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.

Tax Records & the Statute of Limitations

Recently, we discussed a little thing called record retention (you can read about it here), otherwise known as when to keep it and when to throw it away. Today, we’re talking about the statute of limitations in regards to your taxes. No, they’re not the same thing.

The statute of limitations does not refer to the amount of time you hang on to your tax records. Rather, the statute of limitations refers to the length of time you and your pals at the IRS can make changes to your tax return. In other words, this is the length of time when the IRS can assess additional tax, or you can claim a refund.

There’s no one set rule related to the statute of limitations and the IRS (shocking, we know). Rather, it depends on a few things:

Did you file a return?

The following assumes you did (if you didn’t, we have a bigger problem). In general, the statute of limitations for the IRS is three years from the due date of the return or the date of filing (whichever is later). We say in general because there are a whole bunch of “ifs” related to this. Here are just a few.

If you had a substantial omission (more than 25 percent) of your gross income on your tax return, the IRS extends the statute of limitations. How long? Six years from the time the IRS makes its assessment.

If the IRS files suit against the taxpayer to collect previously assessed taxes, the statute of limitations is generally 10 years. In other words, once the IRS issues an assessment, the IRS has 10 years to pursue legal action and collect on tax debt. They do this through a variety of mechanisms, including garnishing your wages.

If you paid late or failed to pay the full amount of your taxes, you can incur interest fees and additional penalties. These vary, obviously, based on the severity of the situation. We will say this, though: missed filings or errors in filing can actually be considered a crime with criminal ramifications. So it’s best to get your taxes paid on time and in full.

Be aware that other tax authorities (a.k.a. state and local governments) set their own statutes of limitations.

Did you attempt to file a fraudulent return? Or not file a tax return at all (intentionally)?

Then congratulations, there’s no statute of limitations. No, this doesn’t mean the IRS can never audit you. Rather, what it means there is no deadline for the IRS if it can establish that you, the taxpayer, have: 1) filed a false or fraudulent return; 2) willfully attempted to evade tax; or 3) failed to file a return.

In other words, if you have intentionally not filed taxes, or filed them fraudulently, the IRS always has the option to come after you. Further, they raise the interest and penalties related to these transactions. And we really shouldn’t have to say this, but we will. Tax evasion and tax fraud are CRIMES. So if you mess up, it’s best to come forward voluntarily and work with the IRS to establish a payment plan and resolve the issue.