Why Montanans get a tax break here

Dear readers,

One of my co-workers at The Dickinson Press sent me the following question:

I’ve had a question ever since I moved to Dickinson.

Growing up in Stephen, Minn., (about 60 miles from Grand Forks) we did A LOT of shopping in Grand Forks and Fargo. Minnesota doesn’t have tax on clothing, but we paid the tax on it in Grand Forks, just like everyone else.

When I moved to Dickinson last year, I found out the state of North Dakota gives a sales tax break to Montana residents shopping in North Dakota if they spend more than $50 because Montana has no sales tax. Why does North Dakota give breaks to Montanans and not Minnesotans?

Katherine Grandstrand

Thanks for the question! I contacted Tax Commissioner Cory Fong. Here’s what he said:

“North Dakota tax policy, including sales tax exemptions, (is) established by the North Dakota Legislature. The exemption for Montana residents goes way back into the history of our sales tax laws.

“Although the exemption is commonly referred to as the “Montana exemption,” it is actually not specific to Montana. The sales tax law provides an exemption “to a person from an adjoining state which does not impose or levy a retail sales tax.” It just happens that Montana is the only adjoining state that doesn’t impose a tax on retail sales.

“To qualify for exemption, a Montana resident must come to North Dakota for the purpose of making a purchase, the purchase must be for $50 or more and the product must be taken outside of North Dakota for use.

“There has been legislation over the years to repeal the exemption. But so far, the Legislature has decided to continue the exemption policy. Those that support the exemption believe it encourages Montana residents to do business in our state, which in turn supports our local businesses and helps our economy.

“Without the exemption, Montana retailers would have a 5 percent price advantage over North Dakota retailers, which may discourage shopping here by Montana residents.

“Although Minnesota does not impose sales tax on clothing, it does impose a sales tax of 6.875 percent on most other retail sales. So, for most products, Minnesota does not have a price advantage over North Dakota because of tax policy.

“Unlike with the Montana exemption, the Legislature has decided not to offer Minnesota residents an exemption on the clothing they purchase in North Dakota. There has been legislation introduced in the past two legislative sessions to exempt the sale of clothing in North Dakota, which would make us comparable to Minnesota. However, the North Dakota Legislature did not pass the clothing exemption bills into law.

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Tags: news, taxes, montana