How to Start a Towing Business in North Dakota
Starting a towing business in North Dakota requires planning, the right equipment, and compliance with state and local regulations. North Dakota's geographic size and harsh winters make towing services consistently in demand, especially on rural highways and during winter months. This guide walks you through the exact steps to launch a towing operation, from business registration to acquiring your first truck.
What You'll Need to Get Started
Before filing any paperwork, gather the following elements:
- Capital: Towing trucks cost $30,000 to $100,000+ depending on whether you start with a flatbed, heavy wrecker, or light-duty tow vehicle. Budget for equipment, licensing, insurance, and operating costs for your first 3 to 6 months.
- Business structure choice: Sole proprietorship, LLC, or corporation (detailed below).
- Personal identification: Your Social Security number or Employer Identification Number (EIN) from the IRS.
- Business address: A physical location in North Dakota for your registered office and dispatch operations.
- Insurance quotes: Contact insurance providers for commercial auto liability and cargo liability, and WSI for workers' compensation.
- Towing equipment: Tow trucks, chains, straps, lights, safety gear, and potentially a wrecker unit depending on your service tier.
- Mobile dispatch system: Software or dispatch service for managing calls and tracking vehicles.
North Dakota Business Structures
You must choose a legal structure before registering. Each has different tax and liability implications:
Sole Proprietorship
You operate under your own name or a trade name. Filing is minimal: register a trade name with the North Dakota Secretary of State for $25, file your federal Schedule C on your personal tax return. You have unlimited personal liability for business debts. Many one-person towing operations start here due to simplicity.
Limited Liability Company (LLC)
An LLC separates your personal assets from business liability, protecting your house and savings if you get sued. Formation costs $135 to file Articles of Organization with the Secretary of State, plus the $50 annual report fee each November 15. An LLC taxed as a sole proprietor pays individual income tax (0%, 1.95%, or 2.50% depending on income brackets) on pass-through profits. This structure is most common for small towing operations because the liability protection is essential when your business involves roadside incidents.
C Corporation
A corporation is more formal and carries higher filing fees ($100 initial filing plus $25 annual report by August 1). Corporations in North Dakota pay state corporate income tax at 1.41%, 3.55%, or 4.31% depending on taxable income brackets. This structure is less common for small towing businesses unless you plan significant growth.
Step-by-Step: Starting Your Towing Business in North Dakota
Step 1: Choose Your Business Structure and Register with the Secretary of State
Decide whether you will operate as a sole proprietorship, LLC, or corporation. If you choose an LLC or corporation, file your formation documents through the North Dakota Secretary of State's FirstStop portal at https://firststop.sos.nd.gov/.
For an LLC, file Articles of Organization and pay the $135 filing fee. The Secretary of State does not publish a guaranteed processing time, so call Business Services at (701) 328-2900 for current timing. If you choose a sole proprietorship or trade name, register it for $25.
You can reserve your business name for 12 months before filing by paying a $10 reservation fee at the same portal.
Step 2: Obtain an Employer Identification Number (EIN)
If you are forming an LLC or corporation, apply for an EIN from the IRS at https://www.irs.gov/ein. The application is free and takes about 15 minutes online. A sole proprietor using a trade name typically needs an EIN if you will have employees; otherwise, you can use your Social Security number for tax purposes.
Step 3: Verify North Dakota Towing Business Licensing Requirements
North Dakota does not issue a general statewide towing business license. However, licensing and regulatory requirements depend on the specific services you offer. Contact the North Dakota Secretary of State Business Services division at (701) 328-2900 to confirm whether your service model requires specialized licensing.
The state contractor license applies to construction work on real property, such as buildings, roads and other structures, when the cost, value or price per job exceeds $4,000. Towing and roadside vehicle service are not construction, so it generally does not apply unless you also build or alter real property, such as a shop or storage lot. If it does, the Secretary of State issues four classes: Class D (jobs up to $100,000) costs $100, Class C (up to $300,000) costs $225, Class B (up to $500,000) costs $300 and Class A (no limit) costs $450 to start. Renewals cost $30, $45, $60 and $90 for Classes D, C, B and A, and licenses renew by March 1.
Cities license specific activities rather than issuing a general business license, and some list towing permits (Minot, for example, lists a towing license), so check with each city where you will operate. If you want to take custody of abandoned vehicles under NDCC 23.1-15, your business must be a registered business in North Dakota.
Step 4: Register for a Sales and Use Tax Permit
North Dakota has a 5% state sales tax. Any business making taxable sales must hold a sales and use tax permit from the North Dakota Office of State Tax Commissioner. Apply at https://tap.tax.nd.gov/?Link=Application approximately 30 days before you open. The permit is free and allows you to collect and remit sales tax. Confirm with the Tax Commissioner whether your towing charges and any parts you sell are taxable.
Step 5: Obtain Commercial Business Insurance
This is non-negotiable. Contact insurance brokers in North Dakota and obtain quotes for the following coverage:
- Commercial Auto Liability: Covers bodily injury and property damage you cause to others. Ask your broker which limits fit your fleet and any contracts you want to win. Cost ranges from $1,500 to $5,000+ annually depending on vehicles, driver history, and coverage limits.
