Sales Tax 101: North Dakota Cap

Are you doing business in North Dakota? Have you ever heard of a local sales tax cap or maximum tax?

In North Dakota, there are numerous local sales tax jurisdictions (we’re talking cities and counties here) that have a maximum amount of sales tax you are responsible to pay (a.k.a. refund cap). However, it is not the responsibility of the vendor to cap the sales tax on your purchase. So now you’re probably thinking, that’s just great. Good news is, you are able to submit a claim for refund with the State!

So how does the cap work? Let’s use an example:

Gerald purchased $10,000 in lumber for his project and had it deliver to the jobsite (located in Fargo). When he received the bill from the vendor it totaled $10,750 which included sales tax in the amount of 7.5% (which was properly imposed).

Materials                     $10,000.00

Sales Tax                                750.00

Total                              $10,750.00

Gerald went ahead and paid the vendor $10,750. However, the sales tax on this purchase is in excess of the maximum tax so Gerald should apply for a refund. How so?

The Fargo sales tax rate of 7.5% is made up of three components:

State of North Dakota          5.0%

City of Fargo                            2.0%

Cass County                             0.5%

Total                                            7.5%

The maximum taxes are $50 and $12.50 for the City of Fargo and Cass County, respectively (there is no maximum tax for the State). In other words, sales tax only applies to the first $2,500 of your purchase. Let’s recalculate the bill using the cap:

Materials                     $10,000.00

Sales Tax                                562.50

Total                              $10,562.50

State $500 ($10,000 * 5.0%), City $50 ($2,500 * 2.0%), and County $12.50 ($2,500 * 0.5%) = $562.50

That means Gerald is eligible for a refund of $187.50 from the State of North Dakota.

Awesome right? But how does Gerald get his refund:

It’s easy as 1, 2, 3…

  1.  Log-on to https://www.nd.gov/tax/salesanduse/forms/
  2. Under Other Forms click on Claim for Refund Local Sales and Use Tax Paid Beyond Maximum Tax
  3. Complete and send the form as instructed.

Here are a few other notes on maximum tax:

  •  The claim for refund must be postmarked no later than three years from the date of the invoice. (That’s right, if you weren’t aware of the cap, you can go back three years and submit a claim now!)
  • Copies of all invoices covered by the claim must be included with the form.
  • The claim for refund only applies on properly imposed sales tax (that’s right the sales tax needs to be right to claim a refund from the State).
  • The claim for refund applies to a single transaction (not an item on a transaction or total purchases for a month).
  • Not all cities and counties impose a maximum tax. The claim for refund form includes a table which outlines the cities and counties that impose a maximum tax.

Still have questions? We have people. Let us help you.

 

 

 

 

 

 

One comment on “Sales Tax 101: North Dakota Cap

  1. […] However, it works both ways. If you use the item in a tax jurisdiction that is lower, you can request a refund from the state. For example, your business is in Fargo, North Dakota which has a tax rate of 7.50%. You purchase a piece of equipment from a dealer in Moorhead, Minnesota which has a tax rate of 6.875% and bring it back to Fargo, North Dakota to be used. You would be responsible to pay and remit use tax in the amount of 0.625% of the purchase price. Don’t forget that in North Dakota there a local maximum tax rates. For more information, check out our blog. […]

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