North Dakota Office of State Tax Commissioner
               GuidelineGuidelineGuideline --- SalesSalesSales Tax:Tax:Tax: ContractorsContractorsContractors

Contractors are Final Users 
A contractor is responsible for sales and use tax on the purchase price of tangible personal property 
used in their business activity. For contractors, tangible personal property may include machinery, 
equipment, materials, construction supplies, and office supplies. If sales tax is not paid to the seller, use 
tax should be reported on the Items Subject to Use Tax Line on the Sales, Use, and Gross receipts tax 
return.

A contractor or subcontractor entering any contract, except for a labor only contract, is regarded as 
the final user or consumer of all tangible personal property installed into real property. A contractor 
or subcontractor is responsible for paying sales and use tax on tangible personal property used or 
consumed to complete any contract.

There are numerous sales and use tax exemptions for tangible personal property used in projects that 
are approved by the North Dakota Office of State Tax Commissioner. An approval letter confirming the 
exemption is provided to the project owner by the Office of State Tax Commissioner. The project owner 
should provide this letter to the contractor(s) to purchase tangible personal property tax free, for the 
exempt project. See the Tax Incentives for Businesses for available exemptions and the application 
process – www.tax.nd.gov/publications.
 
Contracts for Labor Only
A contractor or subcontractor who is hired for labor only to install tangible personal property into real 
property is not responsible for sales and use tax on the cost of the property installed. The contractor or 
subcontractor providing the tangible personal property is responsible for paying sales and use tax. The 
effective date of this applies for contracts entered into after June 30, 2021.
Example: Contractor A is hired by the County to complete a culvert project, which includes providing 
both tangible personal property and labor to install the culvert into real property. Contractor A 
subcontracts with Subcontractor B for the labor to install the culvert. Contractor A would be responsible 
for paying sales and use tax on the cost of the culvert. Subcontractor B would not be responsible for the 
tax because they were hired for labor only.

Contractors Engaged in Retail Sales
A contractor making retail sales is required to purchase the tangible personal property that they intend 
to sell, tax free by providing a valid Certificate of Resale to the seller. Sales tax must then be charged 
on the tangible personal property sold to their customer. See the Guideline – Sales, Use, and Gross 
Receipts Tax Requirements for additional information – www.tax.nd.gov/guidelines.

                                                                            tax.nd.gov | salestax@nd.gov 
                                           600 E. Boulevard Ave., Dept. 127 | Bismarck, ND 58505-0599 
                                                               Phone: 701-328-1246 | TTY: 800-366-6888

Guideline - Contractors

A contractor should supply the Certificate of Resale or other multijurisdictional exemption certificate 
only to the sellers that they are making purchases from to resell. A contractor should pay sales tax to 
their other sellers for tangible personal property used in their business.
See www.tax.nd.gov/forms to obtain a copy of the: 
  •   Certificate of Resale
  •   Streamlined Sales Certificate Exemption
  •   Multistate Tax Commission Uniform Sales & Use Tax Resale Certificate Multijurisdictional   
      Form.

Contracts With Government Entities
A contractor performing any contract, including service contracts, for the United States Government, 
State of North Dakota, Counties, Cities, Villages, School Districts, Park Boards, or any other municipal 
corporations in North Dakota is not exempt from payment of sales and use tax on tangible personal 
property used or consumed in completing the contract. The contractor is required to pay sales and 
use tax just as required for contracts with non-exempt entities. An exception exists for contractors or 
subcontractors who are hired for labor only and do not provide any tangible personal property to be 
installed into real property.

Contracts On An Indian Reservation
There may be circumstances in which a project qualifies for a sales and use tax exemption. There 
are a number of factors that impact whether the project qualifies, such as whether the contract is with 
the tribe, tribal entity, or tribal member, as well as where the goods and services are purchased. If 
the project is determined to be exempt, the Office of State Tax Commissioner will issue a letter to the 
tribal government to document the exempt project. A contractor should obtain a copy of this letter to 
document the exempt project. For additional information, please contact the Sales Tax Compliance 
Section at salestax@nd.gov or 701-328-1246.

Contracts Outside of North Dakota
Contractors purchasing tangible personal property in North Dakota for installation into real property 
outside of North Dakota are required to pay sales and use tax to North Dakota. 
An exception applies when purchasing tangible personal property to be installed into real property in 
Montana or in another state that has exempted tangible personal property used in the project. In these 
situations, the contractor is not responsible for paying North Dakota sales and use tax on the tangible 
personal property. Contractors must keep documentation to support these exceptions. 

Contracts for Sand, Rock, Dirt, or Scoria
The sale of sand, rock, dirt, or scoria is an installation into real property if the contractor is required to 
place or spread the tangible personal property. The contractor must pay sales and use tax on the total 
cost of the tangible personal property used, which includes delivery and handling. Sales and use tax 
should not be itemized to the contractor’s customer when installing into real property.
If the tangible personal property is only dumped in a pile, this is a retail sale and sales tax should be 
charged to the contractor’s customer. The total charge to the customer for tangible personal property, 
which includes delivery and handling charges, is taxable.

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Guideline - Contractors

See the Guideline – Sand, Gravel, and Scoria for additional information –
www.tax.nd.gov/guidelines.

Contracts with Businesses Holding a Direct Pay Permit
The purchases of tangible personal property used or consumed by a contractor performing under any 
contract, including service contracts, for businesses that provide a Direct Pay Permit in North Dakota is 
not exempt from payment of sales and use tax. 

