North Dakota – Retailer Compensation, Environmental Charges, Leases and Rentals

SALT Report 1316 – The North Dakota State Tax Commissioner’s 2012 newsletter discusses changes affecting retailer compensation, the sales and use tax treatment of lease and rental charges, disposal and environmental charges, and returned merchandise.

Retailer Compensation

The total amount of retailer compensation for North Dakota sales, use, farm machinery gross receipts, and alcoholic beverage gross receipts taxes is $93.75 per return, effective after December 31, 2011. Beginning January 1, 2012, the compensation amount is 1.5% of the state tax due, up to $93.75 for each return filed.

Taxpayers can calculate and deduct compensation on their returns for reporting periods beginning January 1, 2012, and later.  For most taxpayers, this will be calculated beginning with the January monthly return or the first quarterly return.  All return periods, monthly to annually, qualify for the compensation, but no compensation is allowed if the return is filed after the scheduled due date.

Certified service providers and permit holders using certified automated systems that are authorized to receive compensation under the Streamlined Sales and Use Tax Agreement are not eligible for the compensation. The new compensation rules have no impact on the law that requires monthly filing for permit holders who report more than $333,000 of taxable sales and purchases in the previous calendar year.

Lease and Rental Charges

The hourly, daily, weekly, monthly or annual lease or rental of tangible personal property (other than certain motor vehicles) is a retail sale and subject to North Dakota sales tax.  Taxable gross receipts include all additional charges a customer pays if the charges they are mandatory or if the charges are for the delivery, pick-up, or set-up of the taxable property.  Charges are mandatory if the renter is required to pay the charges in order to rent the tangible personal property or if the renter does not have the right to obtain these services associated with the rental from another vendor.  Optional charges for cleaning or maintenance, repair parts and labor, insurance, or damage waivers are not taxable.

Sales tax applies at the location where the tangible personal property will be located during the rental period.  If the customer picks up the property at a location other than where the property will be located by the customer, the first rental period is taxed at the location where the customer takes possession of the property.  All other rental periods are taxed at the location where the property is used.  If possession of the property takes place outside North Dakota, North Dakota tax does not apply to the first rental period.

The newsletter also discusses the tax treatment of property rented with an operator; purchases of property to be rented or leased; repair and replacement parts purchased to maintain rental property; and motor vehicle rentals and leases.

Disposal and Environmental Charges

These charges are commonly called disposal fees or environmental charges and are normally charged to customers to help defray the retailers’ cost associated with landfill fees or complying with environmental regulations.  Mandatory disposal and environmental charges that are associated with a taxable retail sale are subject to North Dakota sales tax. However, if the charges are optional, they are nontaxable as charges for a service offered by the retailer.

Returned Merchandise

When taxable merchandise is sold and later returned to the seller by a customer who receives full credit or an entire refund of the purchase price, the seller must refund or give credit to the customer for the amount of sales tax previously paid or charged. If only a portion of the purchase price is credited or refunded to the customer, the amount of the tax to be credited or refunded to the customer must be computed on the amount of the purchase price to be credited or refunded.

Restocking charges are not taxable, and they do not reduce the sales tax refunded to the customer. Therefore, the seller should not deduct the restocking charge from the sales price of the merchandise. The refund or credit should be calculated as the selling price, plus the sales tax paid, minus the restocking fee.

For Further Information:

North Dakota Office of State Tax Commissioner – Sales Tax Newsletter