N.D. Admin. Code Title 81 — Tax Commissioner

Article 81-01 General Administration

Chapter 81-01-01 Organization of Department

N.D. Admin. Code 81-01-01-01 Definitions

For the purposes of title 81, the terms "North Dakota tax department" and "tax department" mean the office of the tax commissioner or the tax commissioner of North Dakota as provided in North Dakota Century Code chapter 57-01 and section 2 of article V of the Constitution of North Dakota.

History

• History: Amended effective July 1, 2016.
• General Authority: NDCC 28-32-02
• Law Implemented: NDCC 57-01; NDCon V, § 12

N.D. Admin. Code 81-01-01-02 Organization and functions of the North Dakota tax department

1.History. During the period from 1890 to 1912 the functions currently performed by the tax commissioner were performed by the state auditor. From January 1912 to August 1, 1919, a nonpartisan tax commission composed of three commissioners appointed by the governor, by and with the advice and consent of the senate, administered the tax laws on the state level.

Beginning August 1, 1919, these duties were assumed by a governor-appointed tax commissioner who served a six-year term. The appointment was subject to approval by the senate. The present office of tax commissioner was created by an amendment of section 12 of

article V of the Constitution of North Dakota which was approved by the voters at a statewide election held on June 25, 1940. These provisions are now found in section 2 of article V of the Constitution of North Dakota. Section 4 of article V of the Constitution of North Dakota provides that the tax commissioner must be at least twenty-five years old and must have the qualifications of a state elector. Under section 5 of article V of the Constitution of North Dakota the tax commissioner is elected for a four-year term. The first tax commissioner was elected at the fall election of 1940 and took office in January 1941.

2.Divisions. The tax department consists of the following six divisions:

a.Commissioner's division. The commissioner's division is responsible for the general administration of the tax department. This division also serves as the tax department's primary research, communication, and public information center. Management planning and human resource administration are under direct control of the commissioner's division. The tax commissioner is assisted by the deputy commissioner, research and communications section staff, an executive assistant, a human resource officer, and other staff.

b.Fiscal management division. The fiscal management division of the tax department consists of two sections: accounting, and procurement. The accounting section maintains records of tax revenue and tax department expenditures, maintains inventory records of fixed assets and bonds, processes accounts receivable payments, prepares the tax department executive budget, and maintains an internal budget. The procurement

section is responsible for the purchase of office supplies and equipment, secures contracts for services and maintenance of equipment, procures tax department printing goods and services, and secures leases for office space and equipment.

c.Legal division. The legal division of the tax department is comprised of attorneys who research and prepare opinions answering tax-related questions posed by the commissioner, legislators, tax department staff, other officials, and citizens; who draft proposals for changes in tax laws; who conduct all litigation for the tax department and the state board of equalization; and who help draft rules and regulations for the administration of the various state taxes. The legal division serves in an advisory capacity to the commissioner so that the creation of new and changes in policy, procedures, and administration comply with state laws.

d.Tax administration division. The tax administration division consists of eight sections: individual income and withholding taxes; corporate income taxes; sales and special taxes compliance; sales and special taxes audit; motor fuels, oil and gas, and estate taxes; registration; taxpayer services; and collections.

The individual income and withholding tax section is responsible for the administration of North Dakota Century Code chapters 57-38, 57-38.1, 57-38.3, 57-38.5, and 57-38.6, pertaining to individual income taxes and passthrough entities, the Uniform Division of Income Tax Act, setoff of income tax refunds, seed capital investment tax credit, and agricultural business investment tax credit.

The corporate income tax section is responsible for the administration·of North Dakota Century Code chapters 57-38, 57-38.1, 57-38.4, 57-38.5, and 57-38.6, pertaining to corporate income taxes, the Uniform Division of Income Tax Act, water's edge election method, seed capital investment tax credit, and agricultural business investment tax credit. This section is also responsible for administration of North Dakota Century Code

chapter 57-59, pertaining to the multistate tax compact.

Both the individual and corporate income tax sections review tax returns, perform audits and other compliance projects, and provide taxpayer assistance.

The sales and special taxes compliance and audit sections are responsible for the administration of the following chapters of the North Dakota Century Code, which are primarily related to retail sales: chapter 57-34, gross receipts tax on telecommunications carriers; chapter 57-39.2, retail sales tax; chapter 57-39.4, streamlined sales and use tax agreement; chapter 57-39.5, farm machinery gross receipts tax; chapter 57-39.6, alcoholic beverage gross receipts tax; chapter 57-40.2, use tax; chapter 57-40.3, motor vehicle excise tax; chapter 57-40.4, motor vehicle excise tax refund; and chapter 57-40.5, and aircraft excise tax . In addition, these sections administer wholesale taxes on alcoholic beverages imposed under North Dakota Century Code chapter 5-03, wholesale taxes on tobacco products imposed under chapter 57-36, and taxes levied under section 47-21-08 on selling and licensing performing rights of music or dramaticomusical composition. Both sales and special taxes sections provide taxpayer assistance, review refund requests, and conduct programs to ensure compliance with the law; however, the audit section's major focus is on the audit of sales and use tax accounts.

The motor fuel, oil and gas, and estate taxes section is responsible for the administration of the following chapters and sections of the North Dakota Century Code: chapter 57-37.1, estate taxes; chapter 57-43.1, motor vehicle fuels and importer for use taxes;

chapter 57-43.2, special fuels and importer for use taxes; chapter 57-43.3, aviation fuel tax; chapter 57-51, oil and gas gross production taxes; and chapter 57-51.1, oil extraction taxes. These taxes are collected, administered, and audited by the motor fuel, oil and gas, and estate taxes section. This section also issues the motor fuel tax refund to those consumers using motor fuel for agricultural or industrial purposes.

The registration, taxpayer services, and collection sections are all function-based and involved with all taxes administered by the tax administration division. The registration

section processes registration information for businesses new to North Dakota or that require an annual license renewal. The taxpayer services staff review returns during processing, and assist taxpayers with tax filing requirements and processes. The collections section is responsible for collecting delinquent taxes for all tax types administered by the tax commissioner's office.

e.Property tax division. The property tax is a source of revenue for the financing of county, city, township, school district, and other local governments. While local government has the responsibility of assessing and taxing all classes of real property, this division provides assistance and helps to establish uniformity of procedures. It also develops rules and regulations for the taxation of mobile homes under North Dakota Century Code

chapter 57-55, which tax is administered by the county directors of tax equalization and collected by the county treasurers of the various counties. This division also provides administrative services to the state board of equalization relating to new and expanding business property tax incentive and primary sector business and tourism exemption applications made under the provisions of North Dakota Century Code chapter 40-57.1, and to assessment and sales ratio statistical analyses.

The property tax division also makes annual tentative valuations of railroad and utility properties for use by the tax commissioner to make tentative assessments. The tentative assessments are submitted to the state board of equalization which makes the final assessments. The property tax division also administers the following North Dakota Century Code chapters: 57-33.2, taxation of electric generation, distribution, and transmission companies; 57-34, taxation of telecommunications carriers; 57-60, privilege tax on coal conversion facilities; and 57-61, coal severance tax.

f.Information management and technology division. This division has two functional areas: information technology and processing. The information technology section implements and supports both hardware and software components relating to the tax department's information technology infrastructure. The processing section manages all mail, imaging, printing, data entry, and records management processes for the tax department. This division also manages contracts entered into by the tax department with software vendors who support the integrated tax system, electronic filing of tax returns, disaster recovery tools, and other applications.

3.Inquiries - Submissions - Requests. The public may obtain information or make submissions of reports and other matters or make requests regarding any of the tax matters described in subdivisions d and e of subsection 2 by directing any inquiries, submissions, or requests to the North Dakota tax commissioner or to the division of the North Dakota tax department responsible for the administration of the tax involved. The mailing address for the North Dakota tax commissioner and for the North Dakota tax department is:

State Capitol, Department 127 Bismarck, North Dakota 58505-0599

4.Tax department functions subject to North Dakota Century Code chapter 28-32. For purposes of its administration of the various tax laws, the tax department is an "administrative agency" subject to North Dakota Century Code chapter 28-32.

History

• History: Amended effective December 31, 1981; June 1, 1984; January 1, 1998; July 1, 2016.
• General Authority: NDCC 28-32-02
• Law Implemented: NDCC 28-32-02

Chapter 81-01-02 General Considerations

N.D. Admin. Code 81-01-02-01 Source note not part of rule

Source notes consist ofcitations to general authority and law implemented found after each section in this title. The source notes are not deemed a part of the promulgation by the tax commissioner as to the purpose, scope, or effect of any section of this title to which that source note relates.

History

• History: Effective June 1, 1984.
• General Authority: NDCC 57-37.1, 57-39.2, 57-40.2, 57-40.3-12, 57-43.1, 57-43.2, 57-55-09
• Law Implemented: NDCC 57-37.1, 57-39.2, 57-40.2, 57-40.3-12, 57-43.1, 57-43.2, 57-55

N.D. Admin. Code 81-01-02-02 Headnotes and cross-references not part of rule

Headnotes and cross-references, whether designating an entire article, chapter, or section, or any

part thereof, do not constitute any part of a rule.

History

• History: Effective June 1, 1984.
• General Authority: NDCC 57-37.1, 57-39.2, 57-40.2, 57-40.3-12, 57-43.1, 57-43.2, 57-55-09
• Law Implemented: NDCC 57-37.1, 57-39.2, 57-40.2, 57-40.3-12, 57-43.1, 57-43.2, 57-55

Article 81-01.1 Practice and Procedure

Chapter 81-01.1-01 General Provisions

N.D. Admin. Code 81-01.1-01 General Provisions

ARTICLE 81-01.1

PRACTICE AND PROCEDURE

Chapter 81-01.1-01General Provisions 81-01.1-02Administrative Hearings 81-01.1-03Rules 81-01.1-04Model Recordkeeping and Retention Regulation

CHAPTER 81-01.1-01

GENERAL PROVISIONS

Section 81-01.1-01-01Applicability 81-01.1-01-02Definitions 81-01.1-01-02.1Computation of Time for Response - Service by Mail - Effect of Mail Refusal 81-01.1-01-03Examination or Investigation for Purposes of an Audit 81-01.1-01-04Audit Requests - Enforcement 81-01.1-01-05Time for Completion of an Audit 81-01.1-01-06Protest of Notice of Determination or Refund Change 81-01.1-01-07Response to Statement of Grounds 81-01.1-01-08Notice of Reconsideration 81-01.1-01-09Waiver of Interest and Penalty - Waiver of Interest in Certain Circumstances 81-01.1-01-10Waiver of Penalty and Interest Based on Written Opinion Signed by a Division Director or Section Supervisor 81-01.1-01-11Opinion of the Tax Commissioner 81-01.1-01-12Tape Recordings 81-01.1-01-13Reaudit 81-01.1-01-01. Applicability.

This article applies to practice and procedure before the tax commissioner unless rendered inconsistent by a specific statute or rule, in which instance the more specific statute or rule will apply.

History: Effective July 1, 1985. 81-01.1-01-02. Definitions.

As used in this article and in the provisions of North Dakota Century Code title 57, unless otherwise required, all terms and phrases have the same meaning as defined in the North Dakota Century Code, and, in addition:

1."Assessment" means the determination and imposition of tax by the tax commissioner of any state tax due and owing based upon information on a tax return, upon information obtained through an audit, or upon the best information available. The term does not include a self-assessment made by a taxpayer on a tax return, a calculation of tax made by a taxpayer with the assistance of the tax commissioner, or an adjustment made due to a mathematical or clerical error on a tax return.

2."Audit" means an examination or investigation by the tax commissioner to determine the accuracy of information on a tax return or to determine whether a tax liability exists.

3."Determination" means a decision by the tax commissioner on a refund or an assessment of tax. The term does not include a self-assessment made by a taxpayer on a tax return, a calculation of tax made by a taxpayer with the assistance of the tax commissioner, or an adjustment made due to a mathematical or clerical error on a tax return.

4."Field audit" means any audit where taxpayer's books and records are examined at the taxpayer's place of business.

5."Mathematical error" or "clerical error" means:

a.An error in addition, subtraction, multiplication, or division shown on any tax return.

b.An incorrect use of any table provided by the tax commissioner with respect to any tax return if such incorrect use is apparent from the existence of other information on the tax return.

c.An entry on a tax return of an item that is inconsistent with another entry of the same or another item on such tax return.

d.An omission of information that is required to be supplied on the tax return to substantiate an entry on the tax return.

e.An entry on a tax return of a deduction or credit in an amount that exceeds a statutory limit.

6."Notice" means a communication in writing issued by the tax commissioner or the taxpayer.

7."Notice of determination" means notice provided by the tax commissioner to the taxpayer, pursuant to subsection 3 of North Dakota Century Code section 57-38-39, North Dakota Century Code sections 57-39.2-15, 57-40.2-13, and 57-40.3-12, and subsection 3 of section 81-09-02-02.

8."Notice of reconsideration" means notice to taxpayer pursuant to subsection 5 of North Dakota Century Code section 57-38-39, subsection 8 of North Dakota Century Code section 57-38-40, subsection 6 of section 81-09-02-02, and subsection 7 of section 81-09-02-03.

9."Notice of refund change" means notice provided to the taxpayer, as provided in subsection 10 of North Dakota Century Code section 57-38-40, North Dakota Century Code section 57-39.2-25, and subsection 3 of section 81-09-02-03, that all or part of the requested refund is denied.

10."Office audit" means any audit where a taxpayer's books and records are examined in the tax commissioner's office.

11."Tax form" means a document prescribed by the tax commissioner requesting specific information, and includes a document submitted to the tax commissioner by means of electronic transmission, such as wires, cables, electromagnetic waves, light waves, or similar media now in existence or that may be devised.

12."Tax return" means a tax form containing facts required and sufficient information from which the tax commissioner can determine a tax liability and includes information returns. The terms "tax form" and "tax return" are not synonymous.

13."Taxpayer" means an individual, partnership, firm, corporation, joint venture, association, estate, fiduciary, trust, receiver, or any other group or combination acting as a unit and the plural as well as the singular number who is or may be required to file a tax return under North Dakota Century Code title 57.

History: Effective July 1, 1985; amended effective May 1, 1991; November 1, 1996; July 1, 1998. 81-01.1-01-02.1. Computation of time for response - Service by mail - Effect of mail refusal.

1.In computing any period of time prescribed or allowed by this title, the day of the act, event, or default from which the designated period of time begins to run may not be included. The last day of the period so computed must be included, unless it is a Saturday, a Sunday, or a legal holiday, in which event the period runs until the end of the next day which is not a Saturday, a Sunday, or a legal holiday. When the period of time prescribed or allowed is less than seven days, intermediate Saturdays, Sundays, and legal holidays must be excluded in the computation.

2.Whenever a party has the right or is required to do some act or take some proceedings within a prescribed period after the service of a notice or other paper upon the party and the notice or paper is served upon the party by mail, three days must be added to the prescribed period, or six days if mailed out of state.

3.If a notice or other process is mailed with delivery restricted and requiring a receipt signed by the addressee, the addressee's refusal to accept the mail constitutes delivery. Return of the mail bearing an official indication on the cover that delivery was refused by the addressee is prima facie evidence of the refusal.

4.Any notice or statement will be considered as mailed if sent by facsimile transmission or common carrier delivery service, including, but not limited to, united parcel service or federal express.

5.The date of any notice or statement will be considered the date of mailing as evidenced by date of certified mail, affidavit of mailing, or postmark. 81-01.1-01-03. Examination or investigation for purposes of an audit.

In order to determine the accuracy of a tax return, the correct tax liability, or whether a filing requirement exists, the tax commissioner may investigate or examine the taxpayer's records as defined in subsection 1 of section 81-01.1-04-03, any other pertinent documents, tangible personal property, equipment, computer systems, business facilities, plants, and shops.

A taxpayer must make all items and places available to the tax commissioner upon request. The tax commissioner may require the taxpayer to be present to answer questions, provide testimony, and submit proof of material or information examined. The taxpayer must answer all questions to the best of that taxpayer's information and ability.

An examination or investigation by the tax commissioner may extend to any person having access to information which may be relevant to an audit of a taxpayer.

History: Effective July 1, 1985; amended effective May 1, 1991; June 1, 2002. 81-01.1-01-04. Audit requests - Enforcement.

1.When the tax commissioner requests audit information be sent to the tax commissioner's office, such request must be in writing and the taxpayer has thirty days to respond.

2.If, within thirty days, a taxpayer fails to respond, or fails to request and receive a written extension, the tax commissioner shall issue another written request, second notice, and allow the taxpayer thirty days to respond. If an extension has been granted, no second notice is required.

3.If, within thirty days, the taxpayer fails to respond to the second notice, or fails to respond within the extension deadline, the tax commissioner shall issue a final notice. The final notice must inform the taxpayer that if the taxpayer fails to respond within thirty days, the tax commissioner may serve the taxpayer with a subpoena, issue a notice of determination based on the best information available, or, in the case of income tax, issue a nonreviewable determination. The notice must also specify that the taxpayer may, within thirty days after the final notice, request in writing that the tax commissioner issue a subpoena for the audit information. If the taxpayer requests a subpoena, the tax commissioner shall issue the subpoena in lieu of issuing a notice of determination.

History: Effective May 1, 1991; amended effective November 1, 1991. 81-01.1-01-05. Time for completion of an audit.

