North Dakota Administrative Code › Title 81 - Tax Commissioner › Article 81-03 - Income Taxes and Privilege Taxes Based on Income › Chapter 81-03-09 - Division of Income › Section 81-03-09-22 - Payroll factor - In general

Current through Supplement No. 393, July, 2024
1. The payroll
				factor of the apportionment formula for each trade or business of the taxpayer
				shall include the total amount paid by the taxpayer in the regular course of
				its trade or business for compensation during the tax period.
2. The total amount "paid" to employees is
				determined upon the basis of the taxpayer's accounting method. If the taxpayer
				has adopted the accrual method of accounting, all compensation properly accrued
				shall be deemed to have been paid. Notwithstanding the taxpayer's method of
				accounting, at the election of the taxpayer, compensation paid to employees may
				be included in the payroll factor by use of the cash method if the taxpayer is
				required to report such compensation under such method for unemployment
				compensation purposes.
The compensation of any employee on account of activities
				  which are connected with the production of nonbusiness income shall be excluded
				  from the factor.
Example a: The taxpayer uses some of its employees in the
				  construction of a storage building which, upon completion, is used in the
				  regular course of taxpayer's trade or business. The wages paid to those
				  employees are treated as a capital expenditure by the taxpayer. The amount of
				  such wages is included in the payroll factor.
Example b: The taxpayer owns various securities which it
				  holds as an investment separate and apart from its trade or business. The
				  management of the taxpayer's investment portfolio is the only duty of Mr. X, an
				  employee. The salary paid to Mr. X is excluded from the payroll factor.
3. The term "compensation" means
				gross wages, salaries, commissions, and any other form of remuneration paid
				directly to employees for personal services before deductions for deferred
				compensation plans, flexible spending plans, or any other deductions from the
				gross amounts as set forth in subsection 31 of North Dakota Century Code
				section 52-01-01. Payments made to an
				independent contractor or any other person not properly classifiable as an
				employee for unemployment compensation purposes are excluded. Amounts
				considered paid directly include the value of board, rent, housing, lodging,
				and other benefits or services furnished to employees by the taxpayer in return
				for personal services provided that such amounts constitute income to the
				recipient under the Internal Revenue Code. In the case of employees not subject
				to the Internal Revenue Code, that is, those employed in foreign countries, the
				determination of whether such benefits or services would constitute income to
				the employees shall be made as though such employees were subject to the
				Internal Revenue Code.
4. The term
				"employee" means any officer of a corporation, or any individual who, under the
				usual common law rules applicable in determining the employer-employee
				relationship, has the status of an employee. Generally, a person will be
				considered to be an employee if the person is included by the taxpayer as an
				employee for purposes of the payroll taxes imposed by the Federal Insurance
				Contribution Act, except that, since certain individuals are included with the
				term "employees" in the Federal Insurance Contribution Act who would not be
				employees under the usual common law rules, it may be established that a person
				who is included as an employee for purposes of the Federal Insurance
				Contribution Act is not an employee for purposes of this section.
5. In filing returns with this state, if the
				taxpayer departs from or modifies the treatment of compensation paid used in
				returns for prior years, the taxpayer shall disclose in the return for the
				current year the nature and extent of the modification.
If the returns or reports filed by the taxpayer with all
				  states to which the taxpayer reports under article IV of the multistate tax
				  compact or the Uniform Division of Income for Tax Purposes Act are not uniform
				  in the treatment of compensation paid, the taxpayer shall disclose in its
				  return to this state the nature and extent of the variance.
General Authority: NDCC
					 57-38-56
Law Implemented: NDCC
					 57-38.1-13,
					 57-59-01
					 (art.IV(13))