North Dakota’s sales tax exemption waives a business from the obligation of collecting the 5% state tax, or any local tax, in a sales transaction, but eligibility depends on what’s being sold and who’s buying it. For example, groceries and prescription drugs are exempt regardless of the buyer, while resellers, government agencies, and qualifying nonprofits can purchase otherwise taxable goods tax-free as long as they can document their eligibility. Buyers are required to provide a copy of their organization’s sales tax exemption certificate to qualify, and sellers have to keep it on file, since in some cases they might be held responsible for the tax if an audit finds the buyer’s certificate invalid.

Below, we will discuss who qualifies for an exemption, which products and services are entitled to North Dakota exemptions, and what records a business needs to keep in case of an audit.

Key takeaways

• North Dakota exemptions depend on either the buyer’s status or the product itself, and the two categories follow different rules.

• The seller needs a completed exemption certificate on file from the buyer before or at the point of sale.

• The seller bears the burden of proof in an audit, so accurate recordkeeping is essential.

What is a North Dakota sales tax exemption?

A North Dakota sales tax exemption excuses a business from charging the state’s 5% sales tax, or local sales tax, for goods or services in a sales transaction. North Dakota charges sales tax on most retail sales, and cities such as Fargo, Grand Forks, and Bismarck add their own local sales taxes on top of that.

Who qualifies for a North Dakota sales tax exemption?

Qualifying for a North Dakota sales tax exemption often comes down to who’s buying and why. Here are the main categories of businesses that qualify:

• Resellers: A business buying inventory for resale doesn’t pay sales tax on that transaction because the tax is collected only once, when the item reaches the end consumer. This applies to a retailer stocking shelves or a wholesaler selling goods to a retailer.

• Government entities: Sales made directly to the federal government are exempt. North Dakota also exempts purchases by the state government as well as counties, cities, and school districts, as long as the purchase is paid for with government funds.

• Qualifying nonprofits: Not every nonprofit gets a free pass on sales tax. North Dakota limits this exemption to specific categories, including public and private schools, hospitals, nursing homes, and qualifying voluntary health organizations.

• Agricultural producers: Farmers and ranchers who buy feed, seed, and fertilizer to produce agricultural products meant for sale qualify for an exemption on those specific items.

• Manufacturers: A business that purchases machinery and equipment used directly in manufacturing can claim an exemption on that equipment, though the exemption typically doesn’t cover office supplies or general overhead.

What products and services are exempt from North Dakota sales tax?

North Dakota exempts certain goods no matter who’s buying. Services get a much narrower carve out.

Here’s what to know:

• Groceries: Most food sold for home consumption is exempt, including bread, produce, and dairy, while prepared food, vending machine purchases, and anything served in a restaurant remain taxable.

• Prescription drugs: Medications dispensed by prescription are exempt, along with certain medical devices and prosthetics prescribed by a licensed practitioner.

• Agricultural inputs: Feed for livestock, seed for planting, and fertilizer used in commercial agricultural production are exempt at the point of sale, which is separate from the buyer-qualification exemption already mentioned.

• Certain utilities: Some residential utility purchases, including electricity and natural gas used for home heating, are exempt or taxed at a reduced rate depending on how they’re used.

• Newspapers and periodicals: Sales of newspapers and certain subscription-based periodicals are exempt.

Most professional services, such as legal or accounting work, fall outside the sales tax base. A smaller slice of services tied to tangible personal property, such as certain repair labor, can be taxable depending on how the charge is broken out on the invoice.

How do you use a North Dakota sales tax exemption certificate?

Rather than paying tax up front and chasing a refund later, a buyer who claims an exemption provides the seller with a completed exemption certificate at the time of purchase, or close to it. Since North Dakota belongs to the Streamlined Sales Tax Governing Board, many businesses use the Streamlined Sales Tax Certificate of Exemption (SSTGB Form F0003) to document the claim. The buyer is required to name the exemption category, such as resale, and provide identifying details, including a sales tax permit number or registration number where one applies.

Once the seller has received the certificate, they need to review it. A seller who accepts a certificate in good faith, with no reason to doubt it, generally isn’t held responsible if the exemption turns out to be claimed improperly. Since North Dakota doesn’t require certificates to be submitted with a return, the seller keeps it on file. The seller then applies the exemption to that sale, and the transaction is excluded from taxable sales when it’s time to file.

What records do businesses need to keep for North Dakota sales tax exemptions?

The seller carries the burden of proof if the state ever questions an exempt sale. Generally, North Dakota expects sellers to keep exemption certificates for three years and three months from the filing date of the return covering that period, though sales tax auditors can go further back if they suspect fraud.

Here are important documents and details to keep on file:

• Transaction records tied to each exempt sale: Invoices or receipts that show what was sold, the date, and the amount, cross-referenced to the certificate on file for that buyer.

• Certificate expiration and renewal tracking: Blanket certificates don’t expire on their own, but a seller needs to periodically check a long-standing exempt buyer’s status, especially for resale certificates tied to a permit number that could lapse.

• Documentation of good-faith acceptance: Keep notes on how and when a certificate was processed. This matters if the state disputes an exemption later and the seller needs to prove it appeared valid at the time.

A solution such as Stripe Tax lets you set up exemptions for specific customers or products, so they’re applied automatically to applicable sales.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard, or using our powerful application programming interface (API).

Stripe Tax helps you monitor your obligations and alerts you when you exceed a tax registration threshold based on your Stripe transactions. It can also register to collect tax on your behalf in the US, automate US filings in the Dashboard, and manage global filings through trusted partners. Stripe Tax automatically calculates and collects sales tax, value-added tax (VAT), and goods and services tax (GST) on:

• Digital goods and services in all US states and over 100 countries
  
• Physical goods in all US states and 42 countries
  

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration, or add tax collection with the click of a button in the Stripe Dashboard.

• Register to pay tax: If you need to register for a sales tax in the US, let Stripe manage your tax registrations. You’ll benefit from a simplified process that prefills application details—saving you time and simplifying compliance with local regulations. If you need help registering outside of the US, Stripe partners with Taxually to help you register with local tax authorities.

• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.

• Simplify filing: Stripe Tax automates US filings in the Dashboard, powered by TaxJar. For global filings, Stripe Tax seamlessly integrates with filing partners, so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business.

Learn more about Stripe Tax, or get started today.

FAQs about North Dakota sales tax exemptions