Sales tax 101
Sales tax is a tax paid to a governing body (state or local) on the sale of certain goods and services. North Dakota first adopted a general state sales tax in 1935, and since that time, the rate has risen to 5%. On top of the state sales tax, there may be one or more local sales taxes, as well as one or more special district taxes, each of which can range between 0% and 3.5%. Currently, combined sales tax rates in North Dakota range from 5% to 8.5%, depending on the location of the sale.
As a business owner selling taxable goods or services, you act as an agent of the state of North Dakota by collecting tax from purchasers and passing it along to the appropriate tax authority. Sales and use tax in North Dakota is administered by the North Dakota Office of State Tax Commissioner.
Any sales tax collected from customers belongs to the state of North Dakota, not you. It’s your responsibility to manage the taxes you collect to remain in compliance with state and local laws. Failure to do so can lead to penalties and interest charges.
When you need to collect North Dakota sales tax
In North Dakota, sales tax is levied on the sale of tangible goods and some services. The tax is collected by the seller and remitted to state tax authorities. The seller acts as a de facto collector.
To help you determine whether you need to collect sales tax in North Dakota, start by answering these three questions:
- Do you have nexus in North Dakota?
- Are you selling taxable goods or services to North Dakota residents?
- Are your buyers required to pay sales tax?
If the answer to all three questions is yes, you’re required to register with the state tax authority, collect the correct amount of sales tax per sale, file returns, and remit to the state.
Failure to collect North Dakota sales tax
If you meet the criteria for collecting sales tax and choose not to, you’ll be held responsible for the tax due, plus applicable penalties and interest.
It’s extremely important to set up tax collection at the point of sale — it’s near impossible to collect sales tax from customers after a transaction is complete.
Learn about sales tax automation
Introducing our Sales Tax Automation 101 series. The first installment covers the basics of sales tax automation: what it is and how it can help your business.
Sales tax nexus
The need to collect sales tax in North Dakota is predicated on having a significant connection with the state. This is a concept known as nexus. Nexus is a Latin word that means "to bind or tie," and it’s the deciding factor for whether the state has the legal authority to require your business to collect, file, and remit sales tax.
Sales tax nexus in all states used to be limited to physical presence: A state could require a business to register and collect and remit sales tax only if it had a physical presence in the state, such as employees or an office, retail store, or warehouse.
In June 2018, the Supreme Court of the United States overruled the physical presence rule with its decision in South Dakota v. Wayfair, Inc. States are now free to tax businesses based on their economic and virtual connections to the state, or economic nexus.
While physical presence still triggers a sales tax collection obligation in North Dakota, it’s now possible for out-of-state sellers to have sales tax nexus with North Dakota.
Out-of-state sellers with no physical presence in a state may establish sales tax nexus in the following ways:
Economic nexus: Having a certain amount of economic activity in the state. For sales made on and after October 1, 2018, a remote seller must register with the state then collect and remit North Dakota sales tax if the remote seller meets either of the following criteria (the economic thresholds) for sales in the state during the current or previous calendar year:
- More than $100,000 in gross retail sales
- 200 or more transactions
For sales made after January 1, 2019, the transaction threshold no longer applies. Having 200 or more transactions is not enough to establish nexus if the seller does not have more than $100,000 in sales.
Inventory in the state: Storing property for sale in the state. This includes merchandise owned by Fulfillment by Amazon (FBA) merchants and stored in North Dakota in a warehouse owned or operated by Amazon.
Marketplace sales: Making sales through a marketplace. Effective October 1, 2019, marketplace facilitators are responsible for collecting and remitting sales tax on behalf of marketplace sellers in North Dakota if they make or facilitate more than $100,000 in gross sales or at least 200 transactions of tangible personal property or other taxable items in the state in the current or previous calendar year.
Trade shows: Attending conventions or trade shows in North Dakota. You may be liable for collecting and remitting North Dakota use tax on orders taken or sales made during North Dakota conventions or trade shows.
If you have sales tax nexus in North Dakota, you’re required to register with the Office of State Tax Commissioner and to charge, collect, and remit the appropriate tax to the state.
Sales tax nexus can linger even after a retailer ceases the activities that caused it to be “engaged in business” in the state. This is known as trailing nexus. As of January 2020, North Dakota does not have an explicitly defined trailing nexus policy.
Fulfillment by Amazon (FBA)
If you’re an active Amazon seller and you use Fulfillment by Amazon (FBA), you need to know where your inventory is stored and if its presence in a state will trigger nexus. Avalara TrustFile includes an FBA inventory report to help demystify FBA shipping and storage patterns. FBA sellers can also download an Inventory Event Detail Report from Amazon Seller Central to identify inventory stored in North Dakota.
If you sell taxable goods to North Dakota residents and have inventory stored in the state, you likely have nexus and an obligation to collect and remit tax. To begin to understand your unique nexus obligations, check out our free economic nexus tool or consult with a trusted tax advisor.
