North Dakota Basic Business Taxes 2011
North Dakota's economic development, finance, and tax organizations provide a range of incentive programs to initiate new business and commercial investment. Specific programs include corporate income taxes, research and experimental tax credits, and seed capital investment credits.
Area Development Research Desk (March 2011)
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 .................................... 2.10 percent of North Dakota Taxable Income
$25,000 $50,000 .............. $525.00 + 5.25 percent of amount over $25,000
$50,000 ........................................ $1,837.50 + 6.40 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 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 (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 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 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 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. 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,
• 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.