Sales tax on invoices in North Dakota

In North Dakota, a contractor or subcontractor on any contract except a labor-only one is the final user of the property it installs into real property, so it pays the sales or use tax on those materials itself.

North Dakota sales tax: the buyer pays, the seller collects

North Dakota imposes its sales tax on retail sales: the purchaser pays it and the seller collects it. If you sell taxable tangible personal property, you need a Sales and Use Tax Permit, applied for in ND TAP; the Office of State Tax Commissioner suggests applying 30 days before you open for business.

Contractors: the final user of what you install

• Your materials: you pay sales or use tax on the property you use or consume to complete a contract. If a seller doesn’t charge you tax, you owe use tax on the purchase price, reported on a return that needs a Sales Tax Permit.
• Approved projects: the Office of State Tax Commissioner approves some projects for exemption; if the project owner gives you its approval letter, you buy the property for that project tax-free.
• Labor-only contracts: on a contract entered into after June 30, 2021, a contractor or subcontractor hired for labor only to install property into real property doesn’t owe the tax on that property. Whoever provides the property pays it.
• The Contractor’s Certificate: give the seller of construction materials a completed certificate, with your North Dakota contractor’s license and sales and use tax permit numbers, and the seller doesn’t collect tax. You then report those purchases and pay the tax on your return for the period you bought them in, not on a completed-job basis.
• Retail sales: when you sell tangible personal property at retail, buy it tax-free with a Certificate of Resale and charge your customer sales tax on it.

Personal and professional services: not taxed, but repair parts are

North Dakota’s administrative code says personal and professional services aren’t subject to sales tax, but the materials and supplies used solely in rendering them are taxed when you buy them.

If you repair, alter, restore or clean other people’s tangible personal property, collect tax on the itemized charge for the property you use in the repair; separately stated repair labor isn’t taxed. If you don’t itemize those parts, you pay sales or use tax on their cost yourself.

Tax on the invoice: retailers add it and never absorb it

Chapter 57-39.2 of the North Dakota Century Code has retailers add the tax to the sales price or charge. A retailer may not advertise or tell a customer that it will absorb the tax, that the tax isn’t part of the price, or that it will be refunded.

The Contractor Guideline states a no-itemizing rule in its section on sand, rock, dirt and scoria:

• You place or spread the material: it’s an installation into real property. You pay tax on its total cost, delivery and handling included, and the tax should not be itemized to your customer.
• You only dump it in a pile: it’s a retail sale, and you charge your customer sales tax on the total charge, delivery and handling included.

For other construction work, ask the Office of State Tax Commissioner whether to show the tax on your invoice.

Local tax: where goods are received, with caps

North Dakota cities and counties impose local sales, use and gross receipts taxes, which the Office of State Tax Commissioner administers and which you report on the same return as state tax. When a purchaser receives goods, delivered or picked up, in a city or county with a local tax, the retailer collects both.

• Caps: a jurisdiction may cap its local tax per sale. Retailers may collect the full tax or only up to the cap, consistently, and a purchaser who paid the full tax can claim a refund of the excess. For a contractor, the cap applies to each material purchase, not to the whole contract.
• Construction materials: they owe local tax if bought from a retailer inside a taxing jurisdiction for use there, or bought elsewhere but stored, used or consumed inside one. Local tax legally due and paid to another city or county is credited.
• Certificate of exemption: if you buy materials with one, you generally owe city or county use tax when they’re installed. Sixty local ordinances, listed in the Local Taxes by Location Guideline, instead give a limited exemption for materials bought there and installed elsewhere.

Government contracts and transplanting: two watch-outs

• Government work: a contract for the United States, the State of North Dakota, or a North Dakota county, city, school district, park board or other municipal corporation, service contracts included, doesn’t exempt you from tax on the property you use or consume, unless you’re hired for labor only and provide no property. A contract with a North Dakota state institution or political subdivision also needs a North Dakota Contractor’s Tax Clearance.
• Florists and nurserymen: under North Dakota’s rule for them, when the seller transplants for the buyer, it’s an installation into real property, with the tax computed on the cost of the merchandise.