1.The tax commissioner shall notify the taxpayer in writing if the tax commissioner is unable to complete a field or office audit within twelve months of the commencement of such audit. For purposes of this section, an office audit is commenced on the date the tax commissioner first makes written request for information. A field audit is commenced on the date the auditor begins the review of taxpayer's records at the taxpayer's place of business.

2.If the tax commissioner issues a notice of determination later than twelve months after the commencement of a field or office audit, subsection 2 of section 81-01.1-01-09 applies. The twelve-month period is extended by any agreed-upon extensions of time, by the time it takes information requested but not provided during a field audit to be received by the tax commissioner, and by the time expended after the second notice provided for in section 81-01.1-01-04.

3.Audits conducted by the multistate tax commission are not subject to the time deadlines set forth in subsection 1 or 2.

History: Effective May 1, 1991; amended effective November 1, 1991; August 1, 1994. 81-01.1-01-06. Protest of notice of determination or refund change.

1.A taxpayer has the right to protest any notice of determination or notice of refund change only if a protest is perfected in full and timely compliance with the requirements contained in subsections 2 and 3.

2.The taxpayer has thirty days, or ninety days if the taxpayer is outside the United States, after the notice of determination or refund change to file a notice of protest. This notice of protest must be signed by the taxpayer or a duly authorized agent and must contain the following information:

a.Taxpayer's name, address, telephone number, social security number or federal identification number, and sales tax permit number, if applicable.

b.Name, address, and telephone number of taxpayer's agent, if any, for the purpose of the protest.

c.Type of tax and tax periods under protest.

d.Amount under protest.

The taxpayer may file an oral protest provided the oral protest is made within the thirty days and is confirmed in writing.

3.The taxpayer has up to ninety days after the notice of determination or refund change within which to file a written statement of grounds for protest setting forth the taxpayer's specific reasons for opposing the determination or refund change, unless the taxpayer and tax commissioner agree to extend the ninety days set forth in this subsection.

4.If the notice of protest or the statement of grounds for protest is served by mail, certified mail is recommended.

5.If the taxpayer fails to timely file either the notice of protest or statement of grounds, the notice of determination or the notice of refund change becomes finally and irrevocably fixed.

6.The tax commissioner shall acknowledge receipt of the statement of grounds within fifteen days of receipt of the statement of grounds. If the taxpayer fails to specifically state the reasons and facts for opposing the determination or refund change, the tax commissioner shall give the taxpayer thirty days to perfect the statement of grounds. The tax commissioner shall state specifically the additional information required.

7.Amounts of tax not protested are irrevocably fixed and must be paid.

History: Effective May 1, 1991; amended effective August 1, 1994; June 1, 2002. 81-01.1-01-07. Response to statement of grounds.

Within ninety days of the final statement of grounds, the tax commissioner must provide a detailed response. The tax commissioner's response must address each objection raised by the statement of grounds. The taxpayer may request a more specific statement within fifteen days of the tax commissioner's detailed response. The tax commissioner shall respond to the request for a more specific statement within thirty days. If the tax commissioner fails to meet the deadlines specified in this

section, subsection 2 of section 81-01.1-01-09 applies, unless the taxpayer and tax commissioner agree to extend the ninety-day period in this section.

History: Effective May 1, 1991; amended effective August 1, 1994. 81-01.1-01-08. Notice of reconsideration.

In reference to notices sent pursuant to North Dakota Century Code sections 57-38-39 and 57-38-40 and sections 81-09-02-02 and 81-09-02-03, the tax commissioner shall issue a notice of reconsideration within nine months of the final statement of grounds, plus any mutually agreed extensions. If a notice of reconsideration is sent later than nine months, plus agreed extensions, after the statement of grounds, subsection 2 of section 81-01.1-01-09 applies. 81-01.1-01-09. Waiver of interest and penalty - Waiver of interest in certain circumstances.

1.All or part of the penalty and interest may be waived for good cause upon request. "Good cause" means that a taxpayer has been cooperative during the audit process and has a

history of correct filing. Penalties and interest may be waived at any time before payment.

2.If the tax commissioner fails to meet the deadlines specified in sections 81-01.1-01-05, 81-01.1-01-07, or 81-01.1-01-08, good cause will be shown for waiver of interest. The waiver must equal the pro rata amount of interest accrued from the deadline date to the date the tax commissioner actually issues the notice of determination or refund change, response to the statement of grounds, or the notice of reconsideration. For example, if the notice of determination is due the fifteenth of November and the tax commissioner issues the notice of determination the thirtieth of December, interest equal to one and one-half percent will be waived. 81-01.1-01-10. Waiver of penalty and interest based on written opinion signed by a division director or section supervisor.

An opinion signed by the division director or section supervisor, as identified in article 81-01, is not binding. However, if the taxpayer can produce the letter requesting the opinion and the written opinion and can demonstrate detrimental reliance on such advice, good cause will exist to waive one hundred percent of the penalty and two-thirds of the interest on the assessment. 81-01.1-01-11. Opinion of the tax commissioner.

1.An "opinion of the tax commissioner" means an opinion issued under this section with respect to prospective tax liability. It does not include ordinary correspondence of the commissioner or a final determination of the commissioner arising from a request for administrative review of an assessment or a claim for refund.

2.If a taxpayer requests in writing an opinion from the tax commissioner as to whether or how certain property, income, source of income, or a certain activity or transaction will be taxed, the commissioner's written response is an "opinion of the tax commissioner" and binds the commissioner, in accordance with subsections 3, 7, and 8, provided all of the following conditions are satisfied:

a.The taxpayer's request fully discloses the specific facts or circumstances relevant to a determination of the taxability of the property, income, source of income, activity, or transaction, and if an activity or transaction, all parties involved in the activity or transaction are clearly identified by name, location, or other pertinent facts.

b.The commissioner's response is signed by the commissioner and designated as an "opinion of the tax commissioner".

3.An opinion of the tax commissioner remains in effect and protects the taxpayer for whom the opinion was prepared and who reasonably relies on it from liability for any taxes, penalty, or interest for any tax year that may be specified in the opinion or until the earliest of the following dates:

a.The effective date of a written revocation by the commissioner sent to the taxpayer by certified mail, return receipt requested. The effective date of the revocation is the taxpayer's date of receipt.

b.The effective date of any legislative amendment or enactment that is inconsistent with the opinion.

c.The date on which a court issues an opinion which establishes or changes relevant case law that is inconsistent with the opinion.

d.If the opinion of the commissioner was based on the interpretation of federal law, the effective date of any change in the relevant federal statutes or regulations, or the date on which a court issues an opinion establishing or changing relevant case law with respect to federal statutes or regulations inconsistent with the opinion.

e.The effective date of any change in the taxpayer's material facts or circumstances.

f.The effective date of the expiration of the opinion, if specified, in the opinion.

4.A taxpayer is not relieved of liability for any activity or transaction related to a request for an opinion that contained any misrepresentation or omission of one or more material facts.

5.If the commissioner provides written advice under this section, the opinion must include a statement that:

a.The tax consequences stated in the opinion may be subject to change for any of the reasons stated in subsection 3.

b.It is the duty of the taxpayer to be aware of such changes.

6.The commissioner may refuse to offer an opinion on any request received under this section.

7.This section binds the commissioner only with respect to opinions of the commissioner issued on or after January 1, 1991.

8.An opinion of the commissioner binds the commissioner only with respect to the taxpayer for whom the opinion was prepared.

9.If a commissioner rescinds a written opinion of a previous commissioner, the commissioner shall, by certified mail, notify the taxpayer of the intent to rescind the opinion at least thirty days before the effective date of the rescission. The rescission is effective prospectively only.

10.The commissioner shall make available the text of all opinions issued under this section, except those opinions prepared for a taxpayer who has requested that the text of the opinion remain confidential. In no event may the text of an opinion be made available until the commissioner has removed all information that identifies the taxpayer and any other parties involved in the activity or transaction.

11.An opinion of the commissioner issued under this section is not a final determination of the commissioner and may not be appealed to the North Dakota district court. 81-01.1-01-12. Tape recordings.

A taxpayer or the tax department may record, electronically or otherwise, any audit conference or meeting. However, prior to such recording, advance notice must be given of the intent to record. 81-01.1-01-13. Reaudit.

1.Provided the statute of limitations remains open, the tax commissioner may reaudit years that were previously audited. Such reaudit is limited to issues and facts not previously audited.

Documents previously supplied by the taxpayer may not be requested in future audits of the same year unless the taxpayer utilizes those documents as relevant to the new audit or the tax commissioner and taxpayer have otherwise agreed.

2.The tax commissioner may not audit tax years previously audited if the purpose of the reaudit is to examine issues which were assessed and subsequently resolved in the previous audit.

History: Effective May 1, 1991; amended effective November 1, 1991.

Chapter 81-01.1-02 Administrative Hearings

N.D. Admin. Code 81-01.1-02 Administrative Hearings

CHAPTER 81-01.1-02

ADMINISTRATIVE HEARINGS

Section 81-01.1-02-01Formal Hearing Before Tax Commissioner 81-01.1-02-02Taxpayer Right to Administrative Hearing On Refund Issue 81-01.1-02-02.1Complaint - Time for Filing - Extension Granted 81-01.1-02-03Notice of Intent to Proceed to Hearing - Answer - Time for Filing 81-01.1-02-03.1Rules Governing Administrative Proceedings 81-01.1-02-04Place of Formal Hearing 81-01.1-02-05Appointment of Hearing Officer - Powers 81-01.1-02-06Time for Hearing 81-01.1-02-07Persons Authorized to Represent Taxpayer 81-01.1-02-01. Formal hearing before tax commissioner.

When provided by statute, a taxpayer may request a formal hearing before the tax commissioner.

History: Effective July 1, 1985. 81-01.1-02-02. Taxpayer right to administrative hearing on refund issue.

If the tax commissioner denies any portion of a taxpayer's request for a refund, the taxpayer has the right to protest and the right to administrative review only when such protest or review is specifically provided by the statutes governing the specific tax type. When there is no specific statutory provision giving a taxpayer the right of administrative review, the decision by the tax commissioner is final and irrevocable.

History: Effective July 1, 1985. 81-01.1-02-02.1. Complaint - Time for filing - Extensions granted.

1.When a taxpayer is required to file an administrative complaint in response to a notice of reconsideration, the taxpayer shall file the complaint within thirty days of the notice. The taxpayer will be granted an automatic extension of thirty days to file a complaint, provided the taxpayer makes a request for extension within thirty days of the notice. Further extensions are available at the discretion of the tax commissioner.

2.When a representative of the tax commissioner files an administrative complaint pursuant to North Dakota Century Code section 57-39.2-15, the administrative complaint must be filed within nine months of the statement of grounds, plus mutually agreed extensions.

History: Effective May 1, 1991; amended effective November 1, 1991.

Law Implemented: NDCC 28-32-05 81-01.1-02-03. Notice of intent to proceed to hearing - Answer - Time for filing.

1.When a taxpayer files a complaint and requests a hearing, the tax commissioner must serve a notice of intent to proceed to hearing upon the taxpayer and upon a designated representative of the tax commissioner within thirty days from the date of service of the complaint. The designated representative of the tax commissioner must file an answer to the complaint within twenty days of receipt of the complaint and the notice.

2.When a representative of the tax commissioner elects to file a complaint and requests a hearing, the tax commissioner must serve a notice of intent to proceed to hearing together with acopy of the complaint upon the taxpayer. The taxpayer must file an answer to the complaint within twenty days of service of the notice and complaint.

History: Effective July 1, 1985; amended effective May 1, 1991; November 1,1991.

Law Implemented: NDCC 28-32-05, 57-01-02 81-01.1-02-03.1. Rules governing administrative proceedings.

The North Dakota Rules of Civil Procedure apply to all proceedings before the commissioner unless otherwise provided by a specific statute.

History: Effective November 1, 1991. 81-01.1-02-04. Place of formal hearing.

All formal hearings, regardless of the taxpayer's residence, must be held at the office of the tax commissioner or any other location in the State Capitol, Bismarck, North Dakota, as designated by the hearing officer.

History: Effective July 1, 1985; amended effective November 1, 1991. 81-01.1-02-05. Appointment of hearing officer - Powers.

1.If a taxpayer requests an independent hearing officer within thirty days of the filing of a complaint, the tax commissioner shall appoint an independent hearing officer and shall notify the taxpayer and a representative of the tax commissioner. If no answer is filed, the tax commissioner may appoint an independent hearing officer or consider the matter a default matter and proceed accordingly. After the filing of a complaint, the service of a notice of intent to proceed to hearing, and the filing of an answer, the tax commissioner shall appoint an independent hearing officer no later than forty-five days before the hearing and shall notify the taxpayer and representative of the tax commissioner.

2.A person appointed as a hearing officer may:

a.Issue subpoenas.

b.Administer oaths.

c.Regulate the course of the hearing to assure that it proceeds in an orderly fashion.

d.Rule on offers of proof and receive relevant evidence.

e.Elicit all facts necessary to clearly present the issues. The hearing officer may examine or cross-examine witnesses in order to develop and clarify the facts and issues.

f.Exclude evidence which is cumulative or repetitious.

g.Order or allow discovery proceedings and set and regulate time limits for obtaining and exchanging information.

h.Hold appropriate conferences before or during hearing. A summary of the conference must be made by the hearing officer either in writing or orally as part of the hearing record.

i.Dispose of procedural matters and rule upon procedural motions.

j.Authorize any party to furnish and serve designated late filed exhibits within thirty days after the hearing is adjourned.

k.Request or allow the filing of briefs by the parties and set a time limit during which the briefs must be filed.

(1)The hearing officer, at that officer's discretion, may extend the due date of the briefs for good cause. An extension must be requested and responded to in writing.

(2)Any party who does not file a brief on or before the initial or extended due date forfeits the right to do so.

l.Allow any party to the proceedings to file proposed findings of fact, conclusions of law, and decision. The proposal must be filed with the tax commissioner within a reasonable time after the date of the formal hearing.

m.Grant or deny continuances or postponements.

n.Take any other action necessary to discharge the duties vested in the tax commissioner and the appointed hearing officer and which is consistent with the statutes and rules under which the tax commissioner operates.

3.A person appointed as a hearing officer shall:

a.Issue a notice of hearing and specification of issues. If the tax commissioner has already issued a specification of issues, the hearing officer may amend it.

b.Issue recommended findings of fact and conclusions of law, and a recommended order.

History: Effective July 1, 1985; amended effective May 1, 1991; November 1,1991. 81-01.1-02-06. Time for hearing.

A hearing date must be scheduled for not more than eighteen months from receipt of the complaint.

However, reasonable extensions shall be available from the hearing officer.

History: Effective May 1, 1991. 81-01.1-02-07. Persons authorized to represent taxpayer.

1.Taxpayer in own interest. An individual taxpayer may appear before the hearing officer in the taxpayer's own interest. A corporate taxpayer may be represented by a corporate officer or any other duly authorized corporate employee. A partnership may be represented by any general partner.

2.Attorneys. An attorney admitted and licensed to practice law in North Dakota may represent a taxpayer before the hearing officer. An attorney, admitted and licensed to practice law in a foreign state or country, but not licensed to practice law in North Dakota, may represent a taxpayer before the hearing officer if that attorney first designates as an associate a resident attorney admitted and licensed to practice law in this state. The name and address of the associate must appear on all documents filed with the office of state tax commissioner. The associate shall appear personally and, unless excused by the hearing officer, shall remain in attendance with the nonresident attorney in all appearances before the hearing officer.

3.Rules of conduct. All persons appearing before the hearing officer shall conform to the standard of ethical conduct required of practitioners before the courts of the state of North Dakota.

History: Effective May 1, 1991; amended effective November 1, 1992.

Chapter 81-01.1-03 Rules

N.D. Admin. Code 81-01.1-03 Rules

CHAPTER 81-01.1-03

RULES

Section 81-01.1-03-01Public Notice and Hearing on Proposed Rules 81-01.1-03-01. Public notice and hearing on proposed rules.

The tax commissioner must give public notice of intent to amend or create rules.

1.The tax commissioner must schedule a public hearing and notify the public of the date, time, and place of such hearing by publishing a legal notice twice in all daily newspapers of North Dakota. The first notice must be at least thirty days prior to the date scheduled for the hearing.

In addition, the tax commissioner will supply copies of the proposed rules to any person whose name is on a permanent mailing list. Any person who wishes to be placed on the permanent mailing list for rules, must notify the tax commissioner in writing.

2.The hearing must be held at the office of the tax commissioner, state capitol, Bismarck, North Dakota.

3.Any member of the public may obtain a copy of the proposed rules free of cost by contacting the office of the tax commissioner.

4.Any member of the public may attend the hearing and may testify for or against the proposed rules.

5.The tax commissioner may appoint a hearing officer to preside at the hearing.

6.A record must be made of the public hearing by use of an electronic recording device or by a qualified court reporter, and the testimony will be transcribed for the purpose of permanent record.

History: Effective July 1, 1985; amended effective March 1, 1990.

General Authority: NDCC 28-32-02

Law Implemented: NDCC 57-01-02

Chapter 81-01.1-04 Model Recordkeeping and Retention Regulation

N.D. Admin. Code 81-01.1-04 Model Recordkeeping and Retention Regulation

CHAPTER 81-01.1-04

MODEL RECORDKEEPING AND RETENTION REGULATION

Section 81-01.1-04-01Purpose 81-01.1-04-02Definitions 81-01.1-04-03Recordkeeping Requirements - General 81-01.1-04-04Recordkeeping Requirements - Machine-Sensible Records 81-01.1-04-05Records Maintenance Requirements 81-01.1-04-06Access to Machine-Sensible Records 81-01.1-04-07Taxpayer Responsibility and Discretionary Authority 81-01.1-04-08Alternative Storage Media 81-01.1-04-09Effect on Hardcopy Recordkeeping Requirements 81-01.1-04-10Records Retention - Time Period 81-01.1-04-01. Purpose.

