North Dakota Contractor Taxes and Licensing: Materials, the $4,000 Rule and WSI

In North Dakota, a contractor on any contract except labor-only is the final consumer of the materials it installs into real property, so it pays sales or use tax on them and doesn't charge the customer sales tax. The tax can be built into the price but can't be shown as a sales tax line. The state rate is 5%.

How North Dakota taxes contractors

North Dakota keeps contractor sales tax simple, with one twist. The Office of State Tax Commissioner's contractors guideline says "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." You pay tax when you buy the materials, and the customer's bill carries no sales tax.

The twist: the tax you paid can be recovered in your price, but "it cannot be itemized as a sales tax charge on the customer's invoice." If your invoice template adds a sales tax line to every job by default, fix it before working in North Dakota. That's a different habit from Minnesota or South Dakota, where some services carry sales tax on the invoice.

Labor-only contracts are the exception: a contractor hired just for labor, with the owner supplying the materials, isn't responsible for tax on those materials. Whether labor-only or repair charges ever carry tax for your type of work is worth confirming with the Tax Commissioner; check with the department if your work mixes repairs and sales of parts.

Use tax and the contractor's certificate

North Dakota's guidance on tax responsibilities for contractors describes a contractor's certificate that lets a contractor pay use tax instead of sales tax on materials, and notes it "requires a sales and use tax permit." That's useful if you buy from suppliers outside the state or keep a stock of materials. For the general mechanics, see use tax for contractors, and for how North Dakota compares with other states, see sales tax on labor vs. materials.

The state sales and use tax rate is 5%, and cities and counties add their own local taxes. North Dakota's online tax portal, ND TAP, includes a rate lookup by address. Gross receipts taxes of 3% on new farm machinery and new mobile homes, and 7% on alcohol, don't usually affect trades work.

North Dakota contractor licensing: the $4,000 rule

North Dakota licenses contractors statewide through the Secretary of State. When a job "exceeds $4,000, the person doing the work must be licensed," and that covers general contractors, subcontractors, public contractors and nonresident contractors. The license class depends on the largest single contract you'll take.

To apply, you need a certificate of liability insurance naming the Secretary of State and a certificate of payment from WSI. Trade licenses come on top of the contractor license:

The State Electrical Board says electrical contracts "may not be entered by anyone other than a master electrician or power limited electrician." Class B electricians may contract only for farmstead or one- and two-family residential work in cities of 2,500 or fewer people. More on licensing in general: contractor license.

North Dakota income tax rates for 2026

North Dakota's individual income tax has a wide 0% bracket and two low rates. The 2026 rate schedule in Form ND-1ES:

C corporations pay 1.41% on income up to $25,000, $352.50 plus 3.55% over $25,000, and $1,240 plus 4.31% over $50,000. Most small trades businesses are pass-throughs, so the individual table is what matters. Estimated payments are covered in quarterly estimated taxes for contractors, and the quarterly estimated tax calculator handles the federal side.

Workers' comp: North Dakota's state fund

You can't shop for workers' comp in North Dakota. WSI says it "is the sole provider and administrator of the workers' compensation system in North Dakota," and that "North Dakota is one of four exclusive state funds in the country." Employers "must purchase workers' compensation insurance from the state fund," and coverage is required before hiring the first employee, with limited exceptions. Because the contractor license application asks for a WSI certificate of payment, letting WSI coverage lapse can also put your license at risk. Background: workers' compensation.

Local taxes in North Dakota

Cities and counties levy local sales and use taxes on top of the 5% state rate. Since contractors pay tax on materials rather than charging it to customers, ask the Tax Commissioner which local rate applies if you buy materials in one city and build in another.