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What is taxable in North Dakota?

Hands taking us dollars out from wallet on the street

GRAND FORKS—The sales tax code can be intimidating to read through—there are 47 pages explaining what is and isn't taxable.

In summary, North Dakota taxes physical products that are not specifically laid out in the Century Code, said state Tax Commissioner Ryan Rauschenberger.

"Typically, the way I like to explain it is if you are in a store, we tax tangible personal products," he said. "We don't tax labor on your plumbing bill or accounting services or attorney services."

Questions about what is taxed and what is not taxed tends to pop up every now and then, he said.

A sales tax vote in Grand Forks is set for Tuesday, Nov. 7. Here's an explanation of some general concepts about the tax code.

Basic food items and services

There are differences across the country when it comes to deciding what is taxed. North Dakota has a set sales tax of 5 percent across the state, but cities can add their own on top of that up to 3.5 percent.

"The sales tax base is the same throughout the state," Rauschenberger said. "By law, all of the cities follow what the state has for a sales tax base."

Typically, North Dakota's sales tax does not include services or groceries that are not prepared for consumption, or rather the food hasn't been altered by heating, mixing or adding utensils.

"A lot of items in there are taxable and some are not," Rauschenberger said of grocery stores. "Your basic food items are not, like your flour. But prepared food is."

For example, bottled water—mineral, carbonated and distilled—is considered food and is exempt from the sales tax law, according to the Tax Commissioner's Office. But if sweeteners are added to the water, as with some flavored water, the bottled water becomes a "soft drink" and is taxable.

Food that isn't prepared is, for the most part, considered an "absolute bare essential" across the country, and therefore it shouldn't be taxed since people need it to survive, Rauschenberger said. The definition of food can change from state to state, he added.

An example of services would be funeral homes. Vaults and caskets are taxable, but the services provided by a funeral home, such as making arrangements with churches, are not taxable.

He also noted prescription drugs are not taxable, but over-the-counter drugs are.

Accommodations at hotels can be taxed, and cities can charge a hospitality tax.

Unlike North Dakota, Minnesota does not have a sales tax on clothes because they are considered necessities.

There have been failed attempts in the North Dakota Legislature in recent years to exempt clothes from the North Dakota sales tax.

"It really hasn't received legs legislatively over the years partly because it is an important part of the local sales tax base as much as the retail hubs," Rauschenberger said.

Some people are surprised concert and event tickets are taxable, but it is considered a physical product, he said.

For more information on sales tax guidelines, visit the website for the Tax Commissioner's Office at bit.ly/2zDWIcQ.

Breakdown of Grand Forks sales tax

Grand Forks has an additional sales tax of 1.75 percent, meaning shoppers pay 6.75 percent for items they buy in the city.

That's relatively low compared with other cities in eastern North Dakota and cities of Grand Forks' size, according to City Administrator Todd Feland. He pointed to a chart explaining Bismarck's sales tax is 1 percent while Fargo's is 2.5 percent. Williston has one of the highest sales tax rates in the state at 3 percent.

About a half-percent is dedicated to property tax relief, 0.3 percent goes to infrastructure investments and about 0.2 percent is dedicated to economic development support, Feland said. The rest of the 0.75 percent helps pay for a 30-year bond on the Alerus Center, which cost about $79 million to build. That tax will end in 2029 with enough funds put away to pay for maintenance and capital investments, Feland said.

The bonds were refinanced to get a better rate, Feland said, but he noted the intent always was to keep the sales tax in place for 30 years.

If voters in the city approve a half-percent sales tax in November, it would increase the total sales tax to 7.25 percent for 20 years. That would fund street and water improvements for the city.

The sales tax will be more competitive with other cities but lower than Fargo's if approved, Barry Wilfahrt, Chamber president, and Keith Lund, president of the Grand Forks Region Economic Development Corp., said in an interview with the Herald editorial board. Lund said the increase would not be enough to convince shoppers to go elsewhere.

"If they are going to do it, they are going to do it anyway," Lund said, adding it doesn't make sense to spend money on gas to save a couple of dollars on a $500 purchase.

April Baumgarten

April Baumgarten joined the Grand Forks Herald May 19, 2015, and covers crime and education. She grew up on a ranch 10 miles southeast of Belfield, where her family raises registered Hereford cattle. She double majored in communications and history/political science at Jamestown (N.D.) College, now known as University of Jamestown. During her time at the college, she worked as a reporter and editor-in-chief for the university's newspaper, The Collegian. Baumgarten previously worked for The Dickinson Press as a city government and energy reporter in 2011 before becoming the editor of the Hazen Star and Center Republican. She then returned to The Press as a news editor, where she helped lead an award-winning newsroom in recording the historical oil boom.

Have a story idea? Contact Baumgarten at 701-780-1248.

(701) 780-1248
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