The purpose of this regulation is to define the requirements imposed on taxpayers for the maintenance and retention of books, records, and other sources of information. It is also the purpose of the regulation to address these requirements where all or a part of the taxpayer's records are received, created, maintained, or generated through various computer, electronic, and imaging processes and systems. 81-01.1-04-02. Definitions.

For purposes of this chapter, these terms shall be defined as follows:

1."Data base management system" means a software system that controls, relates, retrieves, and provides accessibility to data stored in a data base.

2."Electronic data interchange" or "EDI" means the computer-to-computer exchange of business transactions in a standardized structured electronic format.

3."Hardcopy" means any documents, records, reports, or other data printed on paper.

4."Machine-sensible record" means a collection of related information in an electronic format.

Machine-sensible records do not include hard-copy records that are created or recorded on paper or stored in or by an imaging system such as microfilm, microfiche, or storage-only imaging systems.

5."Storage-only imaging system" means a system of computer hardware and software that provides for the storage, retention, and retrieval of documents originally created on paper. It does not include any system, or part of a system, that manipulates or processes any information or data contained on the document in any manner other than to reproduce the document in hardcopy or as an optical image.

6."Taxpayer" as used in this chapter means an individual, partnership, firm, corporation, joint venture, association, estate, fiduciary, trust receiver, or any other group or combination acting as a unit and the plural as well as the singular number who is or may be required to file a tax return under North Dakota Century Code title 57 or who has or may have information relating to any matter which the tax commissioner deems relevant to a determination of tax liability under North Dakota Century Code title 57. 81-01.1-04-03. Recordkeeping requirements - General.

1.A taxpayer shall maintain all records that are necessary to a determination of the correct tax liability under North Dakota Century Code title 57. All required records must be made available on request by the tax commissioner or its authorized representative. Such records shall include any original and nonidentical copy of any communication or other transmission of information that has been reduced by any means into any tangible form or medium or is electronically stored information, including written, electronic, magnetic, or photographic form, of any kind or description and including all records, reports, papers, accounting schedules, books, letters, notes, memoranda, e-mail, and other correspondence, reports and recordings of telephone and other conversations, tape recordings, contracts, evaluations, ledgers, journals, books or records of accounts, summaries of accounts, desk calendars, minutes, drawings, photographs, inspection reports, test reports, diaries, notebooks, sketches, graphs, charts, and press releases, all whether in the taxpayer's possession or under the control of any other individual or entity with knowledge of the information requested.

2.If a taxpayer retains records required to be retained under this regulation in both machine-sensible and hard-copy formats, the taxpayer shall make the records available to the tax commissioner in machine-sensible format upon the tax commissioner's request.

3.Nothing in this regulation shall be construed to prohibit a taxpayer from demonstrating tax compliance with traditional hard-copy documents or reproductions thereof, in whole or in part, whether or not such taxpayer also has retained or has the capability to retain records on electronic or other storage media in accordance with this regulation. However, this subsection shall not relieve the taxpayer of the obligation to comply with subsection 2. 81-01.1-04-04. Recordkeeping requirements - Machine-sensible records.

1.General requirements.

a.Machine-sensible records used to establish tax compliance shall contain sufficient transaction-level detail information so that the details underlying the machine-sensible records can be identified and made available to the tax commissioner upon request. A taxpayer has discretion to discard duplicated records and redundant information provided its responsibilities under this regulation are met.

b.At the time of an examination, the retained records must be capable of being retrieved and converted to a standard record format.

c.Taxpayers are not required to construct machine-sensible records other than those created in the ordinary course of business. A taxpayer who does not create the electronic equivalent of a traditional paper document in the ordinary course of business is not required to construct such a record for tax purposes.

2.Electronic data interchange requirements.

a.When a taxpayer uses electronic data interchange processes and technology, the level of record detail, in combination with other records related to the transactions, must be equivalent to that contained in an acceptable paper record. For example, the retained records should contain such information as vendor name, invoice date, product description, quantity purchased, price, amount of tax, indication of tax status, and shipping detail. Codes may be used to identify some or all of the data elements, provided that the taxpayer provides a method which allows the tax commissioner to interpret the coded information.

b.The taxpayer may capture the information necessary to satisfy subdivision a at any level within the accounting system and need not retain the original EDI transaction records provided the audit trail, authenticity, and integrity of the retained records can be established. For example, a taxpayer using electronic data interchange technology receives electronic invoices from its suppliers. The taxpayer decides to retain the invoice data from completed and verified EDI transactions in its accounts payable system rather than to retain the EDI transactions themselves. Since neither the EDI transaction nor the accounts payable system captures information from the invoice pertaining to product description and vendor name (i.e., they contain only codes for that information), the taxpayer also retains other records, such as its vendor master file and product code description lists and makes them available to the tax commissioner. In this example, the taxpayer need not retain its EDI transaction for tax purposes.

3.Electronic data processing systems requirements. The requirements for an electronic data processing accounting system should be similar to that of a manual accounting system, in that an adequately designed accounting system should incorporate methods and records that will satisfy the requirements of this regulation.

4.Business process information.

a.Upon the tax commissioner's request, the taxpayer shall provide a description of the business process that created the retained records. Such description shall include the relationship between the records and the tax documents prepared by the taxpayer and the measures employed to ensure the integrity of the records.

b.The taxpayer shall be capable of demonstrating:

(1)The functions being performed as they relate to the flow of data through the system;

(2)The internal controls used to ensure accurate and reliable processing; and (3)The internal controls used to prevent unauthorized addition, alteration, or deletion of retained records.

c.The following specific documentation is required for machine-sensible records retained pursuant to this regulation:

(1)Record formats or layouts;

(2)Field definitions, including the meaning of all codes used to represent information;

(3)File descriptions (e.g., data set name); and (4)Detailed charts of accounts and account descriptions. 81-01.1-04-05. Records maintenance requirements.

1.The tax commissioner recommends but does not require that taxpayers refer to the national archives and record administration's standards [36 CFR, part 1234, July 1, 1995, edition], for guidance on the maintenance and storage of electronic records, such as the labeling of records, the location and security of the storage environment, the creation of backup copies, and the use of periodic testing to confirm the continued integrity of the records.

2.The taxpayer's computer hardware or software shall accommodate the extraction and conversion of retained machine-sensible records. 81-01.1-04-06. Access to machine-sensible records.

1.The manner in which the tax commissioner is provided access to machine-sensible records as required in subsection 2 of section 81-01.1-04-03 may be satisfied through a variety of means that shall take into account a taxpayer's facts and circumstances through consultation with the taxpayer.

2.Such access will be provided in one or more of the following manners:

a.The taxpayer may arrange to provide the tax commissioner with the hardware, software, and personnel resources to access the machine-sensible records.

b.The taxpayer may arrange for a third party to provide the hardware, software, and personnel resources necessary to access the machine-sensible records.

c.The taxpayer may convert the machine-sensible records to a standard record format specified by the tax commissioner, including copies of files, on a magnetic medium that is agreed to by the tax commissioner.

d.The taxpayer and the tax commissioner may agree on other means of providing access to the machine-sensible records. 81-01.1-04-07. Taxpayer responsibility and discretionary authority.

1.In conjunction with meeting the requirements of section 81-01.1-04-04, a taxpayer may create files solely for the use of the tax commissioner. For example, if a data base management system is used, it is consistent with this regulation for the taxpayer to create and retain a file that contains the transaction-level detail from the date base management system and that meets the requirements of section 81-01.1-04-04. The taxpayer should document the process that created the separate file to show the relationship between that file and the original records.

2.A taxpayer may contract with a third party to provide custodial or management services of the records. Such a contract shall not relieve the taxpayer of its responsibilities under this

regulation. 81-01.1-04-08. Alternative storage media.

1.For purposes of storage and retention, taxpayers may convert hard-copy documents received or produced in the normal course of business and required to be retained under this regulation to microfilm, microfiche, or other storage-only imaging systems and may discard the original hard-copy documents, provided the conditions of this section are met. Documents that may be stored on these media include general books of account, journals, voucher registers, general and subsidiary ledgers, and supporting records of details, such as sales invoices, purchase invoices, exemption certificates, and credit memoranda.

2.Microfilm, microfiche, and other storage-only imaging systems must meet the following requirements:

a.Documentation establishing the procedures for converting the hard-copy documents to microfilm, microfiche, or other storage-only imaging system must be maintained and made available on request. Such documentation must, at a minimum, contain a sufficient description to allow an original document to be followed through the conversion system as well as internal procedures established for inspection and quality assurance.

b.Procedures must be established for the effective identification, processing, storage, and preservation of the stored documents and for making them available for the period they are required to be retained under section 81-01.1-04-10.

c.Upon request by the tax commissioner, a taxpayer must provide facilities and equipment for reading, locating, and reproducing any documents maintained on microfilm, microfiche, or other storage-only imaging system.

d.When displayed on such equipment or reproduced on paper, the documents must exhibit a high degree of legibility and readability. For this purpose, legibility is defined as the quality of a letter or numeral which enables the observer to identify it positively and quickly to the exclusion of all other letters or numerals. Readability is defined as the quality of a group of letters or numerals being recognizable as words or complete numbers.

e.All data stored on microfilm, microfiche, or other storage-only imaging systems must be maintained and arranged in a manner that permits the location of any particular record.

f.There is no substantial evidence that the microfilm, microfiche, or other storage-only imaging system lacks authenticity or integrity. 81-01.1-04-09. Effect on hardcopy recordkeeping requirements.

1.Except as otherwise provided in this section, the provisions of this regulation do not relieve taxpayers of the responsibility to retain hard-copy records that are created or received in the ordinary course of business as required by existing law and regulations. Hard-copy records may be retained on a recordkeeping medium as provided in section 81-01.1-04-08.

2.If hard-copy records are not produced or received in the ordinary course of transacting business (e.g., when the taxpayer uses electronic data interchange technology), such hard-copy records need not be created.

3.Hard-copy records generated at the time of a transaction using a credit or debit card must be retained unless all the details necessary to determine correct tax liability relating to the transaction are subsequently received and retained by the taxpayer in accordance with this

regulation. Such details include those listed in section 81-01.1-04-04.

4.Computer printouts that are created for validation, control, or other temporary purposes need not be retained.

5.Nothing in this section shall prevent the tax commissioner from requesting hard-copy printouts in lieu of retained machine-sensible records at the time of examination. 81-01.1-04-10. Records retention - Time period.

Nothing contained in this chapter modifies any previous policy adopted by the tax commissioner relating to the period of time records must be retained by the taxpayer, unless the tax commissioner had provided in writing that the records are no longer required. All records required to be retained under this chapter shall be retained according to the record retention schedule required for each tax type.

Article 81-02.1 Property Taxes

Chapter 81-02.1-01 Mobile Home Tax

N.D. Admin. Code 57-55-12 No refund will be issued if the mobile home sold is moved to another state

A licensed mobile home dealer transporting a mobile home from the dealer's lot to a purchaser's lot is not required to display a moving permit.

If a tax permit issued by the county treasurer is lost, destroyed, or mutilated, a replacement permit may be obtained from the county treasurer by paying one dollar and furnishing information indicating the reason for the replacement.

History

• Law Implemented: NDCC 57-55-12 81-02.1-01-17. Moving permit.
• History: Effective June 1, 1984; amended effective July 1, 1985;November 1,1987.
• Law Implemented: NDCC 57-55-10, 57-55-11 81-02.1-01-18. Tax permits lost or destroyed.
• Law Implemented: NDCC 57-55-01.1, 57-55-06

Chapter 81-02.1-02 Certification of Assessment Officials [Repealed]

N.D. Admin. Code 81-02.1-02 Certification of Assessment Officials [Repealed]

CHAPTER 81-02.1-02

CERTIFICATION OF ASSESSMENT OFFICIALS [Repealed effective July 1, 2016]

Chapter 81-02.1-03 Property Exempt from Ad Valorem Property Tax

N.D. Admin. Code 81-02.1-03 Property Exempt from Ad Valorem Property Tax

CHAPTER 81-02.1-03

PROPERTY EXEMPT FROM AD VALOREM PROPERTY TAX

Section 81-02.1-03-01Definitions 81-02.1-03-02Requirements for Property Tax Exemption 81-02.1-03-01. Definitions.

As used in this chapter and for the administration of the ad valorem property tax exemption set out in North Dakota Century Code sections 57-51-03 and 57-51-04, unless the context otherwise requires:

1."Point of measurement as to quantity and testing as to quality" means the earliest possible point after oil or gas is brought to the surface at which it is both feasible and reasonable to measure.

2."Producing well" means a well which is producing oil or gas or which has produced oil or gas at some time within the last twelve months prior to the assessment date of January first for centrally assessed property or February first for locally assessed property.

3."Production" means the act of bringing oil or gas to the surface and to the point of measurement as to quantity and testing as to quality.

History: Effective January 1, 1989.

General Authority: NDCC 57-51-21

Law Implemented: NDCC 57-51-03, 57-51-04 81-02.1-03-02. Requirements for property tax exemption.

To be exempt from ad valorem property tax, property must meet all of the following conditions:

1.Property must be used in the actual production of oil or gas.

2.Property must be at the site of a producing well. Property is considered to be at the site of a producing well if it is used prior to the first point at which it is both feasible and reasonable to measure, or point of sale, whichever is first.

3.Property must be necessary, but need not be indispensable, to the production of oil or gas.

History: Effective January 1, 1989.

General Authority: NDCC 57-51-21

Law Implemented: NDCC 57-51-03, 57-51-04

Article 81-03 Income Taxes and Privilege Taxes Based on Income

Chapter 81-03-01 General Considerations

N.D. Admin. Code 81-03-01 General Considerations

ARTICLE 81-03

INCOME TAXES AND PRIVILEGE TAXES BASED ON INCOME

Chapter 81-03-01General Considerations [Superseded] 81-03-01.1General Considerations 81-03-02Income Tax on Individuals, Estates, Trusts, and Fiduciaries [Superseded] 81-03-02.1Income Tax on Individuals, Estates, Trusts, and Fiduciaries 81-03-02.2Income Tax on Nonresident Individuals, Estates, Trusts, and Fiduciaries 81-03-03Income Tax Withholding [Superseded] 81-03-03.1Income Tax Withholding 81-03-03.2New Jobs Credit From Withholding 81-03-04Estimated Tax 81-03-05Income Tax on Corporations [Superseded] 81-03-05.1Income Tax on Corporations 81-03-05.2Water's Edge Method 81-03-05.3Worldwide Method of Reporting 81-03-05.4Federal Income Tax Deduction 81-03-05.5Deduction and Credit for Alternative Minimum Income Tax 81-03-06Exempt Organizations [Repealed] 81-03-07Business and Corporation Privilege Tax [Repealed] 81-03-08Vietnam Bonus Surtax [Repealed] 81-03-09Division of Income 81-03-09.1Division of Income for Financial Institutions 81-03-10Voluntary Contributions

CHAPTER 81-03-01

GENERAL CONSIDERATIONS [Superseded by Chapter 81-03-01.1]

Chapter 81-03-01.1 General Considerations

N.D. Admin. Code 81-03-01.1 General Considerations

CHAPTER 81-03-01.1

GENERAL CONSIDERATIONS

Section 81-03-01.1-01Reaudit and Reassessment [Repealed] 81-03-01.1-02Taxpayer May Be Required to File a Pro Forma Federal Income Tax Return 81-03-01.1-03Interest on Obligations of the United States and of the States and Their Political Subdivisions 81-03-01.1-04Computation of Interest on Refunds [Repealed] 81-03-01.1-05Computation of Interest on an Extension, a Late Payment, Underpayment, and Additional Tax Found Due Through Audit or Mathematical Verification [Repealed] 81-03-01.1-06Income Tax Exemption for New and Expanding Business 81-03-01.1-07Venture Capital Corporation [Repealed] 81-03-01.1-08Tax Credits 81-03-01.1-09Requirement to Report Federal Changes 81-03-01.1-10Employers Required to File Information Returns 81-03-01.1-01. Reaudit and reassessment.

Repealed effective May 1, 1991. 81-03-01.1-02. Taxpayer may be required to file a pro forma federal income tax return.

1.A taxpayer who does not have a federal income tax filing requirement but who has income taxable in this state and is, therefore, required to file a North Dakota income tax return, must prepare a pro forma federal income tax or information return to determine a starting point for the North Dakota tax return. The pro forma federal income tax or information return must be filed with the state tax commissioner together with the taxpayer's North Dakota income tax return.

2."Pro forma federal income tax return" for purposes of this article and North Dakota Century Code chapter 57-38 means a federal income tax return prepared in accordance with the provisions of the Internal Revenue Code of 1954 as amended and effective during the period covered in the tax return. The tax return must contain complete and accurate information on the taxpayer's income and deductions and must be prepared as though the taxpayer were required to file it with the internal revenue service.

History: Effective July 1, 1985.

Law Implemented: NDCC 57-38-30.3, 57-38-31, 57-38-32, 57-38-34, 57-38-42 81-03-01.1-03. Interest on obligations of the United States and of the states and their political subdivisions.

