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 81-03-09-19 - Property factor - Valuation of owned property

Current through Supplement No. 393, July, 2024
1. Property
				owned by the taxpayer shall be valued at its original cost. As a general rule
				"original cost" is deemed to be the basis of the property for federal income
				tax purposes, prior to any federal adjustments, at the time of acquisition by
				the taxpayer and adjusted by subsequent capital additions or improvements
				thereto and partial disposition thereof, by reason of sale, exchange,
				abandonment, and so forth.
Example a: The taxpayer acquired a factory building in this
				  state at a cost of five hundred thousand dollars and eighteen months later
				  expended one hundred thousand dollars for major remodeling of the building.
				  Taxpayer files the taxpayer's returns for the current taxable year on the
				  calendar year basis. Depreciation deduction in the amount of twenty-two
				  thousand dollars was claimed on the building for its return for the current
				  taxable year. The value of the building includable in the numerator and
				  denominator of the property factor is six hundred thousand dollars as the
				  depreciation deduction is not taken into account in determining the value of
				  the building for purposes of the factor.
Example b: During the current taxable year, A corporation
				  merges into Y corporation in a tax-free reorganization under the Internal
				  Revenue Code. At the time of the merger, X corporation owns a factory which X
				  built five years earlier at a cost of one million dollars. X has been
				  depreciating the factory at the rate of two percent per year, and its basis in
				  X's hands at the time of the merger is nine hundred thousand dollars. Since the
				  property is acquired by Y in a transaction in which, under the Internal Revenue
				  Code, its basis in Y's hands is the same as its basis in X's, Y includes the
				  property in Y's property factor at X's original cost, without adjustment for
				  depreciation, that is, one million dollars.
Example c: Corporation Y acquires the assets of corporation X
				  in a liquidation by which Y is entitled to use its stock cost as the basis of
				  the X assets under section 334(b) (2) of the Internal Revenue Code of 1954,
				  that is, stock possessing eighty percent control is purchased and liquidated
				  within two years. Under these circumstances, Y's cost of the assets is the
				  purchase price of the X stock, prorated over the X assets. If original cost of
				  property is unascertainable, the property is included in the factor at its fair
				  market value as of the date of acquisition by the taxpayer.
2. Inventory of stock of goods shall be
				included in the factor in accordance with the valuation method used for federal
				income tax purposes.
3. Property
				acquired by gift or inheritance shall be included in the factor at its basis
				for determining depreciation for federal income tax purposes.
General Authority:
NDCC
				  57-38-56
Law Implemented:
NDCC
				  57-38.1-11,
				  57-59-01
				  (art.IV(11))