North Dakota Administrative Code › Title 81 - Tax Commissioner › Article 81-03 - Income Taxes and Privilege Taxes Based on Income › Chapter 81-03-01.1 - General Considerations › Section 81-03-01.1-06 - Income tax exemption for new and expanding business

Current through Supplement No. 393, July, 2024
1. When a taxpayer
				is granted an exemption from income tax pursuant to North Dakota Century Code
				chapter 40-57.1, the exemption must be prorated, when necessary, in the first
				and last years in order to exempt income for a period not to exceed sixty
				months.
2. The amount of the yearly
				income tax exemption for new and expanding business is limited to income earned
				from the new business or expansion in each tax year that was included in
				federal taxable income.
3. When the
				project operator is a passthrough entity, the income tax exemption flows
				through to the partners, shareholders, and members.
4. The conditions for reapplication set forth
				in North Dakota Century Code chapter 40-57.1 apply to the income tax exemption.
				A project operator must reapply for the income tax exemption if these
				conditions are met.
5. The office
				of the state tax commissioner shall be notified of any changes in ownership of
				a new industry which has been granted an income tax exemption. A change of
				ownership includes transfer of a partnership interest, a stock interest in a
				subchapter S corporation, or a membership in a limited liability
				company.
6. A taxpayer with both
				exempt and nonexempt activities shall prorate its income pursuant to the
				provisions of North Dakota Century Code chapter 57-38.1.
a. If the taxpayer has only North Dakota
				activity, exempt income must be determined by multiplying income from all
				activities, exempt and nonexempt, by a fraction, the numerator of which is the
				sum of its exempt property, sales, and payroll factors and the denominator of
				which is three.
EXAMPLE:
Facts:
Exempt Plant
Other North Dakota Activity
Total North Dakota Activity
Property
$5,000,000
$10,000,000
$15,000,000
Payroll
$750,000
$1,000,000
$1,750,000
Sales
$20,000,000
$35,000,000
$55,000,000
Apportionable income
$50,000,000
Determine North Dakota exempt income:
(1) Compute apportionment factor of exempt
								activities.
Property factor =$5,000,000/$15,000,000 =
.333333
Payroll factor =$750,000/$1,750,000 =
.428571
Sales factor =$20,000,000/$55,000,000 =
.363636
1.125540/3 =
.375180
(2) Compute exempt income.
Apportionable income
$50,000,000
Apportionment factor of exempt activities
.375180
Exempt income
$18,759,000
b.
				If the taxpayer has multistate business activity, North Dakota income must
				first be determined by including all exempt and nonexempt activity in
				apportionable income and in the apportionment factor. North Dakota exempt
				income is then determined as in subdivision a.
EXAMPLE:
Multistate corporation
Facts: Utilize the same facts in the prior example, and add:
				  Total activity within and without North Dakota
Property $100,000,000
Payroll $5,000,000
Sales $200,000,000
Determine North Dakota exempt income:
(1) Compute the North Dakota apportionment
				factor, including tax-exempt activity.
Property factor =
$15,000,000/$100,000,000 =
.150000
Payroll factor =
$1,750,000/$5,000,000 =
.350000
Sales factor =
$55,000,000/$200,000,000 =
.275000
.775000/3 =
.258333
(2)
				Compute the apportionment factor of the North Dakota exempt activities. For
				this example, the computation would be the same as that in paragraph 1 of
				subdivision a and would yield a factor of .375180.
(3) Compute exempt income.
Apportionable income
$50,000,000
North Dakota apportionment factor
.258333
Income apportioned to North Dakota
$12,916,650
Apportionment factor of exempt activities
.375180
Exempt income
$4,846,069
c. When a partial exemption on a project or
				plant has been granted, the percentage of the project's nonexempt property,
				payroll, and sales would be added to the other North Dakota taxable activity's
				factors. For instance, a twenty percent exemption would mean eighty percent of
				the project's property, payroll, and sales would be added to the other North
				Dakota factors creating a taxable activity.
d. When a company has only one operating
				facility which has been granted a partial exemption, North Dakota taxable
				income shall be computed based on total income of the operation, and a
				percentage of the income which is equal to the percentage of the exemption
				shall be deducted from the total.
e. For determining the apportionment factor
				of exempt activities in subdivision b, the weighting of the three factors must
				be the same weighting as used to determine the apportionment factor for the
				taxable year.