Payment of Sales and Use Taxes
If a seller of tangible personal property does not charge sales tax at the time of purchase, use tax is 
due on the purchase price. Use tax should be reported on the Items Subject to Use Tax Line on the 
Sales, Use, and Gross receipts tax return. In order to file a Sales, Use, and Gross receipts tax return, a 
Sales Tax Permit is required. To apply for a Sales and Use Tax Permit, visit the North Dakota Taxpayer 
Access Point (ND TAP) at www.tax.nd.gov/apply.

Sales and Use Tax Paid to Another State, City, or County
When tangible personal property is purchased with sales and use tax paid, additional tax may be due if 
the tangible personal property is stored, used, or consumed in a North Dakota location. If the tax paid 
is equal to or higher than the tax due in the location the tangible personal property is stored, used, or 
consumed, no additional tax is due. If the tax paid is less than the tax due in the location the tangible 
personal property is stored, used, or consumed, the additional tax must be reported directly to the 
Office of State Tax Commissioner. 
North Dakota does not recognize taxes paid to other countries. If tax was paid to another country, North 
Dakota state and applicable local sales and use tax is due.
Records should be maintained to verify tax was paid to another state, city, or county.

Local Sales and Use Taxes
Most cities and counties have local sales and use taxes. See the Guideline – Local Option Taxes by 
Location for detailed information on local tax rates and maximum tax amounts -
www.tax.nd.gov/guidelines.
Since tax is due on tangible personal property at the location that the contractor takes possession, 
it is important to identify the tax due in the location the tangible personal property is stored, used, or 
consumed. Additional tax is due on tangible personal property stored, used, or consumed in a location 
that has higher taxes due. 

Maximum Local Tax Cap
Many cities and counties in North Dakota have a maximum local tax that applies to a retail sale. The 
maximum local tax limits, or caps, the amount of city or county tax that may be collected. The seller 
may limit the local tax to the cap amount or collect at the full rate. If the seller collects the local taxes at 
the full rate and if a maximum local tax cap applies, the purchaser may file a request for refund with the 
Office of State Tax Commissioner. If tax was not collected by the seller, use tax must be paid up to the 
maximum local tax cap. Visit North Dakota Taxpayer Access Point (ND TAP) for additional information 
on this refund process - www.tax.nd.gov/LocalTaxRefund.

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Guideline - Contractors

If a seller charges local taxes in error, the purchaser must request to be rebilled and refunded by the 
seller for the taxes paid in error. Tax collected by the seller in error does not qualify for the maximum 
local tax cap refund.

Limited Exemption for Use Outside of the City or County
Some cities and counties offer a limited exemption for tangible personal property purchased within the 
city or county limits, to be installed into real property outside of that city or county.
To qualify for the limited exemption, a contractor must provide the seller with a Contractor’s Certificate 
at the time of purchase. When the tangible personal property is used, the contractor must pay state and 
local use tax on the cost based on the location used. If there is not a local tax based on the location 
used, only the state tax is due. See the Guideline – Local Option Taxes by Location for a list of cities 
and counties that offer this limited exemption - www.tax.nd.gov/guidelines.  A copy of the Contractor’s 
Certificate is available at www.tax.nd.gov/forms.

Situations to Consider
Example 1: Contractor A purchases tangible personal property from a seller in Fargo for $20,000 and 
pays tax at the North Dakota state rate of 5%, Fargo city rate of 2%, and Cass County rate of 0.5%. The 
seller opted to “cap” the Fargo tax collected at $50.00 and the Cass County tax at $12.50. The tangible 
personal property is taken to West Fargo and used for a job. Additional local tax would be due to West 
Fargo since they do not have a maximum tax “cap” in place.
      Paid to the Seller
      Taxable Sales Amount:                               $  20,000.00
      State sales tax (5%)                                  1,000.00
      Fargo sales tax (2% cap applied)                      50.00
      Cass County sales tax (0.5% cap applied)              12.50
      Total                                               $  21,062.50

      Tangible Personal Property taken to West Fargo
      West Fargo city sales tax due (2%)                  $ 400.00
      Less: Fargo city sales tax previously paid            50.00
      Additional Tax Due to West Fargo                    $ 350.00

Since West Fargo is also in Cass County, no additional tax at the county rate is due since the maximum 
tax cap was met at the time of purchase.
Example 2: Contactor B purchases tangible personal property from a seller located outside the city 
limits and is charged sales tax at the North Dakota state rate of 5% and the Burleigh County rate of 
0.5% at the time of purchase. Contractor B uses the tangible personal property within Bismarck city 
limits. Contractor B is responsible for remitting use tax on the cost of the tangible personal property 
used at the Bismarck city rate of 1.5%, up to the Bismarck maximum tax cap of $37.50. 

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Guideline - Contractors

      Paid to the Seller
      Taxable Sales Amount:                             $  2,000.00
      State sales tax (5%)                                      100.00
      Burleigh county sales tax (0.5%)                           10.00
      Total                                             $  2,110.00
      Additional Tax Due
      Bismarck city sales tax (1.5%)                    $          30.00

North Dakota Contractor’s Tax Clearance
A contractor must receive a North Dakota Contractor’s Tax Clearance to enter a contract with any state 
governmental institution or political subdivision of North Dakota. If no delinquent taxes exist, the North 
Dakota Contractor’s Tax Clearance will be issued by the Office of State Tax Commissioner. Contact the 
Registration Section at 701-328-1241 or apply using the Application to Obtain Contractor’s Request for 
Clearance found at www.tax.nd.gov/forms.

Contact Information
If you have questions, please contact the Sales Tax Compliance Section at salestax@nd.gov
or 701-328-1246.

21813
(Revised March 2022)

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