Sourcing sales tax in North Dakota: which rate to collect
In some states, sales tax rates, rules, and regulations are based on the location of the seller and the origin of the sale (origin-based sourcing). In others, sales tax is based on the location of the buyer and the destination of the sale (destination-based sourcing).
North Dakota is a destination-based state. This means you’re responsible for applying the sales tax rate determined by the ship-to address on all taxable sales.
After determining you have sales tax nexus in North Dakota, you need to register with the proper state authority and collect, file, and remit sales tax to the state. We get a lot of questions about this and recognize it may be the most difficult hurdle for businesses to overcome. Avalara Licensing can help you obtain your North Dakota business license and sales tax registration.
How to register for a North Dakota seller's permit
You can register for a North Dakota seller’s permit online through the Office of State Tax Commissioner. To apply, you’ll need to provide the Office of State Tax Commissioner with certain information about your business, including but not limited to:
- Business name, address, and contact information
- Federal EIN number
- Date business activities began or will begin
- Projected monthly sales
- Projected monthly taxable sales
- Products to be sold
Cost of registering for a North Dakota seller's permit
There is currently no cost to register for a sales tax permit in North Dakota; however, the state may require a bond. A business may request a bond refund after two years of remitting accurate and timely returns.
For more information, see the state guide for new businesses.
Acquiring a registered business
You must register with the North Dakota Office of State Tax Commissioner if you acquire an existing business in North Dakota. The state requires all registered businesses to have the current business owner’s name and contact information on file.
Streamlined Sales Tax (SST)
The Streamlined Sales and Use Tax Agreement (SSUTA), or Streamlined Sales Tax (SST), is an effort by multiple states to simplify the administration and cost of sales and use tax for remote sellers. Remote sellers can register in multiple states at the same time through the Streamlined Sales Tax Registration System (SSTRS).
North Dakota became a full member of the SST on October 1, 2005.
Collecting sales tax
Once you've successfully registered to collect North Dakota sales tax, you'll need to apply the correct rate to all taxable sales, remit sales tax, file timely returns with the North Dakota Office of State Tax Commissioner, and keep excellent records. Here’s what you need to know to keep everything organized and in check.
How you collect North Dakota sales tax is influenced by how you sell your goods:
Brick-and-mortar store: Have a physical store? Brick-and-mortar point-of-sale solutions allow users to set the sales tax rate associated with the store location. New tax groups can then be created to allow for specific product tax rules.
Hosted store: Hosted store solutions like Shopify and Squarespace offer integrated sales tax rate determination and collection. Hosted stores offer sellers a dashboard environment where North Dakota sales tax collection can be managed.
Marketplace: Marketplaces like Amazon and Etsy offer integrated sales tax rate determination and collection, usually for a fee. As with hosted stores, you can set things up from your seller dashboard and let your marketplace provider do most of the heavy lifting.
Mobile point of sale: Mobile point-of-sale systems like Square rely on GPS to determine sale location. The appropriate tax rate is then determined and applied to the order. Specific tax rules can be set within the system to allow for specific product tax rules.
North Dakota sales tax collection can be automated to make your life much easier. Avalara AvaTax seamlessly integrates with the business systems you already use to deliver sales and use tax calculations in real time.
Some goods are exempt from sales tax under North Dakota law. Examples include most non-prepared food items, food stamps, prescription medications, and medical supplies.
We recommend businesses review the laws and rules put forth by the North Dakota Office of State Tax Commissioner to stay up to date on which goods are taxable and which are exempt, and under what conditions.
Some customers are exempt from paying sales tax under North Dakota law. Examples include government agencies, some nonprofit organizations, and merchants purchasing goods for resale.
Sellers are required to collect a valid exemption or resale certificate from buyers to validate each exempt transaction.
Misplacing a sales tax exemption/resale certificate
North Dakota sales tax exemption and resale certificates are worth far more than the paper they’re written on. If you’re audited and cannot validate an exempt transaction, the North Dakota Office of State Tax Commissioner may hold you responsible for the uncollected sales tax. In some cases, late fees and interest will be applied and can result in large, unexpected bills.
Sales tax holidays
Sales tax holidays exempt specific products from sales and use tax for a limited period, usually a weekend or a week. Approximately 17 states offer sales tax holidays every year.
As of January 2020, however, there are no sales tax holidays in North Dakota.
Filing and remittance
You're registered with the North Dakota Office of State Tax Commissioner and you've begun collecting sales tax. Remember, those tax dollars don't belong to you. As an agent of the state of North Dakota, your role is that of intermediary to transfer tax dollars from consumers to the tax authorities.
How to file
Once you’ve collected sales tax, you’re required to remit it to the North Dakota Office of State Tax Commissioner by a certain date. The North Dakota Office of State Tax Commissioner will then distribute it appropriately.