Interest received from obligations of the United States or of its possessions and from this state or its political subdivisions is not subject to income tax imposed by this state.

Interest received from obligations of any other state or its political subdivisions is subject to income tax imposed by this state for a taxpayer who files an individual income tax return form ND-2 or form 37, but is not subject to income tax imposed by this state for a taxpayer who files an individual income tax return form ND-1 or form 37-S.

"Obligations" as used in this section means only those obligations, such as municipal or other government bonds, arising out of the borrowing power of the federal government or a state government or its political subdivisions.

History: Effective July 1, 1985; amended effective June 1, 2002.

Law Implemented: NDCC 57-38-01.2, 57-38-01.3, 57-38-30.3 81-03-01.1-04. Computation of interest on refunds.

Repealed effective March 1, 1990. 81-03-01.1-05. Computation of interest on an extension, a late payment, underpayment, and additional tax found due through audit or mathematical verification.

Repealed effective September 1, 1997. 81-03-01.1-06. Income tax exemption for new and expanding business.

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 PlantOther 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.

History: Effective March 1, 1990; amended effective June 1, 1992; August 1, 1994; April 1, 1995;

July 1, 1998; June 1, 2002; July 1, 2016.

Law Implemented: NDCC 40-57.1, 57-38.1 81-03-01.1-07. Venture capital corporation.

Repealed effective July 1, 2016. 81-03-01.1-08. Tax credits.

Tax credits must be taken in the following order:

1.Tax credits with no carryback or carryforward provisions.

2.Tax credits with carryback provisions.

3.Tax credits with carryforward provisions.

If there is more than one tax credit having the same priority, the tax credits must be allowed in the order that is most beneficial to the taxpayer.

History: Effective May 1, 1991.

Law Implemented: NDCC 57-38-01.8, 57-38-01.16, 57-38-01.17, 57-38-30.1, 57-38-30.4, 57-38-30.5, 57-38.1-07 81-03-01.1-09. Requirement to report federal changes.

1.The following provisions are applicable for purposes of interpreting subsection 1 of North Dakota Century Code section 57-38-34.4:

a.If a change or correction to federal taxable income or federal income tax liability is initiated by the United States internal revenue service, the change or correction must be reported to the commissioner even if it does not result in an underpayment or an overpayment of federal income tax.

b."Final determination" means a decision, action, or date from which no further action is taken by the taxpayer or the United States internal revenue service to resolve any dispute relating to the change or correction which was made to the taxpayer's federal taxable income or federal income tax liability. A final determination has occurred if any of the following circumstances apply:

(1)A taxpayer receives a notice or other correspondence from the United States internal revenue service which makes an adjustment to the taxpayer's federal taxable income based on:

(a)A mathematical or clerical error.

(b)Any other change or correction if the taxpayer has paid or arranged to pay the underpayment of federal income tax, or if the United States internal revenue service has credited or refunded to the taxpayer an overpayment of federal income tax. A final determination does not occur, however, if a taxpayer pays the tax and then files a claim for credit or refund with the United States internal revenue service.

(2)A taxpayer waives the restrictions on assessment and collection of all or any part of an underpayment of federal income tax by signing a federal form 870 or any other form prescribed for this purpose by the United States internal revenue service. A final determination does not occur with respect to any part of the underpayment which is not covered by the waiver. If the signature of an authorized representative of the United States internal revenue service is required to execute this waiver, the date of final determination is when the taxpayer receives notice of the signing. A final determination does not occur, however, if a taxpayer pays the tax and then files a claim for credit or refund with the United States internal revenue service.

(3)A taxpayer receives a federal statutory notice of deficiency and does not timely file a petition with the United States tax court for redetermination of the assessed underpayment of federal income tax. The date of final determination is when the time period within which to file the petition expires. A final determination does not occur, however, if a taxpayer pays the tax and then files a claim for credit or refund with the United States internal revenue service.

(4)A closing agreement is executed pursuant to United States Internal Revenue Code

section 7121 [26 U.S.C. 7121]. The date of final determination is when the taxpayer receives notice of the signing of the closing agreement by an authorized representative of the United States commissioner of internal revenue.

(5)A federal court of law issues a decision which is not appealed or is not subject to appeal.

(6)A federal court of law approves a voluntary agreement stipulating final disposition of a case.

(7)If a taxpayer files a claim for credit or refund of all or any part of an underpayment of federal income tax, as described in paragraph 1, 2, or 3, a final determination has occurred if any of the following circumstances apply:

(a)The taxpayer receives notice of the disallowance of the claim for credit or refund from the United States internal revenue service and the taxpayer does not appeal the disallowance or file a suit for refund.

(b)The taxpayer receives notice of the allowance of the claim for credit or refund from the United States internal revenue service.

(c)Receipt of the refund from the United States internal revenue service, if no prior notice is received.

(d)The provisions of paragraph 4, 5, or 6 apply.

2.The following provisions are applicable for purposes of interpreting subsection 2 of North Dakota Century Code section 57-38-34.4:

a.If a taxpayer initiates the filing of the amended federal income tax return, the taxpayer must also file an amended state income tax return even if it does not result in payment of additional tax.

b.To request a credit or refund of tax, a taxpayer must file an amended state income tax return either within the time period prescribed in subsection 1 of North Dakota Century Code section 57-38-40 or within the ninety-day time period prescribed in subsection 2 of North Dakota Century Code section 57-38-34.4. 3.a.A change or correction to federal taxable income or federal income tax liability must be reported on an amended state income tax return except as provided in subdivision b.

b.An alternative report may be elected to report an increase in North Dakota tax liability as a result of a change or correction to federal taxable income or federal income tax liability.

The alternative report must contain the following:

(1)A statement that the information is submitted in lieu of an amended return pursuant to subdivision b of subsection 3 of section 81-03-01.1-09.

(2)A description of the change or correction to federal taxable income or federal tax liability and the effect which the change or correction has on the statutory adjustments provided for in North Dakota Century Code sections 57-38-01.2 and 57-38-01.3.

(3)An allocation or apportionment of the change to North Dakota tax liability and a computation of the adjusted North Dakota tax liability.

This alternative report is subject to audit and assessment as if it were an amended return.

c.When reporting a change or correction to federal taxable income or federal income tax liability pursuant to subsection 1 of North Dakota Century Code section 57-38-34.4, a taxpayer must also submit the following items:

(1)A copy of the applicable federal waivers.

(2)A copy of the documentation evidencing that a final determination has been made with respect to the federal change or correction.

4.A change or correction to federal taxable income or federal income tax liability that affects a year other than the year in which the change or correction occurs must also be reported in accordance with subsection 3.

History: Effective November 1, 1991; amended effective November 1, 1992; June 1, 2002.

Law Implemented: NDCC 57-38-34.4 81-03-01.1-10. Employers required to file information returns.

Employers are subject to subsection 1 of North Dakota Century Code section 57-38-42 except with respect to the payment of wages to an employee.

History: Effective November 1, 1992.

Law Implemented: NDCC 57-38-42

Chapter 81-03-02 Income Tax on Individuals, Estates, Trusts, and Fiduciaries

N.D. Admin. Code 81-03-02 Income Tax on Individuals, Estates, Trusts, and Fiduciaries

CHAPTER 81-03-02

INCOME TAX ON INDIVIDUALS, ESTATES, TRUSTS, AND FIDUCIARIES [Superseded by Chapter 81-03-02.1]

Chapter 81-03-02.1 Income Tax on Individuals, Estates, Trusts, and Fiduciaries

N.D. Admin. Code 81-03-02.1 Income Tax on Individuals, Estates, Trusts, and Fiduciaries

CHAPTER 81-03-02.1

INCOME TAX ON INDIVIDUALS, ESTATES, TRUSTS, AND FIDUCIARIES

Section 81-03-02.1-01Credit for Taxes Paid to Another State 81-03-02.1-02Deduction for Federal Income Tax Liability - Limitation 81-03-02.1-03Moving Expenses - Adjustment 81-03-02.1-04Reporting - Resident Trusts or Estates 81-03-02.1-05Reporting - Income Earned By Husband and Wife [Repealed] 81-03-02.1-06Adjustments for Pay Received From Armed Forces 81-03-02.1-07Adjustments for Sale or Lease of Agricultural Land to Beginning Farmer 81-03-02.1-08Adjustments for Sale or Lease of Revenue-Producing Enterprise to Beginning Businessman 81-03-02.1-09Exemptions - Separate Filers [Repealed] 81-03-02.1-10Limitations on Adjustments Available on Form ND-2 or Form 37 81-03-02.1-11Credit for Premiums for Long-Term Care Insurance Coverage 81-03-02.1-12Seed Capital Investment Credit - Limitations on Credit - Carryover 81-03-02.1-12.1Agricultural Commodity Processing Facility Investment Credit - Limitations on Credit - Carryover 81-03-02.1-01. Credit for taxes paid to another state.

1.A resident who pays income tax to another state or territory of the United States or the District of Columbia on income which is also taxed by this state, is entitled to a tax credit. The tax credit may be deducted from the North Dakota income tax liability. A copy of the income tax return filed with another jurisdiction must be filed with the North Dakota income tax return and the tax commissioner may require the taxpayer to have the copy certified by the other jurisdiction.

2.If a North Dakota resident is paying income tax to more than one jurisdiction other than North Dakota, on income which is also taxed by this state, a separate computation must be made to determine the amount of the tax credit available from each jurisdiction. These separate tax credits must be added together to determine the total tax credit which may be reported on the taxpayer's North Dakota tax return.

3.A taxpayer who is a part-year resident of North Dakota may claim a credit for taxes paid to another state only if the income taxed by North Dakota and the other state was earned or received during the time the taxpayer was a North Dakota resident. A copy of the income tax return filed with the other state must be filed with the North Dakota income tax return. The tax commissioner may require a certified copy of the other state's return.

4.If married taxpayers file a joint federal income tax return and each spouse had different states of residence during the tax year, the credit is available to the spouse who is required to file a North Dakota income tax return.

5.Subsections 3 and 4 are effective for tax years beginning after December 31, 2000.

History: Effective July 1, 1985; amended effective July 1, 1989; June 1, 2002.

Law Implemented: NDCC 57-38-04, 57-38-30.3 81-03-02.1-02. Deduction for federal income tax liability - Limitation.

The federal alternative minimum tax may not be deducted in computing North Dakota taxable income.

History: Effective July 1, 1985; amended effective May 1, 1991.

Law Implemented: NDCC 57-38-01.2 81-03-02.1-03. Moving expenses - Adjustment.

1.An individual who moves out of this state and who claims moving expenses as a deduction on that individual's federal income tax return for the year in which the move was made may not deduct those expenses for purposes of computing North Dakota taxable income on individual income tax form ND-2 or form 37.

2.An individual who moves into this state and who claims moving expenses as a deduction on that individual's federal income tax return for the year in which the move was made may deduct those expenses for the purpose of computing North Dakota taxable income on individual income tax form ND-2 or form 37.

History: Effective July 1, 1985; amended effective June 1, 2002.

Law Implemented: NDCC 57-38-01.1 81-03-02.1-04. Reporting - Resident trusts or estates.

1.Every fiduciary for a resident trust or estate must file an income tax return with the tax commissioner.

2.A trust or estate is a resident trust or estate when it has a relationship to the state sufficient to create nexus. This includes, but is not limited to, the following contacts:

a.A beneficiary of the trust or estate is a domiciliary or resident of this state.

b.The trustee or executor is a domiciliary or resident of this state.

c.Assets making up any part of the trust or estate have situs in this state.

d.Any or all of the administration or income production of the trust or estate takes place within this state.

e.The laws of this state are specifically made applicable to the trust or estate or to the opposite parties with respect to their fiduciary relationship.

f.The trust is a revocable trust, and the grantor is a domiciliary or resident of this state.

3.A trust, or a portion of a trust, is revocable if subject to power by the grantor, at any time, to revest title in the grantor.

4.A nonresident trust or estate is a trust or estate other than a resident trust or estate.

Law Implemented: NDCC 57-38-31 81-03-02.1-05. Reporting - Income earned by husband and wife.

Repealed effective July 1, 2016. 81-03-02.1-06. Adjustments for pay received from armed forces.

A portion of the pay received for service in the armed forces by a resident of this state is not subject to income tax imposed by this state. This portion is determined as follows:

1.An amount up to a maximum of one thousand dollars for pay received by an individual for services performed while on active duty for the armed forces of the United States or as payment for attending periodic training meetings for drill and instruction as a member of the national guard or of a reserve unit of the armed forces of the United States may be deducted from income taxable in this state subject to the following:

a.The deduction may not exceed actual total pay received from such services for the tax year.

b.The deduction may not be claimed as an adjustment on the North Dakota individual income tax return if the amount received for such services was excluded or deducted from gross income for federal income tax purposes.

2.An amount up to, but not exceeding, three hundred dollars per month for pay received by an individual for services performed while on active duty for the armed forces of the United States outside of the United States or the District of Columbia may be deducted from income taxable in this state subject to the following:

a.During the time for which the deduction is taken, the individual's rank must have been below major in the United States army, air force, or marines; below lieutenant commander in the United States navy; or below surgeon in the United States public health service.

b.The individual must have been on active duty stationed outside any state of the United States or the District of Columbia for thirty consecutive days in the year the deduction is claimed. After the initial thirty consecutive days, the person may claim the deduction for any full month or for a fraction of a month.

c.The individual must have earned three hundred dollars or more per month. If the individual was paid less than three hundred dollars per month, the deduction must be limited to actual pay received for the month.

d.The three hundred dollar per month deduction is in addition to the one thousand dollar deduction in subsection 1, and the total of the two may not exceed the individual's total pay for such services for the tax year the deduction is claimed.

e.The deduction may not be claimed as an adjustment on the North Dakota individual income tax return if the amount received for such services was excluded or deducted from gross income for federal income tax purposes.

Law Implemented: NDCC 57-38-01.2 81-03-02.1-07. Adjustments for sale or lease of agricultural land to beginning farmer.

Adjustments to determine net taxable income received from the sale or lease of agricultural land and from interest income received on a contract for deed are subject to the conditions and limitations established in North Dakota Century Code chapter 57-38 and as follows:

1.Net rental income up to twenty-five thousand dollars, interest income, capital gains, or ordinary income of an individual selling or leasing agricultural land to a beginning farmer is deductible, for North Dakota income tax purposes, only in the year that the income is reported on the individual's federal income tax return. Unused deductions may not be carried back or forward to another year.

2.Deductions for rental income may not be claimed by the landowner for lease agreements with more than one beginning farmer on the same tract or parcel of land.

3.A beginning farmer must be eighteen years of age or older at the time of the sale or lease.

(See North Dakota Century Code section 14-10-09.)

4.A husband and wife living together who together purchase agricultural land are regarded as one beginning farmer.

Law Implemented: NDCC 57-38-01.2, 57-38-67, 57-38-68, 57-38-69, 57-38-70 81-03-02.1-08. Adjustments for sale or lease of revenue-producing enterprise to beginning businessman.

Adjustments to determine net taxable income received from the sale or lease of a revenue-producing enterprise and from interest received on a contract are subject to conditions and limitations established in North Dakota Century Code chapter 57-38 and as follows:

1.Net rental income up to twenty-five thousand dollars, interest income, capital gains in the year of the sale, or ordinary income, of a businessman selling or leasing a revenue-producing enterprise is deductible for North Dakota income tax purposes, only in the year that the income is reported on the businessman's federal income tax return. Unused deductions may not be carried back or forward to another year.

2.Deductions for rental income cannot be claimed by the businessman for lease agreements with more than one beginning businessman on the same revenue-producing enterprise.

3.A beginning businessman must be eighteen years of age or older at the time of sale or lease.

(See North Dakota Century Code section 14-10-09.)

4.A husband and wife living together who together purchase a revenue-producing enterprise are regarded as one beginning businessman.

5."Year of sale" for purposes of North Dakota Century Code section 57-38-72 means the year during which the revenue-producing enterprise was sold to the beginning businessman. In the case of a contract, it means the year during which the contract was entered into between the seller and the beginning businessman.

Law Implemented: NDCC 57-38-01.2, 57-38-71, 57-38-72, 57-38-73, 57-38-74 81-03-02.1-09. Exemptions - Separate filers.

Repealed effective September 1, 1997. 81-03-02.1-10. Limitations on adjustments available on form ND-2 or form 37.

An individual who files North Dakota individual income tax return form ND-2 or form 37 for the current year may make the following adjustments only if form ND-2 or form 37 was filed for the applicable prior year:

1.Refunds of state and local income taxes may only be deducted on form ND-2 or form 37 if they were reported on federal form 1040 for the current year and if form ND-2 or form 37 was filed for the year in which the state and local income taxes were added back.

2.The deduction provided for in subdivision b of subsection 3 of North Dakota Century Code

section 57-38-01 for the amount of accelerated cost recovery system depreciation disallowed in a prior year may only be allowed on form ND-2 or form 37 if form ND-2 or form 37 was filed for the prior year when the disallowance of accelerated cost recovery system depreciation occurred.

History: Effective July 1, 1989; amended effective June 1, 2002.

Law Implemented: NDCC 57-38-01(3)(b), 57-38-01.2(1)(f), 57-38-30.3(9) 81-03-02.1-11. Credit for premiums for long-term care insurance coverage.

