Contractors (or subcontractors) in North Dakota work with two types of property with different tax implications.
- Property Types
- Tangible personal property includes items that can be moved or touched, like equipment and building materials.
- Real property means land, buildings, and other items that are attached to the land or buildings. For example, a contractor who purchases a furnace then installs it in a home, must pay sales tax on the furnace.
- Tax Types
- Sales Tax - North Dakota imposes a sales tax on retail sales. The sales tax is paid by the purchaser and collected by the retailer. North Dakota sales tax is comprised of two parts, a state portion and a local portion which is administered by the Tax Commissioner.
- Use Tax - All individuals, as well as businesses operating in the state, must pay use tax when the sales tax was not collected by the seller on tangible personal property brought or shipped into North Dakota for storage, use or consumption.
Learn more about sales and use tax on our website.
Responsibilities
The following are different circumstances contractors may encounter during their work. For more information regarding tax responsibilities for contractors, see the Guideline - Contractors.
If a contractor incorporates tangible personal property into real property, the contractor is responsible for sales or use tax when purchasing the tangible personal property.
A contractor who purchases tangible personal property can pay use tax instead of sales tax if the following occurs:
- They do not pay sales tax on the tangible personal property and provide a Contractor’s Certificate to the seller. The Contractor’s Certificate requires a sales and use tax permit.
- They report those purchases as “items subject to use tax” on their sales and use tax return for the reporting period of when the purchases were made.
Contractors are subject to city and county sales and use tax on the tangible personal property they purchase. More information about local sales and use tax is available on our website.
The contractor who installs tangible personal property into real property is responsible to pay sales or use tax, unless the person who owns the tangible personal property already paid sales or use tax.
When working with government agencies, hospitals, schools, or other tax-exempt institutions, the contractor must pay sales or use tax on the purchase price of the tangible personal property the contractor provides, installs, or uses.
The sales or use tax paid by the contractor for tangible personal property installed into real property can be passed to the customer as a materials cost. It cannot be itemized as a sales tax charge on the customer’s invoice.
When a contractor purchases tangible personal property outside of North Dakota and the contractor paid sales or use tax to that state:
- No further tax is due if they paid an amount equal to or greater than the tax due to North Dakota.
- If the amount of tax paid to the other state is less than the amount of tax due to North Dakota, the contractor must pay the difference between the tax paid to the other state and the tax due to North Dakota.
- This includes tools, machinery, equipment, materials, or supplies purchased outside of North Dakota for storage or use in the state.
Tangible personal property purchased in North Dakota for installation into real property in other states is subject to North Dakota sales or use tax.
- Exception: The contractor is not responsible for payment of North Dakota sales or use tax on construction materials purchased in North Dakota by a contractor and installed into real property in a state that does not impose a sales or use tax (such as Montana).