The Sales Tax Cap

It’s time for a facelift. Last summer, we posted a blog about the North Dakota sales tax cap, and to this date, we still get tons of views on it. What does this mean? It’s a hot topic that’s important to business owners! So, we decided to bring it front and center again so you can get all the info you need without having to dig too far (we’re nice like that).

If you’re doing business in the state of North Dakota, there’s some important tax issues you need to know about: local sales tax cap and minimum tax.

There are multiple cities and counties in North Dakota, which means there are multiple local sales tax jurisdictions that have a max amount of sales tax you are responsible to pay – or, in other words, the refund cap. However, it’s not the vendor’s responsibility to cap the sales tax on your purchase.

The good news? You can submit a claim for a refund with the State!

So, how does all this cap stuff even work? Let’s look at an example:

Gary is working on a project, and bought $10,000 worth of lumber. He had the lumber delivered right to the job site – which is located in Fargo. He received a bill from the vendor, with the total being $10,750. This included sales tax at a rate of 7.5%, which was properly imposed.

Material Cost    $10,000.00

            Sales Tax                 750.00     

            Total                 $10,750.00

Gary went ahead and paid the bill for $10,750. However, in this case, the sales tax on the purchase is in excess of the maximum tax. This means Gary should apply for a refund. But how is the sales tax more?

Well…

The Fargo sales tax rate – which is the 7.5% that was applied to the purchase – is made up of three components:

State of North Dakota   5.0%

            City of Fargo                2.0%

            Cass County                  0.5%

The maximum tax for the City of Fargo is $50, while $12.50 is the maximum tax for Cass County (the State itself doesn’t have a maximum tax). In other words, the sales tax only applies to the first $2,500 of your purchase. Let’s recalculate Gary’s bill using the tax cap:

Material Cost    $10,000.00   

            Sales Tax               562.50

            Total                 $10,562.50

Confused about where the $562.50 came from? State tax = $500 ($10,000*5.0%), City tax = $50 ($2,500*2.0%), and County tax = $12.50 ($2,500*0.5%).

This means that our good friend Gary is eligible for a refund of $187.50 from the State of North Dakota – and who doesn’t love getting money back?

So how does Gary go about getting his refund?

Easy as cake (which Gary could definitely indulge in with his refund money)!

  1. Visit 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. Follow the instructions to complete and send back

A few other things to keep in mind with maximum tax include:

  • The refund claim must be postmarked no later than three years from the date of the invoice. (This means if you weren’t aware of the cap, you can look back three years and see if you have any claims to submit!)
  • You need to include with the form a copy of all invoices covered by the claim.
  • The refund claim only applies on properly imposed sales tax – which means the sales tax needs to be right in order to claim a refund from the state.
  • The refund claim 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 has a table which outlines the cities and counties that impose this tax.

If you still have questions, let us know. We have tax people who can help make taxes a little less… taxing.

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.