1.An individual is entitled to a credit for premiums paid for long-term care insurance coverage if the policy complies with the provisions of North Dakota Century Code title 26.1 and all other applicable insurance laws insofar as they do not conflict with North Dakota Century Code title 26.1.

2."Long-term care insurance" for purposes of this article means an insurance policy as defined by subsection 4 of North Dakota Century Code section 26.1-45-01.

History: Effective August 1, 1994.

Law Implemented: NDCC 57-38-29.2 81-03-02.1-12. Seed capital investment credit - Limitations on credit - Carryover.

1.The provisions in this subsection apply to the calculation and administration of the credit under North Dakota Century Code chapter 57-38.5 for tax years beginning before January 1, 2002:

a.The credit must first be credited against the taxpayer's income tax liability for the taxpayer's taxable year in which the investment is paid for in full.

b.For purposes of applying the annual limitation on the total amount of credits allowed for investments in one qualified business under subsection 6 of North Dakota Century Code

section 57-38.5-03, the total amount of investments and the total amount of gross receipts from out-of-state sales must be determined on a calendar year basis.

c.For purposes of applying the annual limitation on the total amount of credits allowed for investments in all qualified businesses under North Dakota Century Code section 57-38.5-05, the total amount of investments and related credits must be determined on a calendar year basis.

d.For purposes of determining whether a taxpayer has reached the annual minimum or maximum amount of investment for which a credit is allowed under subsection 1 of North Dakota Century Code section 57-38.5-03, the total amount of investments must be determined by aggregating all of the investments made by a taxpayer within the taxpayer's taxable year.

e.Every qualified business shall file with the tax commissioner a written report showing the total amount of its gross receipts from out-of-state sales on a calendar year basis. The report must be filed by January thirty-first following the end of each calendar year. If a qualified business fails to file a written report, the total amount of the credit attributable to investments made in that qualified business during the calendar year for which the report was required to be filed must be disallowed until such time as the report is received by the tax commissioner.

f.If a taxpayer elects to determine the taxpayer's state income tax liability under North Dakota Century Code section 57-38-30.3, the credit is not allowed in the taxable year of the election or in any subsequent taxable year to which an unused credit may otherwise be carried.

g.For purposes of applying subsection 3 of North Dakota Century Code section 57-38.5-03, the amount of the credit which may be carried forward from the taxpayer's taxable year in which the related investment was made is the amount of the credit not allowed because of subsection 2 of North Dakota Century Code section 57-38.5-03.

h.If a partnership makes an investment in a qualified business, and if the taxable year of the partnership differs from the taxable year of the partner, the amount of credit allocated to the partner under subsection 4 of North Dakota Century Code section 57-38.5-03 must first be credited in the partner's taxable year in which the partnership's taxable year ends.

i.If a taxpayer makes an investment in a qualified business and then sells the investment back to the qualified business within three years of making the investment, the credit must be disallowed. If a taxpayer makes an investment in a qualified business and then sells the investment to a second taxpayer, the credit attributable to the investment must be allowed to the first taxpayer provided the investment is held by the qualified business for three years, and no credit may be allowed to the second taxpayer.

j.For purposes of subsection 8 of North Dakota Century Code section 57-38.5-03, "controlling interest" means ownership of over fifty percent of the voting stock and over fifty percent of each class of other stock of the corporation.

2.The provisions in this subsection apply to the calculation and administration of the credit under North Dakota Century Code chapter 57-38.5 for taxable years beginning after December 31, 2001:

a.The credit must first be credited against the taxpayer's income tax liability for the taxpayer's taxable year in which the investment is paid for in full.

b.For purposes of applying the annual limitation on the total amount of credits allowed for investments in one qualified business under subsection 6 of North Dakota Century Code

section 57-38.5-03, the total amount of investments must be determined on a calendar year basis.

c.For purposes of applying the annual limitation on the total amount of credits allowed for investments in all qualified businesses under North Dakota Century Code section 57-38.5-05, the total amount of investments and related credits must be determined on a calendar year basis.

d.For purposes of determining whether a taxpayer has reached the annual minimum or maximum amount of investment for which a credit is allowed under subsection 1 of North Dakota Century Code section 57-38.5-03, the total amount of investments must be determined by aggregating all of the investments made by a taxpayer within the taxpayer's taxable year.

e.For purposes of applying subsection 3 of North Dakota Century Code section 57-38.5-03, the amount of the credit which may be carried forward from the taxpayer's taxable year in which the related investment was made is the amount of the credit not allowed because of subsection 2 of North Dakota Century Code section 57-38.5-03.

f.If a partnership makes an investment in a qualified business, and if the taxable year of the partnership differs from the taxable year of the partner, the amount of credit allocated to the partner under subsection 4 of North Dakota Century Code section 57-38.5-03 must first be credited in the partner's taxable year in which the partnership's taxable year ends.

g.If a taxpayer makes an investment in a qualified business and then sells the investment back to the qualified business within three years of making the investment, the credit must be disallowed. If a taxpayer makes an investment in a qualified business and then sells the investment to a second taxpayer, the credit attributable to the investment must be allowed to the first taxpayer provided the investment is held by the qualified business for three years, and no credit may be allowed to the second taxpayer.

h.For purposes of subsection 8 of North Dakota Century Code section 57-38.5-03, "controlling interest" means ownership of over fifty percent of the voting stock and over fifty percent of each class of other stock of the corporation.

History: Effective August 1, 1994; amended effective June 1, 2002.

Law Implemented: NDCC 57-38.5 81-03-02.1-12.1. Agricultural commodity processing facility investment credit - Limitations on credit - Carryover.

For the purpose of administering the credit under North Dakota Century Code chapter 57-38.6, the following apply:

1.The credit must first be credited against the taxpayer's income tax liability for the taxpayer's taxable year in which the investment is received by the qualified business. "Received" means that the qualified business has exclusive access to the funds.

2.For purposes of applying the annual limitation on the total amount of credits allowed for investments in all qualified business under North Dakota Century Code section 57-38.6-03, the total amount of investments and related credits must be determined on a calendar year

basis.

3.For purposes of applying subsection 3 of North Dakota Century Code section 57-38.6-03, the amount of the credit which may be carried forward from the taxpayer's taxable year in which the related investment was made is the amount of the credit not allowed because of subsection 2 of North Dakota Century Code section 57-38.6-03.

4.If a partnership makes an investment in a qualified business, and if the taxable year of the partnership differs from the taxable year of the partner, the amount of credit allocated to the partner under subsection 4 of North Dakota Century Code section 57-38.6-03 must first be credited in the partner's taxable year in which the partnership's taxable year ends.

5.If a taxpayer makes an investment in a qualified business and then sells the investment back to the qualified business within three years of making the investment, the credit must be disallowed. If a taxpayer makes an investment in a qualified business and then sells the investment to a second taxpayer, the credit attributable to the investment must be allowed to the first taxpayer provided the investment is held by the qualified business for three years, and no credit may be allowed to the second taxpayer.

History: Effective June 1, 2002.

Law Implemented: NDCC 57-38.6

Chapter 81-03-02.2 Income Tax on Nonresident Individuals, Estates, Trusts, and Fiduciaries

N.D. Admin. Code 81-03-02.2 Income Tax on Nonresident Individuals, Estates, Trusts, and Fiduciaries

CHAPTER 81-03-02.2

INCOME TAX ON NONRESIDENT INDIVIDUALS, ESTATES, TRUSTS, AND FIDUCIARIES

Section 81-03-02.2-01Nonresident Filing Status and Reporting of Income 81-03-02.2-01.1Part-Year Resident Filing Status and Reporting of Income 81-03-02.2-02Income of Nonresident From Tangible Property Located in North Dakota 81-03-02.2-03Computation of North Dakota Income Tax Liability by a Nonresident Individual, Estate, or Trust Electing to File Under North Dakota Century Code Section 57-38-30.3 [Repealed] 81-03-02.2-04Deduction for Federal Income Tax Liability - Limitation 81-03-02.2-01. Nonresident filing status and reporting of income.

1.A nonresident individual who moves into this state with the intent to establish permanent residence acquires status as a resident immediately upon entering this state. That individual may file an individual income tax return for the first tax year either as a resident or as a nonresident.

2.An individual who elects to file an individual income tax return as a resident the first tax year in this state must report to this state total income from all sources for the entire year and must pay taxes on that income. That individual is entitled to a tax credit for taxes paid to another state on any portion of that income.

3.An individual who elects to file an individual income tax return as a nonresident the first tax year in this state must report to this state total income from all sources for that portion of the tax year during which the individual resided in this state. Income from tangible property located in this state must be reported to this state for the entire year.

4.If a resident individual moves out of this state during a tax year with the intent to change residency, that individual must file an individual income tax return as a nonresident and must report to this state total income from all sources for that portion of the tax year during which the individual resided in this state. Income from tangible property located in this state must be reported to this state for the entire year.

5.This rule is effective for taxable years beginning before January 1, 2001.

History: Effective July 1, 1985; amended effective June 1, 2002.

Law Implemented: NDCC 57-38-04 81-03-02.2-01.1. Part-year resident filing status and reporting of income.

1.An individual who moves into this state during the tax year with the intent to establish permanent residence acquires status as a resident immediately upon entering this state. That individual must file an individual income tax return for the first tax year as a part-year resident.

2.An individual who moves out of this state during the tax year with the intent to change residency must file an individual income tax return for that year as a part-year resident.

3.An individual, who files an individual income tax return as a part-year resident, must report to this state total income from all sources for that portion of the tax year during which the individual resided in this state. Income from sources in this state must also be reported to this state for the portion of the year the individual was not a resident. The individual is entitled to a tax credit for taxes paid to another state on any portion of the income reported to this state.

4.This rule is effective for taxable years beginning after December 31, 2000.

History: Effective June 1, 2002.

Law Implemented: NDCC 57-38-04 81-03-02.2-02. Income of nonresident from tangible property located in North Dakota.

A nonresident must report to this state income from tangible property located in this state and must pay North Dakota tax on that income. Such income may not be excluded by a reciprocal agreement or for any other reason unless specifically excluded by statute.

Income from tangible property located in this state includes, but is not limited to, income from royalty interests and all other lease interests in minerals, income from rental of tangible property, gains from sales of tangible property, and gains from the sale or assignment of land contracts.

History: Effective July 1, 1985.

Law Implemented: NDCC 57-38-04, 57-38.1-04, 57-38.1-05, 57-38.1-06 81-03-02.2-03. Computation of North Dakota income tax liability by a nonresident individual, estate, or trust electing to file under North Dakota Century Code section 57-38-30.3.

Repealed effective July 1, 2016. 81-03-02.2-04. Deduction for federal income tax liability - Limitation.

In determining the North Dakota taxable income of a nonresident, the deduction for the federal income tax liability must be adjusted as follows:

1.The federal foreign income tax credit must be subtracted.

2.After subtracting the federal foreign income tax credit, the result must be multiplied by a fraction in which the numerator is the amount of the federal adjusted gross income allocated and apportioned to North Dakota reduced by the amount of income that is excludable from North Dakota taxable income due to North Dakota statutes, federal statutes, or constitutional provisions, and the denominator is federal adjusted gross income.

History: Effective May 1, 1991.

Law Implemented: NDCC 57-38-01.2, 57-38-06

Chapter 81-03-03 Income Tax Withholding

N.D. Admin. Code 81-03-03 Income Tax Withholding

CHAPTER 81-03-03

INCOME TAX WITHHOLDING [Superseded by Chapter 81-03-03.1]

Chapter 81-03-03.1 Income Tax Withholding

N.D. Admin. Code 81-03-03.1 Income Tax Withholding

CHAPTER 81-03-03.1

INCOME TAX WITHHOLDING

Section 81-03-03.1-01Certificate of Residence - Penalty [Repealed] 81-03-03.1-02Employer's Application for Registration 81-03-03.1-03Exemptions - Federal or State Withholding Certificate [Repealed] 81-03-03.1-04Amount of Wages Payable Before Withholding Applies [Repealed] 81-03-03.1-01. Certificate of residence - Penalty.

Repealed as a result of S.L. 1987, ch. 695, § 3, 4, 5, 6, 8, and 9. 81-03-03.1-02. Employer's application for registration.

An employer who is required to withhold state income tax must register with the office of tax commissioner within seven days of hiring an employee. The application must be made on a form prescribed by the tax commissioner.

History: Effective July 1, 1985; amended November 1, 1987.

General Authority: NDCC 57-38-56

Law Implemented: NDCC 57-38-59, 57-38-60 81-03-03.1-03. Exemptions - Federal or state withholding certificate.

Repealed as a result of S.L. 1987, ch. 695, §§ 3, 4, 5, 6, 8, and 9. 81-03-03.1-04. Amount of wages payable before withholding applies.

Repealed as a result of S.L. 1987, ch. 695, §§ 3, 4, 5, 6, 8, and 9.

Chapter 81-03-03.2 New Jobs Credit from Withholding

N.D. Admin. Code 57-38-60 The employer shall file the new jobs credit withholding statement for each taxable period until the employer is no longer eligible for the new jobs credit from withholding. The tax commissioner shall not transfer the equivalent credit amount until such time as the statement required by this section is filed and the amount deducted and withheld by the employer as required by North Dakota Century Code section 57-38-60 is paid

Chapter 81-03-04 Estimated Tax

N.D. Admin. Code 81-03-04-01 Corporation required to report and pay estimated tax and interest - Refund of overpayment

1.Any corporation may elect to make a payment of estimated income tax with the tax commissioner.

2.A corporation is required to make a payment of estimated tax with the tax commissioner if:

a.The corporation's previous year's state income tax liability exceeded five thousand dollars; and

b.The corporation reasonably expects the current state income tax liability to be in excess of five thousand dollars.

3.For the purpose of this section, tax liability is defined as the amount of North Dakota tax due computed after the application of allowable credits and before the application of estimated payments.

4.When making payment of estimated income tax, a corporation has the option of basing the estimation on the tax liability for the previous year or on an estimate of the liability for the current tax year.

5.The payment of estimated income tax must be made on or before the fifteenth day of the fourth month of the current corporate tax year. The original payment of estimated income tax may be amended anytime before the fifteenth day of the first month of the tax year following the current tax year.

6.A corporation shall pay the estimated tax liability in four equal installments payable on the fifteenth day of the fourth, sixth, and ninth month of the current tax year and the fifteenth day of the first month of the following tax year. As an alternative to paying in quarterly installments, a corporation may pay the entire estimated amount on the fifteenth day of the fourth month of the current tax year.

7.For taxable years beginning after December 31, 1986, the provisions for recurring seasonal income as provided in section 6655(e) of the Internal Revenue Code are recognized for state income tax purposes.

8.For taxable years beginning after December 31, 1990, the provisions for the annualized or adjusted seasonal method of determining estimated income under section 6655 of the Internal Revenue Code are recognized for state income tax purposes.

9.For purposes of subsection 5 of North Dakota Century Code section 57-38-62:

a.An amended return filed on or before the due date, including extensions for filing the original return, is the corporation's return for that taxable year.

b.An audit assessment does not affect the calculation of estimated tax payments.

10.Interest shall apply in the following conditions:

a.A corporation did not pay the estimated tax on or before the quarterly due date.

b.The quarterly estimated payments were underpaid by more than ten percent of the actual tax liability for the current tax year divided by four. However, no interest will apply if the quarterly estimated payments equaled the previous year's total tax divided by four.

11.Estimated tax payments, received as a result of an amendment to the originally estimated tax, will have interest computed from the date paid to the date due in the related quarters.

12.If the total amount of estimated tax payments exceed the total amount of tax required to be paid for the current tax year, the overpayment will be refunded. 13.a.If the total amount of estimated tax payments exceeds the anticipated tax liability for the tax year by more than five hundred dollars, a quick refund may be requested. The request for refund must be filed on forms provided by the tax commissioner. In addition, the request must be filed after the close of the tax year and before the original due date of the tax return. No interest will be paid on a quick refund.

b.If a quick refund of estimated income tax results in a corporation's failure to meet the requirements of North Dakota Century Code section 57-38-62, interest provisions will apply.

History

• History: Effective July 1, 1985; amended effective November 1, 1987; November 1, 1991; August 1, 1994; April 1, 1996; July 1, 1998.
• Law Implemented: NDCC 57-38-62

N.D. Admin. Code 81-03-04-02 Payments of estimated taxes by individuals, estates, and trusts

1.Except as otherwise provided, an individual, estate, or trust subject to section 6654 of the Internal Revenue Code, relating to failure to pay estimated income taxes, shall make payments of estimated state income tax.

2.For purposes of subsection 5 of North Dakota Century Code section 57-38-62:

a.An amended return filed on or before the due date, including extensions for filing the original return, is the individual's, estate's, or trust's return for that taxable year.

b.An audit assessment does not affect the calculation of estimated tax payments.

3.Interest for failure to make payments of estimated state income tax must be waived by the tax commissioner in the following situations:

a.When an individual derives over two-thirds of gross income from farming, files a federal income tax return by March first of the following tax year, and pays the federal tax in full by that same date, but does not make payments of estimated state income tax. The individual does not have to file a state income tax return or pay any state income tax due on or before March first of the following tax year to qualify for this waiver of interest.

b.When an individual derives over two-thirds of gross income from farming, makes the one required estimated federal tax installment on January fifteenth of the following tax year, files a federal income tax return after March first of the following tax year, and pays the estimated state income tax due on January fifteenth of the following tax year. The first three payments due on April fifteenth, June fifteenth, and September fifteenth of the current tax year are not required to qualify for this waiver of interest.

c.When an individual, estate, or trust utilizes the annualized income installment method for federal purposes as provided in section 6654 of the Internal Revenue Code, and makes the required estimated state income tax payment based thereon.

d.When an individual, estate, or trust has a current year tax liability which exceeds the taxpayer's withholding by less than five hundred dollars, and the taxpayer does not make payments of estimated state income tax. The five hundred dollar limitation applies per return.

