Sales and Use Taxes in North Dakota

April 13, 2006

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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
gross receipt from sales of tangible personal property costing $0.16 or more through coin-operated vending machines

Sales and use tax rate. The North Dakota 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.) 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
2 percent on retail sales of natural gas to retail consumers or users

Tax-exempt items. 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.

Responsibility for paying sales tax. 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.

Use tax. 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.

Responsibility for collecting use tax. The use tax is imposed upon the storage, use, or consumption in the state of tangible personal property purchased at retail. 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.

To determine if you have a 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 means that your business has a physical presence within the state. Also, if you have an office for employees, even for business activities unrelated to mail order sales, your business will have a physical presence within the state.
Do my employees or I enter North Dakota for purposes of taking and transmitting orders from customers in North Dakota? If your employee or independent contractor enters North Dakota for purposes of taking or transmitting orders, your business has a physical presence in North Dakota. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence within the state.
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. An occasional delivery, however, may not constitute a physical presence within the state.

Obtaining tax permits in North Dakota. 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.

Leases. 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.

The following discussions address additional sales and use tax issues that many small business owners face: