North Dakota has some of the lowest income taxes in the country. After the 2023 tax cut, individuals pay 0% on the first $48,475 of taxable income and a top rate of just 2.5%. Corporations pay 1.41% to 4.31%. The state doesn't tax business equipment or inventory, and its sales tax is a moderate 5% plus local add-ons. Revenue from oil and gas production pays for much of the state budget.
This guide covers North Dakota's business taxes for 2026, with worked examples and comparisons with its neighbors.
North Dakota business taxes at a glance
A North Dakota C corporation pays graduated rates that reach 4.31% above $50,000 of profit. Pass-through owners pay nothing on the first $48,475 of taxable income and 1.95% on most income after that, so even a well-paid owner faces an effective state rate below 2%. Customers pay 5% state sales tax plus local taxes, for combined rates around 7%. Businesses don't pay property tax on equipment or inventory. LLCs pay $135 to form and $50 a year for annual reports. For pass-through businesses, North Dakota is one of the cheapest states with an income tax.
Corporate income tax
| Taxable income | Rate |
|---|---|
| $0 to $25,000 | 1.41% |
| $25,000 to $50,000 | 3.55% |
| Over $50,000 | 4.31% |
- Water's-edge surtax: Corporations electing water's-edge combined reporting pay an extra 3.5% of their tax.
- Apportionment: Single sales factor is available as an election; otherwise a three-factor formula applies.
- Combined reporting: Required for unitary groups, worldwide unless a water's-edge election is made.
- Credits: Research expense credit, angel fund investment credit, workforce recruitment credit and credits for automation and agricultural processing.
- Returns: Form 40 is due on the 15th day of the fourth month after year-end.
Personal income tax and pass-through owners
| Taxable income (single, 2026, approx.) | Rate |
|---|---|
| $0 to $48,475 | 0% |
| $48,475 to $244,825 | 1.95% |
| Over $244,825 | 2.5% |
The 2023 law replaced five brackets topping out at 2.9% with this simpler structure, and the brackets are indexed to inflation.
- LLC owners, partners and sole proprietors pay these rates on profit.
- S corporation shareholders pay on their share.
- Nonresident owners: Pass-through entities withhold tax for nonresident owners or file composite returns.
Sales and use tax
| Component | Rate |
|---|---|
| State sales tax | 5% |
| Local taxes | Up to about 3.5% |
| Average combined rate | About 7.09% |
- Groceries are exempt.
- Manufacturing and agricultural processing equipment is exempt.
- Services: Most services are not taxed.
- Remote sellers with more than $100,000 of North Dakota sales must collect.
- Local caps: Many cities limit local sales tax on a single purchase, such as the first $2,500 of a transaction.
Payroll and property taxes
- Unemployment insurance: Employers pay on a wage base above $45,000, among the highest in the country, though rates are low.
- Workers' compensation: Provided through a state-run fund, Workforce Safety and Insurance, rather than private insurers.
- Property tax: Only real property is taxed. Business personal property, including equipment and inventory, is exempt. A 2023 law provides state-funded property tax relief.
Forming a business in North Dakota: fees and ongoing costs
| Item | LLC | Corporation |
|---|---|---|
| Formation filing fee | $135 | $100 |
| Annual report | $50 (due November 15) | $25 (due August 1) |
| Franchise tax | None | None |
| Registered agent | Required | Required |
Worked example: $500,000 of profit
| Step | Amount |
|---|---|
| Taxable income | $500,000 |
| North Dakota tax (1.41% on $25,000, 3.55% on $25,000, 4.31% on $450,000) | $20,635 |
| Federal tax at 21% on $479,365 | $100,667 |
| Total income tax | $121,302 (24.3%) |
For a single LLC owner with $150,000 of North Dakota taxable income, state tax is about $1,980, an effective rate of 1.3%. At $75,000 it is about $517.
How North Dakota compares with its neighbors
| State | Corporate rate | Top personal rate | State sales tax |
|---|---|---|---|
| North Dakota | 1.41% to 4.31% | 2.5% | 5% |
| Minnesota | 9.8% | 9.85% | 6.875% |
| South Dakota | None | None | 4.2% |
| Montana | 6.75% | 5.65% | None |
North Dakota's taxes are dramatically lower than Minnesota's, which matters most in the Fargo-Moorhead metro area, where businesses can choose which side of the Red River to locate on. South Dakota has no income tax at all, but North Dakota's income tax is so low that the difference for most owners is small.
Choosing an entity in North Dakota
- LLC: $135 to form and $50 a year; owners pay 0% to 2.5%.
- S corporation: Same personal rates, federal payroll tax savings and a lower $25 annual report.
- C corporation: Up to 4.31% plus 21% federally.
Because personal rates are so much lower than corporate rates, pass-through treatment is usually the better choice in North Dakota unless federal considerations favor a C corporation.
Doing business across North Dakota
North Dakota's economy rests on agriculture, energy and a growing technology and services sector. Fargo, Bismarck and Grand Forks are the main business centers, and the Bakken oil region around Williston and Watford City has seen boom-and-bust cycles in population and business activity. Fargo businesses compete for workers and customers with Moorhead, Minnesota, just across the river, where income taxes are several times higher. Many Fargo employers hire Minnesota residents; North Dakota and Minnesota have a reciprocity agreement under which wage earners pay income tax only to their home state.
Tax planning tips for North Dakota businesses
Use the reciprocity agreement correctly. Employees who live in Minnesota or Montana and work in North Dakota can file a reciprocity exemption form so you withhold only their home state's tax.
Claim the exemption for manufacturing equipment. New or expanding manufacturers can buy qualifying machinery and equipment free of sales tax. Apply for the exemption certificate before purchase.
Take advantage of the low personal rates. With most owners paying less than 2% in state tax, the federal SALT deduction cap rarely matters, so a pass-through entity tax election offers little benefit here.
Who pays the most in North Dakota
North Dakota's tax burden falls mainly on the energy industry, through oil and gas production and extraction taxes, and on owners of real property. C corporations pay more than pass-through owners, because the 4.31% corporate rate is well above the 1.95% rate most owners pay. Retailers in cities with higher local sales taxes, such as Fargo, collect 7.5% or more. For most small and mid-sized pass-through businesses, though, state taxes are a minor cost.
Recent changes for 2025 and 2026
- Income tax cut from 2023 continues, with brackets indexed for inflation.
- Property tax relief funded by the state, including a primary residence credit.
- Legacy Fund earnings increasingly used to fund state services and tax relief.
Is North Dakota a good state for business?
Advantages
- One of the lowest personal income taxes in the country
- No property tax on business equipment or inventory
- Moderate corporate tax rates
- Low unemployment and strong energy and agriculture sectors
Drawbacks
- Small, rural labor market
- Harsh climate and distance from major markets
- Economy sensitive to oil prices
- Higher LLC formation fee than some neighbors
Compliance checklist
- File Articles of Organization or Incorporation with the Secretary of State.
- Register with the Office of State Tax Commissioner for sales tax, withholding and income tax.
- Register with Job Service North Dakota and Workforce Safety and Insurance if you hire.
- File the annual report by November 15 (LLCs) or August 1 (corporations).
- File Form 40, 60 or 58 each year.
Compare North Dakota with its neighbors below or estimate your taxes in the United States calculator. See LLC taxes for more.