4.To determine tax liability for the immediately preceding year, married taxpayers who filed separate returns in the prior year, but who plan to file a joint return for the current year, shall combine the tax liabilities reflected on their prior year returns. Joint estimated tax payments for the current year must equal or exceed one hundred percent of the couple's total tax liability for the prior year if the prior year test is applicable.

History

• History: Effective November 1, 1987; amended effective July 1, 1989; March 1, 1990; November 1, 1991; April 1, 1996; June 1, 2002.
• Law Implemented: NDCC 57-38-45, 57-38-62, 57-38-63, 57-38-64

N.D. Admin. Code 81-03-04-03 Estimated income tax payment

Any amount received by the tax commissioner designated as an estimated state income tax payment, including an overpayment of income tax that is credited to the taxpayer's estimated income tax for the following tax year, may not be used by the tax commissioner to offset any liability owed to North Dakota by the taxpayer, nor may the taxpayer request that the tax commissioner use any amount designated as an estimated payment to offset a state liability of the taxpayer. Prior to crediting an overpayment of income tax to the taxpayer's estimated income tax for the following tax year, the tax commissioner may apply an overpayment to offset unpaid child support or may apply an overpayment as provided in North Dakota Century Code section 57-01-12.1 and subsection 3 of North Dakota Century Code section 57-38-35.1.

History

• History: Effective November 1, 1992.
• Law Implemented: NDCC 57-38-62

Chapter 81-03-05 Income Tax on Corporations

N.D. Admin. Code 81-03-05 Income Tax on Corporations

CHAPTER 81-03-05

INCOME TAX ON CORPORATIONS [Superseded by Chapter 81-03-05.1]

Chapter 81-03-05.1 Income Tax on Corporations

N.D. Admin. Code 81-03-05.1 Income Tax on Corporations

CHAPTER 81-03-05.1

INCOME TAX ON CORPORATIONS

Section 81-03-05.1-01Cooperatives Required to File 81-03-05.1-02Computation of Unitary Business Income Subject to Apportionment [Repealed] 81-03-05.1-03DISC and FSC Subject to North Dakota Income Tax 81-03-05.1-04DISC Distributions 81-03-05.1-05Subchapter S Corporation Tax Credits 81-03-05.1-06Tax Credit for Research and Experimental Expenditures 81-03-05.1-07Net Operating Losses 81-03-05.1-08Consolidated Returns 81-03-05.1-01. Cooperatives required to file.

Cooperative corporations, such as grain elevators, oil companies, creameries, locker plants, and others, which distribute their income through patronage dividends are not exempted from filing state income tax returns.

History: Effective July 1, 1985.

Law Implemented: NDCC 57-38-09, 57-38-09.1, 57-38-32 81-03-05.1-02. Computation of unitary business income subject to apportionment.

Repealed effective May 1, 1991. 81-03-05.1-03. DISC and FSC subject to North Dakota income tax.

A DISC (domestic international sales corporation) is treated as an ordinary corporation and subject to state income tax. If the domestic international sales corporation has no activity within this state, but the parent corporation is required to file a tax return with this state, the deemed and actual distributions made by the domestic international sales corporation must be included in business income of the parent and subject to state tax.

The tax commissioner may require a combined report whereby income of the domestic international sales corporation is included in the parent's income for state tax purposes and deemed distributions and intercompany items are eliminated.

If both the parent corporation and the domestic international sales corporation are nonapportioning North Dakota corporations, the domestic international sales corporation must be required to file a return and compute income subject to state tax based on its total income, and the parent corporation will be allowed a deduction for the deemed distribution to the extent of the domestic international sales corporation's business activity taxed in this state. If the domestic international sales corporation is taxed on its total income, then the parent corporation may deduct one hundred percent of the deemed distribution.

An FSC (foreign sales corporation) must be treated the same as a domestic international sales corporation for state tax purposes. Distributions made by the foreign sales corporation to the parent corporation must be included in the parent's income for state tax purposes. The tax commissioner may also require a combined report by the parent corporation to include the total income of the foreign sales corporation, with deemed distributions and intercompany items eliminated.

History: Effective July 1, 1985; amended effective April 1, 1995.

Law Implemented: NDCC 57-38-01, 57-38-01.3 81-03-05.1-04. DISC distributions.

Actual distributions received from a DISC (domestic international sales corporation), or a former domestic international sales corporation, after December 31, 1984, on accumulated earnings derived before January 1, 1985, must be treated as taxable income and included in apportionable income for state tax purposes. Therefore, the taxable income of a corporation as computed pursuant to the provisions of the Internal Revenue Code of 1954, as amended, must be adjusted as necessary to include the actual domestic international sales corporation distributions received after December 31, 1984, in apportionable income for state tax purposes.

Actual distributions received after December 31, 1984, from accumulated earnings before January 1, 1985, from a domestic international sales corporation, or a former domestic international sales corporation, previously included in a combined report filed with this state, must be treated as previously taxed income and no adjustment to income for state tax purposes is necessary.

History: Effective July 1, 1985.

Law Implemented: NDCC 57-38-01, 57-38-01.3 81-03-05.1-05. Subchapter S corporation tax credits.

1.The following tax credits may be claimed only by a subchapter S corporation required to pay state income tax pursuant to subsection 1 of North Dakota Century Code section 57-38-01.4:

a.Corporate tax credit for new industry.

b.Corporate tax credit for research and experimental expenditures.

2.The shareholders may not claim tax credits claimed by the subchapter S corporation.

History: Effective March 1, 1988; amended effective March 1, 1990; June 1, 2002; July 1, 2016.

Law Implemented: NDCC 57-38-01.4, 57-38-01.7, 57-38-01.16, 57-38-01.17 81-03-05.1-06. Tax credit for research and experimental expenditures.

When calculating the tax credit provided for in North Dakota Century Code section 57-38-30.5, the taxpayer may include in the base amount only those amounts that were incurred in or attributable to North Dakota.

History: Effective June 1, 1992; amended effective July 1, 2016.

Law Implemented: NDCC 57-38-30.5 81-03-05.1-07. Net operating losses.

1.A North Dakota net operating loss must be computed after the allocation and apportionment of a taxpayer's income or loss to North Dakota.

2.A North Dakota net operating loss may be carried forward for the same number of years as a federal loss of like character, e.g., regular net operating loss, product liability loss, or foreign expropriation loss.

3.If a corporation does not file a consolidated corporation income tax return pursuant to section 81-03-05.1-08, the corporation's North Dakota net operating loss may be carried forward even if:

a.The ownership of the corporation in the loss year is not the same as the ownership in each of the years to which the loss is carried, e.g., the corporation is acquired by another corporation.

b.The filing method used by the corporation in the loss year is not the same as the filing method used in each of the years to which the loss is carried, e.g., separate entity filing versus combined reporting.

4.If a corporation files a consolidated corporation income tax return pursuant to section 81-03-05.1-08, a North Dakota net operating loss must be computed for each corporation included in the consolidated return for the year in which the loss was incurred. Each corporation included in the consolidated return must carry forward its net operating loss to the extent that it had North Dakota taxable income in the year to which the loss is carried.

5.The commissioner may audit a North Dakota net operating loss and the taxable income of the year to which the loss is carried.

6.A corporation may not carry forward its North Dakota net operating loss if the corporation has been dissolved as a separate corporate entity.

History: Effective December 1, 1993; amended effective July 1, 2016.

Law Implemented: NDCC 57-38-01.3(2)(3) 81-03-05.1-08. Consolidated returns.

1.As used in this section:

a."Combined report" means a tax return on which the tax liability is computed using the method described in chapters 81-03-05.2 and 81-03-05.3.

b."Consolidated return" means a single corporation income tax return that reports the tax liability of more than one corporation engaged in business in or having sources of income from North Dakota.

c."Taxpayer" means a corporation liable to report income or loss to North Dakota.

2.Only taxpayers who compute their liability using the combined report method may file a consolidated return. The consolidated return must contain the following information:

a.Identifies the name and federal identification number of the corporation that will file the consolidated return.

b.Reports the tax liabilities of all taxpayers in the combined report.

3.All taxpayers in the combined group must continue to file a consolidated return until the commissioner is notified in writing of the combined group's intent to file individual returns.

4.This section is effective for all tax years beginning after December 31, 1992.

Example:

B Combined Amounts Facts:

Federal taxable income$500,000$(80,000)$40,000$460,000 State adjustments10,0001,0005,00016,000 North Dakota property150,000010,000 Total property150,000100,00010,000260,000 North Dakota payroll60,000040,000 Total payroll60,000100,00040,000200,000 North Dakota sales1,000,0000200,000 Total sales1,500,000300,000200,0002,000,000 Computation of apportionment factor North Dakota property$150,000$10,000 Combined property260,000260,000 Property factor.576923.038462 North Dakota payroll60,00040,000 Combined payroll200,000200,000 Payroll factor.300000.200000 North Dakota sales1,000,000200,000 Combined sales2,000,0002,000,000 Sales factor.500000.100000 Sum of factors1.376923.338462 Apportionment factor.458974.112821 Computation of tax liability Total Tax Due Federal taxable income$460,000$460,000 State adjustments16,00016,000 North Dakota apportionable income476,000476,000 Apportionment factor.458974.112821 North Dakota taxable income218,47253,703 North Dakota tax due (2015 rates)8,5011,400$9,901

History: Effective December 1, 1993; amended effective September 1, 1997; July 1, 2016.

Law Implemented: NDCC 57-38-14

Chapter 81-03-05.2 Water's Edge Method

N.D. Admin. Code 81-03-05.2 Water's Edge Method

CHAPTER 81-03-05.2

WATER'S EDGE METHOD

Section 81-03-05.2-01Definitions 81-03-05.2-02Water's Edge Election 81-03-05.2-03Method of Reporting 81-03-05.2-04Elements of the Water's Edge Combined Report 81-03-05.2-05Domestic Disclosure Spreadsheet 81-03-05.2-06Failure to Comply With Water's Edge Election 81-03-05.2-06.1Recisison of a Water's Edge Election 81-03-05.2-07Procedure for Review of Tax Commissioner's Recision of Water's Edge Election 81-03-05.2-08Administrative Provisions of Income Tax Law Applicable 81-03-05.2-01. Definitions.

As used in these sections and for the administration of North Dakota Century Code chapter 57-38.4, unless the context otherwise requires:

1."Assets" means both tangible and intangible property valued at original cost less depreciation, amortization, or depletion as reflected on the corporation's balance sheet prepared according to generally accepted accounting principles.

2."Average of property and payroll" means average of property and payroll as defined pursuant to chapter 81-03-09 and North Dakota Century Code chapters 57-38.1 and 57-59.

3."Commissioner" means the tax commissioner of the state of North Dakota.

4."80/20 corporation" means a corporation that:

a.Is incorporated in the United States.

b.Is eligible to be included in a federal consolidated return as defined in subsection 5 of North Dakota Century Code section 57-38.4-01.

c.Has eighty percent or more of the average of its property and payroll assigned to locations in foreign countries.

5."Foreign corporation" means a corporation incorporated outside the United States.

6."Foreign country" means a country other than the United States or a possession of the United States.

7."Income from an 80/20 corporation" means net book income for financial statement purposes.

However, a corporation's net book income cannot be offset by a net book loss from another 80/20 corporation.

8."Net book income for financial statement purposes" as used herein means the results of operations as determined using the accrual method of accounting and generally accepted accounting principles as adopted by the American institute of certified public accountants. If a corporation has more than one financial statement, it must use the first statement in the following priority:

a.Financial statements required to be filed with the securities and exchange commission.

b.Financial statements audited by an independent certified public accountant.

c.Income statements prepared for a nontax purpose required to be provided to the federal government, state government, or a political subdivision of state government.

d.Income statements prepared for credit purposes, for reporting to stockholders or other owners, or for any other nontax purpose. An unaudited report that is accompanied by an independent auditor's review report has priority over another unaudited statement.

9."New corporation" means a corporation that either has not filed or was not required to file an income tax return after the 1979 tax year.

10."Property, payroll, and sales" means property, payroll, and sales as defined in chapter 81-03-09 and North Dakota Century Code chapters 57-38.1 and 57-59.

11."State" means each of the fifty states and the District of Columbia.

12."Taxpayer" means a corporation that is required to file an income tax return in North Dakota.

13."Transaction" means an event that causes a change in a corporation's assets, liabilities, or owner's equity.

14."United States" means the fifty states and the District of Columbia.

History: Effective July 1, 1989; amended effective March 1, 1990; April 1,1995; July 1, 1998.

Law Implemented: NDCC 57-38.4 81-03-05.2-02. Water's edge election.

A taxpayer may elect to use the water's edge method for any taxable year beginning on or after January 1, 1989.

2.A water's edge election is made when each taxpayer in the unitary group checks the water's edge box on its original North Dakota income tax return for the first year to which the election applies.

3.If a water's edge taxpayer files a consolidated water's edge return, the election made on that return shall apply to all members of the water's edge group included in that return.

4.An affiliated corporation is considered to have consented to a water's edge election if the corporation becomes a member of the group after the group elects to use the water's edge method.

History: Effective July 1, 1989; amended effective August 1, 1994; April 1,1995. 81-03-05.2-03. Method of reporting.

A water's edge group shall use a combined report to determine the amount of income which should be assigned to North Dakota on behalf of each member of the group. If the combined report assigns income to North Dakota on behalf of a member of the group, that member shall report the assigned income on its North Dakota income tax return. 81-03-05.2-04. Elements of the water's edge combined report.

1.A taxpayer who elects to use the water's edge method shall include the income and the apportionment factors of the water's edge group in its combined report. The aforementioned group must include the following corporations:

a.A United States parent corporation.

b.An affiliated corporation incorporated in the United States, excluding, however, an 80/20 corporation.

c.An affiliated corporation incorporated in a possession of the United States as described in Internal Revenue Code sections 931 through 936.

d.A domestic international sales corporation as described in Internal Revenue Code sections 991 through 994.

e.A foreign sales corporation as described in Internal Revenue Code sections 921 through 927.

f.An export trade corporation as described in Internal Revenue Code sections 970 through 972.

g.A foreign corporation which derived gain or loss from disposing of a United States real property interest but only to the extent the gain or loss was recognized under Internal Revenue Code section 897.

h.A foreign corporation if over fifty percent of its voting stock is owned, directly or indirectly, by a member of the water's edge group, and if more than twenty percent of the average of its property and payroll is assignable to a location within the United States or its possessions.

2.Income for the water's edge group must be computed on the same basis as federal taxable income, except as provided for in the following subdivisions and in subsection 2 of North Dakota Century Code section 57-38.4-02, and plus or minus the adjustments provided for in North Dakota Century Code section 57-38-01.3 with the exception of subdivision c of subsection 1 of North Dakota Century Code section 57-38-01.3:

a.Transactions between members of the water's edge group must be eliminated.

b.Transactions between a member of the water's edge group and an affiliated corporation that has been excluded from the group must be included.

c.If a corporation is included in the water's edge group but it is not required to file a federal income tax return, the equivalent of its federal taxable income must not include a deduction for foreign taxes based on income.

d.For the purpose of computing federal taxable income, a foreign sales corporation must include the foreign trade income which is exempt from federal income tax under the Internal Revenue Code.

3.The factors used to apportion the income of the water's edge group must be determined pursuant to North Dakota Century Code chapters 57-38.1 and 57-59, chapter 81-03-09, and the following subdivisions:

a.Transactions between members of the water's edge group must be eliminated.

b.Transactions between any member of the water's edge group and an affiliated corporation that has been excluded from the group must be included.

c.The property, payroll, and sales of an 80/20 corporation, a dividend payor corporation, or any other affiliated corporation that has been excluded from the water's edge group must not be included in the apportionment factors of the group.

History: Effective July 1, 1989; amended effective August 1, 1994; July 1,1998.

Law Implemented: NDCC 57-38-01.3, 57-38.1, 57-38.4, 57-59 81-03-05.2-05. Domestic disclosure spreadsheet.

1.A taxpayer electing to use the water's edge method shall file a domestic disclosure spreadsheet if the affiliated corporations as a group have:

a.Property, payroll, or sales in foreign countries exceeding ten million dollars.

b.Assets exceeding two hundred fifty million dollars.

2.The domestic disclosure spreadsheet must be filed the first year the conditions set forth in subsection 1 of section 81-03-05.2-05 are met and every third year thereafter provided the conditions set forth in subsection 1 of section 81-03-05.2-05 continue to be met.

3.A domestic disclosure spreadsheet must include the following:

a.A list of the corporations in the water's edge group and any corporation in which more than twenty percent of the voting stock is, either directly or indirectly, owned or controlled by a member of the water's edge group.

b.The following identifying information for each corporation listed in subdivision a:

(1)Federal identification number.

(2)Address.

(3)Percentage of voting stock, that is either directly or indirectly owned or controlled by each member of the water's edge group.

c.The following information for each corporation in the water's edge group:

(1)Primary business locations.

(2)Primary business activities.

(3)Country of incorporation.

(4)Dates of acquisition or disposition of the ownership interest.

