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North Dakota Basic Business Taxes 2014

Area Development Online Research Desk (Q1 2014)
Corporate income tax:
A tax on corporations doing business in the state is imposed against the portion of net income apportioned and allocated to the state.

If North Dakota taxable income is: The tax is:
Over           But not over
$0                $25,000 .................................... 1.48 percent of North Dakota Taxable Income
$25,000      $50,000 .............. $370.00 + 3.73 percent of amount over $25,000
$50,000 ........................................ $1,302.50 + 4.53 percent of amount over $50,000

If a corporation elects to use the water's edge method to apportion its income, the corporation will be subject to an additional 3.5 percent surtax on its North Dakota taxable income.

Corporate income tax exemptions/credits:
A new or expanding primary sector business or destination tourism business expansion may be granted an income tax exemption of up to 100 percent for up to five years. Applications for the exemptions are subject to the approval of the State Board of Equalization.

Wages and salaries:
A corporation doing business in North Dakota for the first time may receive a credit if the corporation is a new business engaged in assembling, fabricating, manufacturing, mixing or processing of an agricultural, mineral or manufactured product. The credit is 1 percent of all North Dakota wages and salaries for the first three years and 0.5 percent of all wages and salaries for the fourth and fifth years. A corporation qualifies for this credit only if it has not received a new-industry five-year property or income tax exemption.

Research and experimental tax credit:
North Dakota provides a corporation income tax credit for research and experimental expenditures within the state. Subject to certain conditions, a taxpayer may sell, transfer or assign up to $100,000 of its unused tax credit to another taxpayer if the taxpayer selling the credit is certified as a primary sector business with annual gross revenues of less than $750,000 that conducts qualified research for the first time after December 31, 2006.

Seed capital investment credit:
An individual, estate, trust, partnership, corporation, or limited liability company is allowed an income tax credit for investing in a qualified business, certified by the Department of Commerce Division of Economic Development and Finance. The credit is equal to 45 percent of the investment. No more than $112,500 of the credit may be used in any year. An unused credit may be carried forward for up to four years. Only the first $500,000 of eligible investments in a certified business are eligible for the tax credit. The total amount of tax credits allowed for investments made in all certified businesses in any calendar year is limited to $3.5 million.

Agricultural commodity processing facility investment tax credit:
An individual, estate, trust, partnership, corporation, or limited liability company is allowed an income tax credit for investing in an agricultural commodity processing facility in North Dakota certified by the Department of Commerce Division of Economic Development and Finance. In the case of a pass-through entity, such as a partnership or S-corporation, the credit is passed through to its owners in proportion to their respective interests in the entity. The credit is equal to 30 percent of the investment, up to a maximum credit of $50,000 per tax year. Not more than 50 percent of the credit is allowed in any tax year. An unused credit may be carried forward up to 10 taxable years. A taxpayer is allowed no more than $250,000 in credits for all tax years.

Biodiesel tax credits:
Tax Credits for Producing or Blending Biodiesel or Green Diesel and for Crushing Soybeans or Canola: A corporation is allowed an income tax credit for adapting or adding equipment to retrofit a facility or to construct a new that either (1) produces or blends biodiesel fuel or green diesel fuel or (2) crushes soybeans or canola. The credit is equal to 10 percent of the direct costs incurred, and is allowed in each of five tax years, starting with the tax year in which the production, blending, or crushing begins. An unused credit may be carried forward up to five tax years. A corporation is allowed no more than $250,000 of credits for all tax years.

A licensed fuel supplier who blends at least five percent biodiesel fuel or green diesel fuel is allowed an income tax credit of five cents per gallon of blended fuel. An unused credit may be carried forward up to five tax years.

A licensed seller of biodiesel fuel or green diesel fuel having at least a two percent blend is allowed an income tax credit for adapting or adding equipment to the seller's facility to enable it to sell the biodiesel or green diesel blend. The credit is equal to 10 percent of the direct costs incurred, and is allowed in each of five tax years, starting with the tax year in which the facility begins selling the biodiesel fuel or green diesel fuel. An unused credit may be carried forward up to five tax years. A seller is allowed no more than $50,000 of credits for all years.

For the biodiesel supplier and seller credits only: If the supplier or seller is a pass-through entity, such as a partnership or S-corporation, the credit is passed through to the entity's owners in proportion to their respective interests in the entity.

Sales, Use and Gross Receipts Tax:
The general sales and use tax rate in North Dakota is 5 percent. Special rates include 7 percent gross receipts tax on alcohol, 3 percent gross receipts tax on new farm machinery and new farm irrigation equipment and 3 percent sales tax on new mobile homes. In addition, many cities and a few counties impose a local option sales, use and gross receipts tax which is administered by the state. For additional information on state and local taxes, including general exemptions to the taxes, please refer to the Office of State Tax Commissioner website.

North Dakota offers exemptions from sales and use tax for:
  • Construction materials used to build an agricultural commodity processing facility,
  • Computers and telecommunications equipment purchased as an integral part of a new or expanding primary sector business,
  • Building materials, production equipment and other tangible personal property used in the construction or expansion of certain coal-powered or wind-powered electrical generating facilities as well as gas processing facilities and oil refineries.
  • Tangible personal property used to construct or expand a system to compress, process, or gather gas recovered from an oil or gas well in North Dakota may also qualify for an exemption. In addition, purchases of machinery, equipment, and related facilities for environmental upgrades that exceed $100,000 and that reduce emissions, increase efficiency, or enhance reliability of equipment may qualify for an exemption.
  • Machinery or equipment used primarily for manufacturing, agricultural processing or used solely for recycling in a new or expanding plant,
  • Tangible personal property used to construct or expand a telecommunications service infrastructure if incorporated into a service infrastructure owned by a telecommunications company (granted through December 31, 2017),
  • Carbon dioxide used for enhanced recovery of oil or natural gas, and
  • Hydrogen used to power an internal combustion engine or fuel and equipment used directly and exclusively in the production and storage of this hydrogen by a hydrogen generation facility.

