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 81-03-09-12 - Taxable in another state - When a taxpayer is "subject to" a tax

Current through Supplement No. 393, July, 2024
1. A taxpayer is "subject to" one of the
				taxes specified in either subsection 1 of North Dakota Century Code section
				57-38.1-03 or article IV(3)(a) of
				North Dakota Century Code section
				57-59-01 if the taxpayer carries
				on business activity in such state and such state imposes such a tax thereon.
				Any taxpayer which asserts that the taxpayer is subject to one of the taxes
				specified in either subsection 1 of North Dakota Century Code section
				57-38.1-03 or article IV(3)(a) of
				North Dakota Century Code section
				57-59-01 in another state shall
				furnish to the tax commissioner of this state upon the tax commissioner's
				request evidence to support such assertion. The tax commissioner of this state
				may request that such evidence include proof that the taxpayer has filed the
				requisite tax return in such other state and has paid any taxes imposed under
				the law of such other state; the taxpayer's failure to produce such proof may
				be taken into account in determining whether the taxpayer in fact is subject to
				one of the taxes specified in either subsection 1 of North Dakota Century Code
				section 57-38.1-03 or article IV(3)(a) of
				North Dakota Century Code section
				57-59-01 in such other state.
If the taxpayer voluntarily files and pays one or more of
				  such taxes when not required to do so by the laws of that state or pays a
				  minimal fee for qualification, organization, or for the privilege of doing
				  business in that state but, does not actually engage in business activity in
				  that state or does actually engage in some business activity, not sufficient
				  for nexus, and the minimum tax bears no relation to the taxpayer's business
				  activity within such state, the taxpayer is not "subject to" one of the taxes
				  specified within the meaning of either subsection 1 of North Dakota Century
				  Code section
				  57-38.1-03 or article IV(3)(a) of
				  North Dakota Century Code section
				  57-59-01.
Example: State A has a corporation franchise tax measured by
				  net income, for the privilege of doing business in that state. Corporation X
				  files a return and pays the fifty dollar minimum tax, although it carries on no
				  business activity in state A. Corporation X is not "taxable" in state A.
2. The concept of
				taxability in another state is based upon the premise that every state in which
				the taxpayer is engaged in business activity may impose an income tax even
				though every state does not do so. In states which do not, other types of taxes
				may be imposed as a substitute for an income tax. Therefore only those taxes
				enumerated in either subsection 1 of North Dakota Century Code section
				57-38.1-03 or article IV(3)(a) of
				North Dakota Century Code section
				57-59-01 which may be considered
				as basically revenue raising rather than regulatory measures shall be
				considered in determining whether the taxpayer is "subject to" one of the taxes
				specified in either subsection 1 of North Dakota Century Code section
				57-38.1-03 or article IV(3)(a) of
				North Dakota Century Code section
				57-59-01 in another state.
Example a: State A requires all nonresident corporations
				  which qualify or register in state A to pay to the secretary of state an annual
				  license fee or tax for the privilege of doing business in the state regardless
				  of whether the privilege is in fact exercised. The amount paid is determined
				  according to the total authorized capital stock of the corporation; the rates
				  are progressively higher by bracketed amounts. The statute sets a minimum fee
				  of fifty dollars and a maximum fee of five hundred dollars. Failure to pay the
				  tax bars a corporation from utilizing the state courts for enforcement of its
				  rights. State A also imposes a corporation income tax. Nonresident corporation
				  X is qualified in state A and pays the required fee to the secretary of state
				  but does not carry on any business activity in state A, although it may utilize
				  the courts of state A. Corporation X is not "taxable" in state A.
Example b: Same facts as example a except that corporation X
				  is subject to and pays the corporation income tax. Payment is prima facie
				  evidence that corporation X is "subject to" the net income tax of state A and
				  is "taxable" in state A.
Example c: State B requires all nonresident corporations
				  qualified or registered in state B to pay to the secretary of state an annual
				  permit fee or tax for doing business in the state. The base of the fee or tax
				  is the sum of outstanding capital stock and surplus and undivided profits. The
				  fee or tax base attributable to state B is determined by a three factor
				  apportionment formula. Nonresident corporation X which operates a plant in
				  state B, pays the required fee or tax to the secretary of state. Corporation X
				  is "taxable" in state B.
Example d: State A has a corporation franchise tax measured
				  by net income for the privilege of doing business in that state. Corporation X
				  files a return based upon its business activity in the state but the amount of
				  computed liability is less than the minimum tax. Corporation X pays the minimum
				  tax. Corporation X is subject to state A's corporation franchise tax.
General Authority:
NDCC
				  57-38-56
Law Implemented:
NDCC
				  57-38.1-03,
				  57-59-01
				  (art.IV(3))