(5)For each state which assesses a tax on, according to, or measured by net income, a schedule detailing the tax liability and the computations used to allocate or apportion the corporation's income to each state in which the corporation is taxable.

The details which must be disclosed on the aforementioned schedule include:

(a)Whether the liability was computed on a single entity basis or pursuant to a combined report.

(b)The entities included in the combined report.

(c)The federal taxable income for each entity whose income was included in determining the amount of income that was allocated and apportioned to the state.

(d)The amount of income apportioned to the state, the formula used to apportion the income, and the amount of property, payroll, and sales included in the formula used to apportion the income.

(e)The amount of income allocated to the state.

(f)The total amount of income not subject to apportionment by formula under the rules of the state.

(g)The amount of tangible personal property sales made or delivered to customers within the state.

(6)For each state which does not assess a tax on, according to, or measured by income, a schedule disclosing the following information for each corporation which has a taxable presence in the state:

(a)The federal taxable income for the corporation or for the federal consolidated filing group of which the corporation is a member.

(b)The amount of property, payroll, and sales that would be assigned to the state under North Dakota Century Code chapter 57-38.1 and the rules adopted pursuant thereto.

(c)The amount of tangible personal property sales made or delivered to customers within the state.

d.A copy of pages one through four of the federal income tax return that was filed with the internal revenue service for each corporation listed in subdivision c.

4.The spreadsheet information must be filed on the forms provided by the commissioner. Data not submitted on the preapproved forms will be deemed incomplete.

5.If the information required to be reported on the spreadsheet is not available whenthe return is filed, a taxpayer may file the spreadsheet within six months after the due date of the return, including any extensions. If the aforementioned time deadlines cannot be met, a taxpayer shall file a written request for an extension of time with the commissioner within six months after the due date of the return, including any extensions. This request which will be deemed filed on the date it is sent by certified mail must state the grounds for the request. Within a reasonable time after receiving the request, the commissioner shall notify the taxpayer as to whether the request for additional time is granted. However, the commissioner will not grant an extension of time that exceeds one hundred twenty days.

6.A spreadsheet will be deemed complete when filed unless the commissioner notifies the taxpayer, within one hundred eighty days after the spreadsheet was filed, that the spreadsheet requirements have not been met. This notice must be sent by certified mail and it must inform the taxpayer as to why the spreadsheet was not properly completed. A taxpayer shall correct the deficiencies in its spreadsheet within ninety days after receiving the aforementioned notice of deficiency. If the ninety-day deadline cannot be met, a taxpayer shall file a written request for an extension of time with the commissioner within ninety days after receiving the notice of deficiency. This request which will be deemed filed on the date it is sent by certified mail must state the grounds for the request. Within a reasonable time after receiving the request, the commissioner shall notify the taxpayer as to whether the request for additional time is granted.

History: Effective July 1, 1989; amended effective March 1, 1990; May 1,1991; August 1, 1994. 81-03-05.2-06. Failure to comply with water's edge election.

1.If a taxpayer fails to make a valid water's edge election, the taxpayer will be prohibited from using this method to apportion its income for the year in question. If this occurs, the taxpayer shall determine its income and resulting tax liability pursuant to North Dakota Century Code chapters 57-38, 57-38.1, and 57-59, which chapters include reporting on a worldwide combined basis.

2.A taxpayer's failure to file a spreadsheet or to correct deficiencies in its spreadsheet will constitute a failure to file a return. If this occurs, the tax liability computed under the water's edge method will be subject to penalty and interest pursuant to North Dakota Century Code

section 57-38-45.

3.If a taxpayer fails to comply with the conditions in North Dakota Century Code section 57-38.4-02 and this chapter, the commissioner may rescind the taxpayer's water's edge election for the entire election period. If this occurs, the commissioner will require the taxpayer to apportion its income for the period to which the election applied pursuant to worldwide combination or any other method of reporting permitted under North Dakota Century Code

chapter 57-38, 57-38.1, or 57-59.

Law Implemented: NDCC 57-38, 57-38.1, 57-38.4, 57-38-45 81-03-05.2-06.1. Recission of a water's edge election.

1.The water's edge election of a corporation that has had more than fifty percent of its voting stock acquired by a nonaffiliated corporation is rescinded.

2.The water's edge election of a corporation formed due to a reorganization or spinoff from an existing taxpayer is rescinded if, after such reorganization or spinoff, it is no longer an affiliated member of the water's edge group.

3.The water's edge election of a corporation that is completely liquidated is rescinded. The election does not carry over to a corporation receiving the liquidated assets. This provision does not affect the water's edge election made by any corporation that receives liquidated assets.

History: Effective April 1, 1995.

Law Implemented: NDCC 57-38, 57-38.1, 57-38.4 81-03-05.2-07. Procedure for review of tax commissioner's recision of water's edge election.

1.The commissioner shall notify a taxpayer if there is a decision to rescind the taxpayer's water's edge election. The notice of recision must be sent to the taxpayer by certified mail with a return receipt requested, and it must state the reasons for the recision.

2.The notice of recision becomes final and irrevocable thirty days after the date the notice is received by the taxpayer unless within that thirty-day period the taxpayer files a written protest with the commissioner. The protest which will be deemed filed on the date it is sent by certified mail must state the grounds upon which the protest is based.

3.If a protest is filed, the commissioner shall reconsider the notice of recision. This reconsideration may include further examination by the commissioner of any affiliated corporation's books, papers, records, or memoranda pursuant to North Dakota Century Code sections 57-01-02, 57-38-56, and section 81-01.1-01-03.

4.Upon request, the commissioner may grant the taxpayer an informal conference.

5.Within a reasonable time after receiving the protest, the commissioner shall notify the taxpayer as to whether the decision to rescind the taxpayer's water's edge election is affirmed or reversed. Notice of this reconsideration must be sent to the taxpayer by certified mail with a return receipt requested. A decision to affirm becomes final and irrevocable thirty days after the notice of reconsideration has been received by the taxpayer unless, within that thirty-day period, the taxpayer seeks formal administrative review by filing a complaint and requesting an administrative hearing. The provisions of North Dakota Century Code chapter 28-32 will apply to and govern the filing of the complaint and the administrative hearing, including an appeal of the decision rendered by the commissioner.

6.Upon written request, the commissioner may grant an extension of time to file a protest or a complaint.

Law Implemented: NDCC 57-01-02, 57-38-56, 57-38.4 81-03-05.2-08. Administrative provisions of income tax law applicable.

Administration of the water's edge method under North Dakota Century Code chapter 57-38.4 will be governed by those provisions in North Dakota Century Code chapters 57-38, 57-38.1, and 57-59 which are not in conflict with any provision in North Dakota Century Code chapter 57-38.4.

Law Implemented: NDCC 57-38, 57-38.1, 57-38.4, 57-59

Chapter 81-03-05.3 Worldwide Method of Reporting

N.D. Admin. Code 81-03-05.3 Worldwide Method of Reporting

CHAPTER 81-03-05.3

WORLDWIDE METHOD OF REPORTING

Section 81-03-05.3-01Definitions 81-03-05.3-02Method of Filing 81-03-05.3-03Elements of Worldwide Combined Report 81-03-05.3-01. Definitions.

As used in these sections, unless the context otherwise requires:

1."Commissioner" means the tax commissioner of the state of North Dakota.

2."Ownership interest" means voting interest.

3."Taxpayer" means any corporation that is required to file an income tax return in North Dakota.

4."Transaction" means an event that causes a change in a corporation's assets, liabilities, or owner's equity.

5."Unitary business" means a group of corporations carrying on activities the component parts of which transfer value among themselves through the unities of ownership, operation, and use. Whether a group of corporations is engaged in a unitary business depends on the facts and circumstances of each case. However, if unity of ownership exists, any or all of the following facts and circumstances will create a presumption that the unities of operation and use exist and, therefore, that the corporations are engaged in a unitary business:

a.All activities of the corporations in the group are in the same general line or type of business.

b.The activities of the corporations in the group constitute different steps in a vertically structured enterprise.

c.The group of corporations is characterized by centralized management.

6."United States" means the fifty states and the District of Columbia.

7."Unity of operation" means that the group of corporations contributes to or receives benefits from functional integration or economies of scale.

8."Unity of ownership" means that the corporations in the group are under the common control of a single corporation, which is also a member of the worldwide group. Control is presumed to exist when the single corporation owns, directly or indirectly, more than fifty percent of the ownership interest of another corporation.

9."Unity of use" means that the group of corporations contributes to or receives benefits from centralized management and policy formation.

10."Worldwide combined report" means a method of determining the amount of income which should be assigned to North Dakota on behalf of each member of the worldwide group.

11."Worldwide group" means the group of corporations engaged in a unitary business. This group of corporations may be engaged in business activity both within and without the United States or the group may be engaged solely in business activity within the United States.

History: Effective March 1, 1990.

Law Implemented: NDCC 57-38,57-38.1 81-03-05.3-02. Method of filing.

A taxpayer that is a member of a worldwide group shall file its North Dakota income tax return using a worldwide combined report.

History: Effective March 1, 1990.

Law Implemented: NDCC 57-38, 57-38.1, 57-59 81-03-05.3-03. Elements of worldwide combined report.

1.A taxpayer that is required to file using the worldwide method of reporting shall include the income and apportionment factors of the following unitary corporations in its combined report:

a.A parent corporation.

b.Any corporation incorporated in the United States.

c.Any corporation incorporated in a possession of the United States as described in Internal Revenue Code sections 931 through 936.

d.Any domestic international sales corporation as described in Internal Revenue Code sections 991 through 994.

e.Any foreign sales corporation as described in Internal Revenue Code sections 921 through 927.

f.Any export trade corporation as described in Internal Revenue Code sections 970 through 972.

g.Any foreign corporation which derived gain or loss from disposing of a United States real property interest but only to the extent the gain or loss was recognized under Internal Revenue Code section 897.

h.Any foreign corporation.

2.The factors used to apportion the income of the worldwide group must be determined pursuant to chapter 81-03-09 and North Dakota Century Code chapters 57-38.1 and 57-59, and the following subdivisions:

a.Transactions between members of the worldwide group must be eliminated.

b.Transactions between any member of the worldwide group and a corporation that has been excluded from the group must be included.

c.The property, payroll, and sales of a corporation that has been excluded from the worldwide combined report must not be included in the apportionment factors of the group.

d.When apportionable income includes income from a corporation's ownership interest in a general partnership, the corporate partner's share of the partnership's property, payroll, and sales must be included in the group's apportionment factors.

3.Income for the worldwide group must be computed using one of the following methods:

a.Method one.

(1)Begin with federal taxable income of the corporations included in the combined report which are required to file a federal income tax return.

(2)Add book income adjusted to conform to the provisions of the Internal Revenue Code of the corporations included in the combined report which are not required to file a federal income tax return.

(3)Eliminate transactions between members of the worldwide group.

(4)Add or subtract the adjustments provided for in North Dakota Century Code section 57-38-01.3.

(5)Add or subtract nonbusiness income and nonbusiness losses net of related expenses, unless allocable to North Dakota.

b.Method two.

(1)Begin with federal taxable income of the corporations included in the combined report which are required to file a federal income tax return.

(2)Add book income of those corporations included in the combined report which are not required to file a federal income tax return.

(3)Eliminate transactions between members of the worldwide group.

(4)Add or subtract the adjustments provided for in North Dakota Century Code section 57-38-01.3.

(5)Add or subtract nonbusiness income and nonbusiness losses net of related expenses, unless allocable to North Dakota.

History: Effective March 1, 1990; amended effective July 1, 2016.

Law Implemented: NDCC 57-38, 57-38.1, 57-59

Chapter 81-03-05.4 Federal Income Tax Deduction

N.D. Admin. Code 81-03-05.4 Federal Income Tax Deduction

CHAPTER 81-03-05.4

FEDERAL INCOME TAX DEDUCTION

Section 81-03-05.4-01Definitions 81-03-05.4-02Use of This Rule 81-03-05.4-03Computation - Part I 81-03-05.4-04Computation - Part II 81-03-05.4-05Additional Provisions 81-03-05.4-01. Definitions.

The following definitions are only applicable in computing a taxpayer's federal income tax deduction pursuant to subdivision c of subsection 1 of North Dakota Century Code section 57-38-01.3:

1."Apportionment factor" means a fraction, computed pursuant to North Dakota Century Code

chapter 57-38, 57-38.1, or 57-59, used to divide business income of a multistate taxpayer among states.

2."Federal" means the United States.

3."Federal income tax deduction" means the adjustment provided for in subdivision c of subsection 1 of North Dakota Century Code section 57-38-01.3.

4."Federal income tax liability" means the amount of federal income tax, excluding any federal alternative minimum tax, computed under chapter 1 of the Internal Revenue Code of 1986, as amended.

5."Federal income tax ratio" means North Dakota taxable income divided by income relating to federal income tax accrued.

6."Income relating to federal income tax paid" means total income less income relating to foreign tax credit.

7."Income relating to foreign tax credit" means income directly attributable to either the foreign tax credit or the possessions credit.

8."North Dakota taxable income" means income which has been apportioned to North Dakota pursuant to North Dakota Century Code chapters 57-38, 57-38.1, and 57-59; provided, however, that no adjustment should be made for the federal income tax deduction.

9."Taxpayer" means a corporation that is required to file an income tax return in North Dakota.

10."Total income" means the federal taxable income of those entities in the unitary group that are required to file a federal income tax return during the period in question, plus or minus the adjustments provided for in North Dakota Century Code section 57-38-01.3, with the exception of subdivisions c and f of subsection 1 of North Dakota Century Code section 57-38-01.3.

History: Effective July 1, 1989; amended effective May 1, 1991; November 1,1991. 81-03-05.4-02. Use of this rule.

Any taxpayer entitled to claim a federal income tax deduction shall compute the deduction in accordance with this chapter.

History: Effective July 1, 1989; amended effective May 1, 1991. 81-03-05.4-03. Computation - Part I.

Any taxpayer claiming a federal income tax deduction shall compute federal income tax liability on income which is taxable in North Dakota in the following manner:

1.Consolidated federal income tax liability.XXX

2.Separate company pro forma federal income tax liability for all of the profit companies that are on the consolidated return and included in the unitary group. Use the method described in Internal Revenue Code

section 1.1552-1(a)(2).

3.Unitary companies' share of consolidated income tax liability for all of the profit companies that are included on the consolidated return.

4.Line 2 divided by line 3.XXX

5.Unitary companies' share of consolidated XXX

6.Federal taxable income of the unitary federal income tax liability (line 1 multiplied by line 4).

7.Amount of federal taxable income reported on line 6 that is not taxable in North Dakota.

8.Federal taxable income attributable to North Dakota (line 6 minus line 7).XXX

9.Line 8 divided by line 6.XXX

10.Consolidated federal income tax liability on income which is taxable in North Dakota (line 5 multiplied by line 9).

History: Effective July 1, 1989; amended effective May 1, 1991; November 1, 1991. 81-03-05.4-04. Computation - Part II.

1.Any taxpayer that is filing as a member of a worldwide unitary group and claiming a foreign tax credit on its federal return shall compute its federal income tax deduction by multiplying the result of subsection 10 of section 81-03-05.4-03 by the federal income tax ratio. However, this subsection cannot be used if either or both North Dakota taxable income or income relating to federal income tax paid is less thanzero.

2.Any taxpayer not described in subsection 1 shall compute its federal income tax deduction by multiplying the result of subsection 10 of section 81-03-05.4-03 by the apportionment factor.

History: Effective July 1, 1989; amended effective May 1, 1991. 81-03-05.4-05. Additional provisions.

1.If members of a unitary group filed more than one federal income tax return, subsections 1 through 10 in section 81-03-05.4-03 must be repeated for each federal income tax return and the result totaled before application of the income tax ratio or apportionment factor in 81-03-05.4-04.

2.A taxpayer may exclude subsections 1 through 4 in section 81-03-05.4-03 when:

a.A North Dakota return is filed using the combined report method and all corporations included in the federal consolidated return are included in the combined report.

b.A corporation does not file a federal consolidated return.

3.If federal alternative minimum tax is accrued and state alternative minimum tax is not, the federal minimum tax must be excluded from subsections 1 through 5 of section 81-03-05.4-03.

History: Effective May 1, 1991; amended effective November 1, 1991.

Chapter 81-03-05.5 Deduction and Credit for Alternative Minimum Income Tax

N.D. Admin. Code 81-03-05.5 Deduction and Credit for Alternative Minimum Income Tax

CHAPTER 81-03-05.5

DEDUCTION AND CREDIT FOR ALTERNATIVE MINIMUM INCOME TAX

Section 81-03-05.5-01Credit for North Dakota Alternative Minimum Tax [Repealed] 81-03-05.5-02Deduction for Federal Alternative Minimum Tax 81-03-05.5-01. Credit for North Dakota alternative minimum tax.

Repealed effective June 1, 2002. 81-03-05.5-02. Deduction for federal alternative minimum tax.

