Understanding North Dakota Sales and Use Taxes
Understanding and complying with the sales tax requirements in the states in which you do business is absolutely essential. More states are taxing services, as well as retail sales, so no business owner can afford to be in the dark. In addition, you may find that you are liable for use taxes for products purchased out of state. This article answers some of the basic questions regarding sales tax in North Dakota.
In North Dakota, a tax is imposed upon gross receipts of retailers from all retail sales, including the leasing or renting of tangible personal property, of the following:
- goods, wares, or merchandise;
- steam or communication services;
- admissions to amusements, entertainment, or athletic events (this tax applies to only 80 percent of gross receipts from coin-operated amusement devices);
- magazines and other periodicals;
- hotel, motel, and tourist court accommodations;
- the leasing or renting of tangible personal property, the transfer of title to which has not been subject to sales or use tax;
- sales of alcoholic beverages and tobacco products; and
- gross receipt from sales of tangible personal property costing $0.16 or more through coin-operated vending machines.
Sales and use tax rates. The North Dakota state sales and use tax rate is generally 5 percent. In addition, make sure you contact your local governments in North Dakota because they are allowed to assess a local sales and use tax of up to 2 percent.
The following rates are applicable to the following specific types of sales:
- 3 percent on residential or business mobile homes except for those exempt from tax
- 3 percent on retail sales, leases, or rentals of farm machinery, farm machinery repair parts, and agricultural irrigation equipment
- 7 percent on alcoholic beverages
Be aware that, because local jurisdictions may also impose a sales tax, the tax rate can be as high as 7 percent. Rate cards for 5.0 percent through 7.0 percent are available from the state for the various geographical areas. In North Dakota, property brought into the state on which a sales or use tax has been paid in another state equal to or in excess of the North Dakota tax is not subject to tax in North Dakota.
Leases of Tangible Personal Property Are Taxable
The lease or rental of tangible personal property for any purpose other than processing or resale is subject to sales tax. Sales tax must be charged on rentals in a lease-purchase arrangement until the purchase option is exercised. When the purchase option is exercised the sales tax must be charged on any additional amount the purchaser must pay to complete the purchase.
Sales Tax Is Imposed on Buyers, But Collected By Sellers
In North Dakota, although the sales tax is measured by a retailer's gross receipts, the sales tax is imposed upon purchasers. Retailers are responsible for collecting and remitting the tax to the state.
Absorbing the tax is not permitted. In North Dakota, it is against the law to refund or offer to refund all or any part of the amount collected, or to absorb the amount of sales tax required to be added to the sales price and collected from the purchaser. As a seller, it is also against the law for you to advertise directly or indirectly that you will absorb the sales tax that is required to be added to the sales price.
Tax Permits Are Required
In North Dakota, retailers must obtain a permit from the State Tax Commissioner for each place of business in the state. A permit is valid only for the person in whose name it is issued and for transactions at the place designated in the permit.
North Dakota Exempts Many Items from Tax
North Dakota has many specific items that are exempt from sales tax — for example, certain prescription medications are exempt from North Dakota sales tax. You'll want to check and see if you are exempt from the sales tax.
An exemption certificate may be issued by a purchaser of a nontaxable item. The exemption certificate may be based on the type of transaction (such as a resale exemption) or on the item itself.
Sales of Property for Resale Are Not Taxed
Sales of tangible personal property for resale are not subject to sales tax. If a resale certificate containing your tax permit number is submitted at the time of purchase, the retailer need not collect the sales tax on the purchase. You must provide the seller with a signed certificate of resale at least once a year.
Resale exemption certificate requirements. North Dakota accepts the multistate exemption certificate for resales. However, the buyer can provide his own, but the following information needs to be included in the resale certificate:
- the name and address of the buyer and the seller;
- the reason for the exemption;
- an authorized signature of the buyer;
- the buyer's retail sales license or registration number;
- the date; and
- a statement the exemption is claimed in good faith.
North Dakota Allows for Blanket Resale certificates
Sellers may accept blanket certificates from you as a purchaser if you repeatedly purchase the same type of property or service for processing or resale. You must provide the seller with a signed certificate of resale at least once a year.
Physical Presence Triggers Tax Liability
North Dakota has a statute that specifically taxes out-of-state mail order and catalog sellers. However, you will be responsible for paying this tax only if you have physical presence within North Dakota. To determine if you have physical presence, ask yourself the following:
- Do I have retail facilities, a warehouse, or any office space in North Dakota? Maintaining retail or warehouse facilities will give you physical presence. Also, having an office for employees, even for business activities unrelated to mail order sales, will give you physical presence.
- Do my employees or I enter North Dakota for purposes of taking and transmitting orders from North Dakota? If your employee or independent contractor goes into North Dakota to take or transmit orders, your business may have physical presence in North Dakota. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence.
- Do my delivery vehicles frequently enter North Dakota for purposes of delivering property? Frequent deliveries in North Dakota by your trucks will give you physical presence in North Dakota.
Claiming Refund forExcess Tax Payments
If goods are returned to you and the purchase price is returned to your customer, you may claim a credit on a subsequent sales and use tax return for the amount of the sale claimed on a prior return. You may also file a refund claim with the Tax Commissioner. The refund claim must be within three years from when the erroneous payment was made.
North Dakota Imposes Use Tax on Out-of-State Sales
An excise tax (use tax) is imposed on the storage, use, or consumption in North Dakota of tangible personal property purchased at retail for storage, use, or consumption in North Dakota. As a general rule, property or services subject to, or exempt from, the sales tax are not subject to the use tax. The use tax is imposed on the consumer, but the retailer is responsible for collecting and remitting the tax unless the retailer has no physical presence within the state.