North Dakota Computer, Software, and SaaS Tax Guide

Prepared by Sales Tax Helper

Table of Contents

1. Introduction
2. Nexus Considerations
3. General Rules and Compliance Considerations
4. Specific Exemptions
5. Sourcing Rules
6. Audit Considerations
7. Voluntary Disclosure Agreements (VDAs)
8. Conclusion
9. References & Resources

1. Introduction

Navigating sales and use tax in North Dakota can be particularly challenging for software
companies, SaaS providers, and tech-focused businesses. The state draws clear distinctions
between prewritten (canned) software, custom-developed programs, and a variety of digital
services—categorizing them differently depending on the method of delivery and the degree of customization involved. The way software and related services are taxed in North Dakota hinges on several key factors, including whether the product is delivered physically or electronically, whether it is standardized or custom-built, and how each component is defined under state law.

Purpose of This Guide

This guide serves as a practical resource for businesses working to understand and comply with North Dakota’s sales and use tax laws as they apply to software and technology offerings. It focuses on the following key areas:

• Nexus Considerations: Identifying when a business is required to register and collect
  North Dakota sales tax due to either a physical or economic presence in the state.
• Taxability of Software & Services: Clarifying how North Dakota treats prewritten and
  custom software, as well as cloud-based services and related technologies, for tax
  purposes.
• Sourcing Rules: Explaining how transactions are taxed based on customer location and
  delivery method, especially in multi-state environments.
• Audit Considerations: Highlighting common audit risk areas and offering guidance on
  how businesses can prepare for and manage the audit process.
• Voluntary Disclosure Agreements (VDAs): Describing how businesses can address
  prior noncompliance while reducing penalties and limiting the audit lookback period.

Why This Matters for Technology Companies 

North Dakota’s tax rules can affect tech companies in significant ways:

• Sales Tax Obligations: Whether or not a business must collect and remit North Dakota
  sales tax depends on how its software or services are classified under state rules.
• Complexity of Cloud Services: Although North Dakota generally does not tax services
  such as SaaS, IaaS, or PaaS when there is no transfer of tangible property,
  misclassification or improper documentation can still create liability.
• Compliance Risk: Failing to apply the correct tax treatment can result in penalties,
  interest, and increased exposure to audit assessments.

This guide provides a detailed overview of North Dakota’s software-related tax rules, drawing
directly from statutes, regulations, bulletins, and guidance issued by the North Dakota Office of State Tax Commissioner. Where appropriate, links to authoritative sources are provided for
further reading.

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