tax holiday on articles of clothing and footwear that are less than $100, which excludes clothing accessories.

For more information on sales tax holidays, click here.

5. Economy

Minnesota’s earliest industries were fur trading and agriculture. The city of Minneapolis grew around the flour mills powered by St. Anthony Falls. Although less than one percent of the population is now employed in the agricultural sector, it remains a major part of the state’s economy. The state is the largest producer of sugar beets, sweet corn, and green peas for processing, and farm-raised turkeys. The state is also a large producer of soybeans.

The manufacturing sector now includes technology and biomedical firms, in addition to the older food processors and heavy industry. The nation’s first indoor shopping mall was Edina’s Southdale Center, and its largest is Bloomington’s Mall of America.

While Iowa is often viewed as a farming state, in reality agriculture is a small portion of a diversified economy, with manufacturing, biotechnology, finance and insurance services, and government services contributing substantially to Iowa’s economy. This economic diversity has helped Iowa weather the late 2000s recession better than most states, with unemployment substantially lower than the rest of the nation.

Food processing is the largest component of manufacturing. Besides processed food, industrial outputs include machinery, electric equipment, chemical products, publishing, and primary metals. Companies with direct or indirect processing facilities in Iowa include ConAgra Foods, Wells Blue Bunny, Barilla, Heinz, Tone’s Spices, General Mills, and Quaker Oats. Meatpacker Tyson Foods has 11 locations, second only to its headquarters state Arkansas.

Agriculture has been a major component of Iowa’s economy. The state’s main agricultural outputs are hogs, corn, soybeans, oats, cattle, eggs and dairy products. Iowa is the nation’s largest producer of ethanol and corn and is one of the largest growers of soybeans.

Fun Facts

Minnesota Fun Facts:

Only in the Metrodome has there been a Super Bowl, a World Series and a NCAA Final Four Basketball Championship.
The Mall of America in Bloomington is over 9.5 million square feet in size. It is the size of 78 football fields.
Northwest Airlines, based out of the Twin Cities, was the first major airline to ban smoking on international flights.
Tonka Trucks were developed and are continued to be manufactured in Minnetonka.
Candy maker Frank C. Mars of Minnesota introduced the Milky Way candy bar in 1923.

Iowa Fun Facts:

The world best-renowned dance and gymnastics school is situated in Iowa.
Herbert Hoover, of Iowan descent, was the 31^st president of the United States (1929-1933) and the first one born west of the Mississippi River.
Iowa is the only state name that begins with two vowels.
Iowa is the only state whose east and west borders are formed entirely by rivers.
Decorah hosts Nordic Fest, a three-day celebration of Decorah’s Scandinavian Heritage.
Iowa has more golf courses per capita, than any other state.

We invite you to further explore Minnesota and Iowa in these earlier blogs we crafted over the years. Our team at Miles Consulting Group is always available to discuss the specifics of your situation, whether in Minnesota, Iowa, or other U.S. States, and help you navigate the complex tax structures arising from multistate operations. Book a consultation, drop us a line, or send us an email at info@milesconsultinggroup.com.