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 81-03-09-35 - Special rules - Railroads

Current through Supplement No. 393, July, 2024
The following special rules are established in respect to
				  railroads:
1.
In general.
Where a railroad has income from sources both within and without this
				state, the amount of business income from sources within this state must be
				determined pursuant to this section. In such cases, the first step is to
				determine what portion of the railroad's income constitutes "business" income
				and which portion constitutes "nonbusiness" income under North Dakota Century
				Code section
				57-38.1-01 and article IV(1) of
				North Dakota Century Code section
				57-59-01 and section
				81-03-09-03. Nonbusiness income is
				directly allocable to specific states pursuant to the provisions of North
				Dakota Century Code sections
				57-38.1-05 through
				57-38.1-08 and article IV(5) to
				IV(8) of North Dakota Century Code section
				57-59-01, inclusive. Business
				income is apportioned among the states in which the business is conducted
				pursuant to the property, payroll, and sales apportionment factors set forth in
				the regulation. The sum of the items of nonbusiness income directly allocated
				to this state, plus the amount of business income attributable to this state
				constitutes the amount of the taxpayer's entire net income which is subject to
				tax by this state.
2.
Business and nonbusiness income.
For definitions, rules, and
				examples for determining business and nonbusiness income, see sections
				81-03-09-03 through
				81-03-09-06.
3.
Apportionment of business
				income.
a. In general. The property
				factor shall be determined in accordance with sections
				81-03-09-15 through 81-03-09-2l,
				inclusive, the payroll factor in accordance with sections
				81-03-09-22 through
				81-03-09-25, and the sales factor
				in accordance with sections
				81-03-09-26 through
				81-03-09-31, inclusive, except as
				modified in this regulation.
b.
				The property factor.
(1) Property valuation.
				Owned property shall be valued at its original cost and property rented from
				others shall be valued at eight times the net annual rental rate in accordance
				with North Dakota Century Code section
				57-38.1-11 and article IV(11) of
				North Dakota Century Code section
				57-59-01 and sections
				81-03-09-19 and
				81-03-09-20. Railroad cars owned
				and operated by other railroads and temporarily used by the taxpayer in its
				business and for which a per diem or mileage charge is made are not included in
				the property factor as rented property. Railroad cars owned and operated by the
				taxpayer and temporarily used by other railroads in their business and for
				which a per diem charge is made by the taxpayer are included in the property
				factor of the taxpayer.
(2)
				General definitions. The following definitions are applicable to the numerator
				and denominator of the property factor:
(a)
				"Original cost" is deemed to be the basis of the property for federal income
				tax purposes (prior to any federal income tax adjustments except for subsequent
				capital additions, improvements thereto or partial dispositions); or, if the
				property has no such basis, the valuation of such property for interstate
				commerce commission purposes. If the original cost of property is
				unascertainable under the foregoing valuation standards, the property is
				included in the property factor at its fair market value as of the date of
				acquisition by the taxpayer. Section
				81-03-09-19.
(b) "Rent" does not include the per diem and
				mileage charges paid by the taxpayer for the temporary use of railroad cars
				owned or operated by another railroad.
(c) The "value" of owned real and tangible
				personal property shall mean its original cost. See North Dakota Century Code
				section 57-38.1-11 and article IV(11) of
				North Dakota Century Code section
				57-59-01 and section
				81-03-09-19.
(d) "Average value" of property means the
				amount determined by averaging the values at the beginning and ending of the
				income tax year, but the office of state tax commissioner may require the
				averaging of monthly values during the income year or such averaging as
				necessary to effect properly the average value of the railroad's property. See
				North Dakota Century Code section
				57-38.1-12 and article IV(12) of
				North Dakota Century Code section
				57-59-01 and section
				81-03-09-21.
(e) The "value" of rented real and tangible
				personal property means the product of eight times the net annual rental rate.
				See North Dakota Century Code section
				57-38.1-11 and article IV(11) of
				North Dakota Century Code section
				57-59-01 and section
				81-03-09-20.
(f) "Net annual rental rate" means the annual
				rental rate paid by the taxpayer less any annual rental rate received by the
				taxpayer from subrentals.
(g)
				"Property used during the income year" includes property that is available for
				use in the taxpayer's trade or business during the income year.
