State and Local Taxes If You Retire in North Dakota

North Dakota offers retirees abundant outdoor recreational opportunities, including hunting, fishing, hiking, camping, biking, boating, and canoeing. Fargo, North Dakota made the Forbeslist in 2011 as one of the best cities in which to retire. And as pointed out in the Future Years website, Bismarck has also been noted among the best places to live by CNN Money Magazine and Devil's Lake was named among the 100 best small towns.

North Dakota's overall state and local tax burden is about average compared to the rest of the country at 9.5% of income in 2009 according to the Tax Foundation, compared to the national average of 9.8%.

Income tax

North Dakota has a state income tax with progressive rates from 1.51% up to 3.99% (in effect starting January 1, 2011). U.S. Railroad Retirement Board benefits are not subject to North Dakota state income tax. Other types of pension and retirement benefits are taxable.

If you report a net long-term capital gain on your federal tax return, including a capital gain distribution from a mutual fund, you can exclude 30 percent of that gain on your North Dakota state income tax return. Interest you earn on U.S. government obligations such as savings bonds or Treasury bills is not subject to North Dakota state income tax.

If you are married filing jointly, your taxable income is over a certain amount, and both you and your spouse have retirement benefits, you may qualify for the marriage penalty credit in North Dakota.

If you pay care expenses such as health agency services, companionship services, personal care attendant services, homemaker services, adult day care and respite care for a family member who is 65 years of age or older or disabled, you may qualify for the family member care income tax credit. The credit is a percentage of your care expenses, based on your level of income, up to a maximum credit of $2,000 if you file as single, married filing jointly, head of household or qualifying widow(er), or $1,000 if you are married filing separately.

Property taxes

Property taxes in North Dakota vary by location, depending on the assessed value of your home and the budgets of the local taxing authorities. In general, property taxes in North Dakota are relatively high. According to the Tax FoundationNorth Dakota ranked 10^th among the states in 2009 in terms of property taxes as a percentage of median home value at 1.42%.

There is a homestead exemption in North Dakota for homeowners and renters who are 65 or older, or totally and permanently disabled. To qualify for this exemption, your total household income cannot be more than $26,000 and the value of your assets cannot be more than $75,000, excluding the first unencumbered $100,000 of market value of your homestead.

According to the North Dakota Office of the State Tax Commissioner, the homestead credit reduces the taxable value of your home by 20% to 100%, depending on your income.

Sales tax

North Dakota imposes a general 5% state sales tax on most retail sales. Food, prescription drugs, and various types of medical devices and equipment are exempt. Retail sales of alcoholic beverages are subject to a 7% state sales tax. New farm machinery and new irrigation equipment used exclusively for agriculture, and new mobile homes are subject to a 3% sales tax. The purchase of a motor vehicle is subject to a 5% excise tax.

Cities and counties in North Dakota can also levy sales taxes and lodging and restaurant taxes. Most city and county local ordinances have a local sales tax maximum. If you pay more than the maximum you can apply to the North Dakota Office of State Tax Commissioner to obtain a refund of the excess local sales tax paid.

Sources:

The Facts on North Dakota's Tax Climate, Tax Foundation

Homestead Tax Credit for Senior Citizens or Disabled Persons, North Dakota Office of State Tax Commissioner

Individual Income Tax, North Dakota Office of State Tax Commissioner

Local Option Taxes, North Dakota Office of State Tax Commissioner

Property Tax Frequently Asked Questions, North Dakota Office of State Tax Commissioner

Property Taxes on Owner-Occupied Housing by State, 2004-2009, Tax Foundation

Retiring in North Dakota, Future Years

Sales & Special, North Dakota Office of State Tax Commissioner

Sales Tax Exemptions, North Dakota Office of the State Tax Commissioner