Filing a North Dakota sales tax return is a two-step process comprised of submitting the required sales data (filing a return) and remitting the collected tax dollars (if any) to the Office of State Tax Commissioner. The filing process forces you to detail your total sales in the state, the amount of sales tax collected, and the location of each sale.
Online filing is generally recommended, but paper returns are acceptable.
The North Dakota Office of State Tax Commissioner will assign you a filing frequency. Typically, this is determined by the size or sales volume of your business. State governments generally ask larger businesses to file more frequently. See the filing due dates section for more information.
North Dakota sales tax returns and payments must be remitted at the same time; both have the same due date.
You may file directly with the Office of State Tax Commissioner by visiting their site and entering your transaction data manually. This is a free service, but preparing North Dakota sales tax returns can be time-consuming — especially for larger sellers.
Using a third party to file returns
To save time and avoid costly errors, many businesses outsource their sales and use tax filing to an accountant, bookkeeper, or sales tax automation company like Avalara. This is a normal business practice that can save business owners time and help them steer clear of costly mistakes due to inexperience and a lack of deep knowledge about North Dakota sales tax code.
Avalara TrustFile provides a quick and easy way to prepare and efile sales tax returns. Users can sign up and use the service to prepare returns for free for a limited time.
Filing when there are no sales
Once you have a North Dakota seller's permit, you’re required to file returns at the completion of each assigned collection period regardless of whether any sales tax was collected. When no sales tax was collected, you must file a "zero return.”
Failure to submit a zero return can result in penalties and interest charges.
Closing a business
The Office of State Tax Commissioner requires all businesses to "close their books" by filing a final sales tax return. This also holds true for business owners selling or otherwise transferring ownership of their business.
Timely sales tax filing discount
Many states encourage the timely or early filing of sales and use tax returns with a timely filing discount.
As of January 2020, the Office of State Tax Commissioner offers a 1.5% discount, with a maximum benefit of $110 per month.
Filing due dates
It's important to know the due dates associated with the filing frequency assigned to your business by the North Dakota Office of State Tax Commissioner. This way you'll be prepared and can plan accordingly. Failure to file by the assigned date can lead to late fines and interest charges.
The Office of State Tax Commissioner requires all sales tax filing to be completed by the last day of the month following the tax period. Below, we've grouped North Dakota sales tax filing due dates by filing frequency for your convenience. Due dates falling on a weekend or holiday are adjusted to the following business day.
|Reporting period||Filing deadline|
|January||March 2, 2020|
|February||March 31, 2020
|March||April 30, 2020
|April||June 1, 2020|
|May||June 30, 2020
|June||July 31, 2020
|July||August 31, 2020
|August||September 30, 2020
|September||November 2, 2020|
|October||November 30, 2020
|November||December 31, 2020
|December||February 1, 2021|
|Reporting period||Filing deadline|
|Q1 (January 1–March 31)||April 30, 2020
|Q2 (April 1–June 30)||July 31, 2020
|Q3 (July 1–September 30)||November 2, 2020|
|Q4 (October 1–December 31)||February 1, 2021|
|Reporting period||Filing deadline|
|H1 (January 1–June 30)||July 31, 2020|
|H2 (July 1–December 31)||February 1, 2021|
|Reporting period||Filing deadline|
|January 1–December 31||February 1, 2021|
Filing a North Dakota sales tax return late may result in a late filing penalty as well as interest on any outstanding tax due. For more information, refer to our section on penalties and interest.
In the event a North Dakota sales tax filing deadline was missed due to circumstances beyond your control (e.g., weather, accident), the Office of State Tax Commissioner may grant you an extension. However, you may be asked to provide evidence supporting your claim.
Penalties and interest
Hopefully you don't need to worry about this section because you're filing and remitting North Dakota sales tax on time and without incident. However, in the real world, mistakes happen.
If you miss a sales tax filing deadline, follow the saying, “better late than never,” and file your return as soon as possible. Failure to file returns and remit collected tax on time may result in penalties and interest charges, and the longer you wait to file, the greater the penalty and the greater the interest.
If you’re in the process of acquiring a business, it’s strongly recommended that you contact the Office of State Tax Commissioner and inquire about the current status of the potential acquisition. Once you've purchased the business, you’ll be held responsible for all outstanding North Dakota sales and use tax liability.
Shipping and handling
If you’re collecting sales tax from North Dakota residents, you’ll need to consider how to handle taxes on shipping and handling charges.
Taxable and exempt shipping charges
Charges for shipping, handling, delivery, freight, and postage are generally taxable in North Dakota. If the sale is tax exempt, the shipping charges are generally exempt as well. If both taxable and nontaxable products are in the same shipment, sales tax is due on the portion of the delivery charge for the taxable products.
There are exceptions to almost every rule with sales tax, and the same is true for shipping and handling charges. Specific questions on shipping in North Dakota and sales tax should be taken directly to a tax professional familiar with North Dakota tax laws.
For additional information, see State Sales Tax Guidelines on Freight, Delivery & Other Transportation Charges.