(h) A "locomotive mile" is the movement of a
				locomotive (a self-propelled unit of equipment designed solely for moving other
				equipment) a distance of one mile [1.61 kilometers] under its own power.
(i) A "car mile" is a movement of
				a unit of car equipment a distance of one mile [1.61 kilometers].
(3) The denominator and numerator
				of the property factor. The denominator of the property factor must be the
				average value of all of the taxpayer's real and tangible personal property
				owned or rented and used during the income year. The numerator of the property
				factor must be the average value of the taxpayer's real and tangible personal
				property owned or rented and used in this state during the income year.
In determining the numerator of the property factor, all
				  property except mobile or movable property such as passenger cars, freight
				  cars, locomotives, and freight containers which are located within and without
				  this state during the income year must be included in the numerator of the
				  property factor in accordance with North Dakota Century Code sections
				  57-38.1-10 through
				  57-38.1-12 and article
				  IV(10)(11)(12) of North Dakota Century Code section
				  57-59-01, inclusive and sections
				  81-03-09-15 through
				  81-03-09-21, inclusive.
Mobile or movable property such as passenger cars, freight
				  cars, locomotives, and freight containers which are located within and without
				  this state during the income year must be included in the numerator of the
				  property factor in the ratio which "locomotive miles" and "car miles" in the
				  state bear to the total everywhere.
c. The payroll factor. The denominator of the
				payroll factor is the total compensation paid everywhere by the taxpayer during
				the income year for the production of business income. See North Dakota Century
				Code sections
				57-38.1-13 and
				57-38.1-14 and article IV(13)(14)
				of North Dakota Century Code section
				57-59-01 and sections
				81-03-09-22 through
				81-03-09-25. The numerator of the
				payroll factor is the total amount paid in this state during the income year by
				the taxpayer for compensation. With respect to all personnel except enginemen
				and trainmen performing services on interstate trains, compensation paid to
				such employees must be included in the numerator as provided in North Dakota
				Century Code sections
				57-38.1-13 and
				57-38.1-14, and article IV(13)(14)
				of North Dakota Century Code section
				57-59-01 and sections
				81-03-09-22 through
				81-03-09-25.
With respect to enginemen and trainmen performing services on
				  interstate trains,compensation paid to such employees must be included in the
				  numerator of the payroll factor in the ratio which their services performed in
				  this state bear to their services performed everywhere. Compensation for
				  services performed in this state must be deemed to be the compensation reported
				  or required to be reported by such employees for determination of their income
				  tax liability to this state.
d. The sales (revenue) factor.
(1) In general. All revenue derived from
				transactions and activities in the regular course of the trade or business of
				the taxpayer which produces business income, except per diem and mileage
				charges which are collected by the taxpayer, is included in the denominator of
				the revenue factor. See North Dakota Century Code section
				57-38.1-01 and article IV(1) of
				North Dakota Century Code section
				57-59-01 and sections
				81-03-09-03 through
				81-03-09-06.
The numerator of the revenue factor is the total revenue of
				  the taxpayer in this state during the income year. The total revenue of the
				  taxpayer in this state during the income year, other than revenue from hauling
				  freight, passengers, mail, and express must be attributable to this state in
				  accordance with North Dakota Century Code sections
				  57-38.1-15 through
				  57-38.1-17 and article
				  IV(15)(16)(17) of North Dakota Century Code section
				  57-59-01 and sections
				  81-03-09-26 through
				  81-03-09-31.
(2) Numerator of sales (revenue) factor from
				freight, mail, and express. The total revenue of the taxpayer in this state
				during the income year for the numerator of the revenue factor from hauling
				freight, mail, and express must be attributable to this state as follows:
(a) All receipts from shipments which both
				originate and terminate within this state.
(b) That portion of the receipts from each
				movement or shipment passing through, into, or out of this state is determined
				by the ratio which the miles traveled by such movement or shipment in this
				state bears to the total miles traveled by such movement or shipment from point
				of origin to destination.
(3) Numerator of sales (revenue) factor from
				passengers. The numerator of the sales (revenue) factor must include:
(a) All receipts from the transportation of
				passengers (including mail and express handled in passenger service) which both
				originate and terminate within this state; and
(b) That portion of the receipts from the
				transportation of interstate passengers (including mail and express handled in
				passenger service) determined by the ratio which revenue passenger miles in
				this state bear to the total everywhere.