- Cargo Liability: Covers damage to vehicles you are towing. This is essential and costs $500 to $1,500+ annually.
- Workers' Compensation Insurance: Workers' compensation in North Dakota is a state monopoly run through WSI (WorkForce Safety & Insurance), so you cover employees through WSI rather than a private carrier. WSI sets premiums, so ask WSI for a quote.
- General Liability: Covers incidents at your dispatch office or shop, typically $500 to $1,000 annually.
Do not begin operations without insurance in place. A single incident without coverage can bankrupt your business.
Step 6: Acquire Towing Equipment and Vehicles
Purchase or lease your primary towing vehicle. Options include light-duty tow trucks (for cars and motorcycles, $30,000 to $50,000), heavy-duty wreckers (for trucks, $60,000 to $100,000+), and flatbed trucks (for damaged vehicles, $40,000 to $80,000). Many startups begin with one light-duty truck and add capacity as revenue grows.
Purchase or lease necessary equipment: tow chains or straps rated for your maximum load, safety lighting (flares and LED warning lights), first aid kits, and backup power systems. Budget $2,000 to $10,000 for initial equipment depending on your service tier.
Step 7: Set Up Business Operations
Establish a dispatch system using specialized towing software such as Datto, Towman, or Samsara. These platforms manage calls, GPS tracking, billing, and driver communication. Costs typically range from $50 to $300 per month depending on features.
Open a business bank account with your EIN and keep business and personal finances separate. Set up accounting software such as QuickBooks to track income and expenses.
Register your towing vehicles with the North Dakota Department of Transportation Motor Vehicle Division and ensure they are insured and roadworthy.
Step 8: Launch and Build Your Customer Base
Once all licensing, insurance, and equipment are in place, launch your business. Build relationships with local auto repair shops, insurance companies, roadside assistance programs, and police departments. Many towing work comes from referral networks and partnerships rather than direct customer contact.
Tips and Common Mistakes to Avoid
Tips
- Start small, scale methodically: One truck and a solid reputation will generate more work than you can handle. Add trucks only when you cannot meet demand with your current fleet.
- Check the contractor license threshold before any construction work: The license covers construction on real property over $4,000, not vehicle repair, so confirm before you build a shop or lot.
- Establish clear pricing before your first call: Decide on per-mile rates, hookup fees, and after-hours premiums in advance. Many beginners underprice and struggle.
- Join the Better Business Bureau and maintain a strong online reputation: Towing is reputation-driven. A single bad Yelp review can spread quickly in small communities.
- Invest in GPS and dash cams: They protect you in liability disputes and help with insurance claims.
Common Mistakes
- Operating without full insurance coverage: This is catastrophic. Do not skip this step.
- Skipping the contractor license check: If you build or alter a shop or lot for more than $4,000 without a license, you cannot bring a court claim related to that work.
- Mixing personal and business finances: Commingled accounts lose you tax deductions and make your LLC liability protection worthless in a lawsuit.
- Underpricing to win business: Towing margins are slim. Underpricing leaves no room for vehicle maintenance, fuel, and driver salaries.
- Hiring friends without written agreements: Formalize roles, pay, and expectations in writing from day one.
Expected Results and Timeline
Registration timing varies, and the Secretary of State publishes no guaranteed turnaround, so build a buffer into your schedule. Insurance approval typically takes 3 to 7 business days once you submit an application. Equipment acquisition depends on your financing: paying cash takes 1 to 2 weeks, while financing may take 2 to 6 weeks for approval and delivery.
You can be fully operational and taking your first calls within 30 to 45 days from today if you move quickly. Your first month will likely be slow as you build a customer base and reputation. By month three or four, you should see steady demand if you are in a market with sufficient volume.
Revenue in the towing industry varies widely. A one-person operation in a rural area might earn $30,000 to $50,000 per year. A two-truck operation in a city might earn $100,000 to $200,000+. These are gross revenues before vehicle payments, maintenance, insurance, and labor.
Resources and Next Steps
- North Dakota Secretary of State: https://www.sos.nd.gov/, File your LLC or corporation and verify licensing requirements.
- FirstStop Business Filing Portal: https://firststop.sos.nd.gov/, File your formation documents online.
- North Dakota Tax Commissioner: https://www.tax.nd.gov/, Apply for your sales tax permit and understand your tax obligations.
- IRS EIN Application: https://www.irs.gov/ein, Get your Employer Identification Number.
- Better Business Bureau (BBB): Create a free business profile to start building your reputation.
- Insurance providers: Get quotes from at least three commercial auto insurance carriers in North Dakota.
- Secretary of State Business Services: Call (701) 328-2900 to confirm licensing requirements for your specific service model.
Important Disclaimer
This article is informational only and does not constitute legal or tax advice. Towing business regulations may vary by city and county within North Dakota, and requirements can change. Before beginning operations, consult with a North Dakota business attorney and a certified public accountant (CPA) to ensure you meet all applicable laws and understand your tax obligations. The North Dakota Small Business Development Centers at the University of North Dakota (https://und.edu/ndsbdc/index.html) offer free consultation on business formation and can connect you with local resources.