Property tax:
Any and all property reasonably necessary for use by companies in the operation and conduct of their business is subject to property taxation. Property is assessed at 50 percent of true and full value in the local taxing district where it is situated. Taxable value is 10 percent of the assessed value for commercial property, agricultural property, and centrally assessed property; and nine percent for residential property; and 1.5 percent for a centrally assessed wind turbine electric generation unit of 100 kilowatts or more, for the duration of a purchased power agreement which was executed between April 30, 2005 and January 1, 2006, and construction was begun between April 30, 2005, and July 1, 2006, and for a centrally assessed wind turbine electric generation unit of 100 kilowatts or more on which construction is completed after June 30, 2006, and before January 1, 2015. Taxable value is three percent for all other centrally assessed units on which construction is completed before January 1, 2015. Taxable value is multiplied by the local mill rate to determine the tax.

Renaissance Zones:
Businesses and individuals may qualify for one or more tax incentives for purchasing, leasing, or making improvements to real property located in a North Dakota renaissance zone. A renaissance zone is a designated area within a city that is approved by the Department of Commerce Division of Community Services. The tax incentives consist of a variety of state income and financial institution tax exemptions and credits, and local property tax exemptions.

Angel Fund Investment Credit:
An individual, estate, trust, or corporation is allowed an income tax credit for investing in an angel fund certified by the Department of Commerce Division of Economic Development and Finance.

The credit is equal to 45 percent of the investment, up to a maximum credit of $45,000 per year. An unused credit may be carried forward up to seven tax years. A taxpayer claiming this credit may not claim an income tax credit passed through to the taxpayer by the angel fund resulting from the angel fund's investment in a qualified business for purposes of the seed capital or agricultural commodity processing facility investment tax credit programs.

For credits based on investments made on or after January 1, 2013, a taxpayer is allowed no more than $500,000 in cumulative credits over the taxpayer’s lifetime. Married individuals are treated as one taxpayer for this limit.

Property tax exemption:
The governing board of a city or county may grant a partial or complete exemption from property taxation for up to five years for a new or expanding business' building facilities.

A municipality may grant partial or complete exemptions from property taxation of unoccupied buildings, structures, and improvements constructed and owned by a local development corporation for the purpose of attracting new business to the state. A new or expanding business project that is certified as a primary sector business by the Department of Commerce Division of Economic Development and Finance may be granted a property tax exemption for up to five years. Agricultural processors may be granted a partial or full exemption for up to five additional years. A project located on property leased from a government entity qualifies for an exemption for up to five additional years upon annual application by the project operator.

In addition to or instead of an exemption, local governments and any project operator may negotiate payments in lieu of property tax for a period of up to 20 years from the date project operations begin.

A city or county with a population that is fewer than 40,000 may grant an exemption for a retail project if the voters have approved granting of exemptions for projects operating in the retail sector, and the governing body has set minimum criteria for granting those exemptions. A project is not eligible for an exemption if: a tax exemption was received under tax increment financing, or the governing body determines the exemption fosters unfair competition or endangers existing business.

Personal property tax:
North Dakota does not tax personal property except for property of utility companies and that of certain oil and gas refineries and utilities. Personal property includes equipment, inventory, materials and supplies, and accounts receivable.

Energy and fuel conservation measures:
Machinery and equipment installed as part of biomass, wind, solar or geothermal energy systems; as part of systems used to produce mechanical power or electricity; or as part of storage systems for any of these energy sources are exempt from property tax for five years following installation. An income tax credit is available for 3 percent of the acquisition and installation costs of the energy device. (Note: This credit expires on December 31,2014, and is not allowed for devices installed on or after January 1, 2015.) Only the land upon which a coal conversion facility is located is subject to property tax. In lieu of the property tax, the coal conversion facility is subject to the coal conversion tax.

Automation Credit:
Note: This credit is allowed only for the 2013, 2014, and 2015 tax years. An individual, estate, trust, partnership, corporation, or limited liability company is allowed an income tax credit for purchasing machinery and equipment for the purpose of automating a manufacturing process in North Dakota. The credit is equal to 20% of the cost of the machinery and equipment approved by the Department of Commerce Division of Economic Development and Finance (EDF). The business must be certified by EDF as a primary sector business to be eligible for the credit. An unused credit may be carried forward up to five tax years. In the case of a passthrough entity, such as a partnership or S corporation, the credit is passed through to its owners in proportion to their ownership interests. The credit allowed to a corporation included in a consolidated North Dakota income tax return may be used to reduce the aggregate tax liability of all corporations in the return. The total credits allowed for all qualifying purchases by all taxpayers is limited to $2 million in any calendar year

North Dakota State Contact:
North Dakota Dept. of Commerce
Division of Economic Development and Finance
P.O. Box 2057
Bismarck, ND 58502-2057
(701) 328-5300
Fax: (701) 328-5320
http://www.business.nd.gov/businessInformation/tax-incentives/

Incentive and tax information is provided to Area Development by each state's economic development or commerce agency for information purposes only and is subject to revision at any time by the state government. Please contact the state agency directly for full requirements and offerings.

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