The following provisions are applicable for purposes of interpreting subdivision c of subsection 1 of North Dakota Century Code section 57-38-01.3:

1.Definitions. The following definitions are applicable in computing a taxpayer's federal alternative minimum tax deduction:

a."Apportionment factor" means a fraction, computed pursuant to North Dakota Century Code chapter 57-38, 57-38.1, or 57-59, used to divide business income of a multistate taxpayer among states.

b."Disallowed federal alternative minimum tax" means the amount of federal alternative minimum tax for which a taxpayer did not receive a state income tax deduction pursuant to subdivision c of subsection 1 of North Dakota Century Code section 57-38-01.3.

c."Federal" means the United States.

d."Federal alternative minimum tax" means the amount of federal alternative minimum tax computed under chapter 1 of the Internal Revenue Code of 1986, as amended.

e."Federal income tax ratio" means North Dakota taxable income divided by income relating to federal income tax accrued.

f."State alternative minimum tax deduction" means the amount of disallowed federal alternative minimum tax which a taxpayer is allowed to claim as a deduction for purposes of determining North Dakota taxable income.

g."Taxpayer" means a corporation that is required to file an income tax return in North Dakota.

2.Requirements to claim a state alternative minimum tax deduction. A taxpayer is entitled to claim a state alternative minimum tax deduction for any federal alternative minimum tax accrued subsequent to December 31, 1986, if the following conditions are met:

a.The taxpayer filed a North Dakota corporate income tax return for the same year in which the federal alternative minimum tax was accrued.

b.The deduction is taken in a taxable year beginning after December 31, 1990.

c.The deduction is taken in the same taxable year for which the taxpayer took a credit for federal alternative minimum tax.

3.Computation of state alternative minimum tax deduction. A deduction for alternative minimum tax must be computed in the following manner:

a.Disallowed federal alternative minimum tax.xxx

b.Separate company pro forma income tax liability for all the profit companies that are on the consolidated return and included in the unitary group. Use the method described in Internal Revenue Code

section 1.1552-1(a)(2).xxx

c.Separate company pro forma federal income tax liability for all of the profit companies that are included on the consolidated return.xxx

d.Line b divided by line c.xxx

e.Unitary companies' share of consolidated disallowed federal alternative minimum tax (line a multiplied by line d).xxx

f.Federal taxable income of the unitary companies which are included on the consolidated return.xxx

g.Amount of federal taxable income reported on line f that is not taxable in North Dakota.xxx

h.Federal taxable income attributable to North Dakota (line f minus line g).xxx

i.Line h divided by line f. xxx

j.Line i multiplied by line e.xxx

k.The federal income tax ratio or the apportionment factor for the taxable year in which the federal alternative minimum tax was accrued, whichever is applicable.xxx

l.State alternative minimum tax deduction (line j multiplied by line k).xxx

4.Limitation on amount of state alternative minimum tax deduction. The amount claimed for a state alternative minimum tax deduction cannot exceed the taxpayer's North Dakota taxable income before any state net operating loss. Any excess deduction may be carried forward and used in a year which meets the requirements of subsection 2.

5.Additional provisions.

a.If members of a unitary group filed more than one federal income tax return, subdivisions a through j in subsection 3 must be repeated for each federal income tax return and the result totaled before application of the income tax ratio or apportionment factor.

b.A taxpayer may exclude subdivisions b through d in subsection 3 when:

(1)A North Dakota return is filed using the combined report method and all corporations included in the federal consolidated return are included in the combined report.

(2)A corporation does not file a federal consolidated return.

History: Effective November 1, 1991.

General Authority: NDCC 57-38-56

Law Implemented: NDCC 57-38-01.3, 57-38-30

Chapter 81-03-06 Exempt Organizations [Repealed]

N.D. Admin. Code 81-03-06 Exempt Organizations [Repealed]

CHAPTER 81-03-06

EXEMPT ORGANIZATIONS [Repealed effective July 1, 1985]

Chapter 81-03-07 Business and Corporation Privilege Tax [Repealed]

N.D. Admin. Code 81-03-07 Business and Corporation Privilege Tax [Repealed]

CHAPTER 81-03-07

BUSINESS AND CORPORATION PRIVILEGE TAX [Repealed effective June 1, 2002]

Chapter 81-03-08 Vietnam Bonus Surtax [Repealed]

N.D. Admin. Code 81-03-08 Vietnam Bonus Surtax [Repealed]

CHAPTER 81-03-08

VIETNAM BONUS SURTAX [Repealed effective July 1, 1985]

Chapter 81-03-09 Division of Income

N.D. Admin. Code 81-03-09-01 General

The sections in this chapter are intended to set forth rules concerning the application of the apportionment and allocation provisions of the Uniform Division of Income for Tax Purposes Act, North Dakota Century Code chapter 57-38.1, and article IV of the multistate tax compact, North Dakota Century Code chapter 57-59.

The apportionment rules set forth herein are applicable to any taxpayer having business income, regardless of whether or not the taxpayer has nonbusiness income, and the allocation rules set forth herein are applicable to any taxpayer having nonbusiness income, regardless of whether or not the taxpayer has business income.

The only exception to these allocation and apportionment rules contained herein are those set forth in sections 81-03-09-32, 81-03-09-33, and 81-03-09-34, pursuant to the provisions of North Dakota Century Code section 57-38.1-18 and article IV(18) of North Dakota Century Code section 57-59-01.

These sections are not intended to modify existing rules concerning jurisdictional standards.

N.D. Admin. Code 81-03-09-02 Definitions

As used in this chapter, unless the context otherwise requires:

1."Allocation" refers to the assignment of nonbusiness income to a particular state.

2."Apportionment" refers to the division of business income between states by the use of a formula containing apportionment factors.

3."Article IV" or any reference to the provisions thereof means article IV, division of income of the multistate tax compact, North Dakota Century Code section 57-59-01.

4."Business activity" refers to the transactions and activity occurring in the regular course of a particular trade or business of a taxpayer.

5."Internal Revenue Code" or any reference to the provisions thereof means the "United States Internal Revenue Code of 1954, as amended", as that term is defined in subsection 21 of North Dakota Century Code section 57-38-01.

6."Taxpayer" means any corporation, partnership, firm, association, governmental unit or agency, or person acting as a business entity in more than one state.

7."Uniform Division of Income for Tax Purposes Act" or any reference to any provisions thereof means the Uniform Division of Income for Tax Purposes Act as adopted by several of the states of the United States, and the Uniform Division of Income for Tax Purposes Act as enacted in the provisions of North Dakota Century Code chapter 57-38.1.

N.D. Admin. Code 81-03-09-03 Business and nonbusiness income defined

Subsection 1 of North Dakota Century Code section 57-38.1-01 and article IV(1)(a) of North Dakota Century Code section 57-59-01 define "business income" as income arising from transactions and activity in the regular course of the taxpayer's trade or business and includes income from tangible and intangible property if the acquisition, management, and disposition of the property constitute integral parts of the taxpayer's regular trade or business operations. In essence, all income which arises from the conduct of trade or business operations of a taxpayer is business income. For purposes of administration of North Dakota Century Code chapter 57-38.1 and North Dakota Century Code chapter 57-59, the income of the taxpayer is business income unless clearly classifiable as nonbusiness income. Nonbusiness income means all income other than business income.

The classification of income by the labels occasionally used, such as manufacturing income, compensation for services, sales income, interest, dividends, rents, royalties, gains, operating income, nonoperating income, and so forth, is of no aid in determining whether income is business or nonbusiness income. Income of any type or class and from any source is business income if it arises from transactions and activity occurring in the regular course of a trade or business. Accordingly, the critical element in determining whether income is "business income" or "nonbusiness income" is the identification of the transactions and activity which are the elements of a particular trade or business. In general, all transactions and activities of the taxpayer which are dependent upon or contribute to the operations of the taxpayer's economic enterprise as a whole constitute the taxpayer's trade or business and will be transactions and activity arising in the regular course of and will constitute integral parts of a trade or business. See sections 81-03-09-04 and 81-03-09-08 for further explanation of a trade or business.

History

• History: Amended effective November 1, 1991.

N.D. Admin. Code 81-03-09-04 Two or more businesses of a single taxpayer

A taxpayer may have more than one "trade or business". In such cases, it is necessary to determine the business income attributable to each separate trade or business. The income of each business is then apportioned by an apportionment formula which takes into consideration the instate and outstate factors which relate to the trade or business the income of which is being apportioned.

The determination of whether the activities of the taxpayer constitute a single trade or business or more than one trade or business will turn on the facts in each case. In general, the activities of the taxpayer will be considered a single business if there is evidence to indicate that the segments under consideration are integrated with, dependent upon, or contribute to each other and the operations of the taxpayer as a whole. The following factors are considered to be good indicia of a single trade or business, and the presence of any of these factors creates a strong presumption that the activities of the taxpayer constitute a single trade or business:

1.Same type of business. A taxpayer is generally engaged in a single trade or business when all of its activities are in the same general line. For example, a taxpayer which operates a chain of retail grocery stores will almost always be engaged in a single trade or business.

2.Steps in a vertical process. A taxpayer is almost always engaged in a single trade or business when its various divisions or segments are engaged in different steps in a large, vertically structured enterprise. For example, a taxpayer which explores for and mines copper ores; concentrates, smelts, and refines the copper ores; and fabricates the refined copper into consumer products is engaged in a single trade or business, regardless of the fact that the various steps in the process are operated substantially independent of each other with only general supervision from the taxpayer's executive offices.

3.Strong centralized management. A taxpayer which might otherwise be considered as engaged in more than one trade or business is properly considered as engaged in one trade or business when there is a strong central management, coupled with the existence of centralized departments for such functions as financing, advertising, research, or purchasing.

Thus, a corporation may properly be considered as engaged in only one trade or business when the central executive officers are normally involved in the operations of the various divisions and there are centralized offices which perform for the divisions the normal matters which a truly independent business would perform for itself, such as accounting, personnel, insurance, legal, purchasing, advertising, or financing.

History

• History: Amended effective November 1, 1991.

N.D. Admin. Code 81-03-09-05 Business and nonbusiness income - Application of definitions

Repealed effective November 1, 1991.

N.D. Admin. Code 81-03-09-06 Proration of deductions

In most cases an allowable deduction of a taxpayer will be applicable only to the business income arising from a particular trade or business or to a particular item of nonbusiness income. In some cases an allowable deduction may be applicable to the business income of more than one trade or business or to several items of nonbusiness income. In such cases the deduction shall be prorated among such trades or businesses and such items of nonbusiness income in a manner which fairly distributes the deduction among the classes of income to which it is applicable.

In filing returns with this state, if the taxpayer departs from or modifies the manner of prorating any such deduction 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 a 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 application or proration of any deduction, the taxpayer shall disclose in its return to this state the nature and extent of the variance.

N.D. Admin. Code 81-03-09-07 Apportionment

If the business activity in respect to any trade or business of a taxpayer occurs both within and without this state, and if by reason of such business activity the taxpayer is taxable in another state, the portion of the net income or net loss arising from such trade or business which is derived from sources within this state shall be determined by apportionment in accordance with North Dakota Century Code sections 57-38.1-09 through 57-38.1-17 or article IV(9) through IV(17) of North Dakota Century Code

N.D. Admin. Code 81-03-09-08 Combined report

If a particular trade or business carried on by a taxpayer and one or more affiliated corporations, nothing in either North Dakota Century Code chapter 57-38.1 or North Dakota Century Code chapter 57-59 or in this article shall preclude the use of a "combined report" whereby the entire business income of such trade or business is apportioned in accordance with North Dakota Century Code sections 57-38.1-09 through 57-38.1-17 or article IV(9) through IV(17) of North Dakota Century Code

N.D. Admin. Code 81-03-09-09 Allocation

Any taxpayer subject to the taxing jurisdiction of this state shall allocate all of the taxpayer's nonbusiness income or loss within or without this state in accordance with North Dakota Century Code sections 57-38.1-04 through 57-38.1-08 or article IV(4) through IV(8) of North Dakota Century Code

N.D. Admin. Code 81-03-09-10 Consistency and uniformity in reporting

In filing returns with this state, if the taxpayer departs from or modifies the manner in which income has been classified as business income or nonbusiness income 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 a taxpayer for 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 classification of income as business or nonbusiness income, the taxpayer shall disclose in the taxpayer's return to this state the nature and extent of the variance.

N.D. Admin. Code 81-03-09-11 Taxable in another state - In general

Under both North Dakota Century Code section 57-38.1-02 and article IV(2) of North Dakota Century Code section 57-59-01, the taxpayer is subject to the allocation and apportionment provisions of North Dakota Century Code chapter 57-38.1 and article IV of North Dakota Century Code section 57-59-01 if it has income from business activity that is taxable both within and without this state. A taxpayer's income from business activity is taxable without this state if such taxpayer, by reason of such business activity, that is, the transactions and activity occurring in the regular course of a particular trade or business, is taxable in another state within the meaning of North Dakota Century Code section 57-38.1-03 or article IV(3) of North Dakota Century Code section 57-59-01. A taxpayer is taxable within another state if it meets either one of two tests.

1.If by reason of business activity in another state the taxpayer is subject to one of the types of taxes specified in 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; namely, a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business, or a corporate stock tax; or

2.If by reason of such business activity another state had jurisdiction to subject the taxpayer to a net income tax, regardless of whether or not the state imposes such a tax on the taxpayer.

A taxpayer is not taxable in another state with respect to a particular trade or business merely because the taxpayer conducts activities in such other state pertaining to the production of nonbusiness income or business activities relating to a separate trade or business.

N.D. Admin. Code 81-03-09-12 Taxable in another state - When a taxpayer is "subject to" a tax

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.

N.D. Admin. Code 81-03-09-13 Taxable in another state - When a state has jurisdiction to subject a taxpayer to a net income tax

The second test, that of either subsection 2 of North Dakota Century Code section 57-38.1-03 or

article IV(3)(b) of North Dakota Century Code section 57-59-01 applies if the taxpayer's business activity is sufficient to give the state jurisdiction to impose a net income tax by reason of such business activity under the constitution and statutes of the United States. Jurisdiction to tax is not present where the state is prohibited from imposing the tax by reason of the provisions of Public Law 86-272, 15 U.S.C. 381-385. In the case of any "state" as defined in either subsection 8 of North Dakota Century Code section 57-38.1-01 or article IV(1)(h) of North Dakota Century Code section 57-59-01, other than a state of the United States or political subdivisions of such state, the determination of whether such "state" has jurisdiction to subject the taxpayer to a net income tax shall be made as though the jurisdiction standards applicable to a state of the United States applied in that "state". If jurisdiction is otherwise present, such "state" is not considered as without jurisdiction by reason of the provisions of a treaty between that state and the United States.

Example: Corporation X is actively engaged in manufacturing farm equipment in state A and in foreign country B. Both state A and foreign country B impose a net income tax but foreign country B exempts corporations engaged in manufacturing farm equipment.

Corporation X is subject to the jurisdiction of state A and foreign country B.

N.D. Admin. Code 81-03-09-14 Apportionment formula

All business income of each trade or business of the taxpayer shall be apportioned to this state by use of the apportionment formula set forth in either North Dakota Century Code section 57-38.1-09 or

article IV(9) of North Dakota Century Code section 57-59-01. The elements of the apportionment formula are the property factor, see sections 81-03-09-15, 81-03-09-16, 81-03-09-17, 81-03-09-18, 81-03-09-19, 81-03-09-20, and 81-03-09-21; the payroll factor or see sections 81-03-09-22, 81-03-09-23, 81-03-09-24, and 81-03-09-25; and the sales factor, see sections 81-03-09-26, 81-03-09-27, 81-03-09-28, 81-03-09-29, 81-03-09-30, and 81-03-09-31, of the trade or business of the taxpayer.

History

• Law Implemented: NDCC 57-38.1-09, 57-59-01 (art.IV(9))

N.D. Admin. Code 81-03-09-15 Property factor - In general

The property factor of the apportionment formula for each trade or business of the taxpayer shall include all real and tangible personal property owned or rented by the taxpayer and used during the tax period in the regular course of such trade or business. The term "real and tangible personal property" includes land, buildings, machinery, stocks of goods, equipment, and other real and tangible personal property but does not include coin or currency.

Property used in connection with the production of nonbusiness income shall be excluded from the property factor. Property used both in the regular course of taxpayer's trade or business and in the production of nonbusiness income shall be included in the factor only to the extent the property is used in the regular course of taxpayer's trade or business. The method of determining that portion of the value to be included in the factor will depend upon the facts of each case. The property factor shall reflect the average value of property includable in the factor. See section 81-03-09-21.

N.D. Admin. Code 81-03-09-16 Property factor - Property used for the production of business income

Property shall be included in the property factor if it is actually used or is available for or capable of being used during the tax period in the regular course of the trade or business of the taxpayer. Property held as reserves or standby facilities or property held as a reserve source of materials shall be included in the factor. For example, a plant temporarily idle or raw material reserves not currently being processed are includable in the factor. Property or equipment under construction during the tax period, except inventoriable goods in process, shall be excluded from the factor until such property is actually used in the regular course of the trade or business of the taxpayer. If the property is partially used in the regular course of the trade or business of the taxpayer while under construction, the value of the property to the extent used shall be included in the property factor. Property used in the regular course of the trade or business of the taxpayer shall remain in the property factor until its permanent withdrawal is established by an identifiable event such as its conversion to the production of nonbusiness income, its sale, or the lapse of an extended period of time, normally, five years, during which the property is held for sale.

Example a: The taxpayer closed its manufacturing plant in state X and held such property for sale.

The property remained vacant until its sale one year later. The value of the manufacturing plant is included in the property factor until the plant is sold.

Example b: Same as example a except that the property was rented until the plant was sold. The plant is included in the property factor until the plant is sold.

Example c: The taxpayer closed its manufacturing plant and leased the building under a five-year lease. The plant is included in the property factor until the commencement of the lease.

Example d: The taxpayer operates a chain of retail grocery stores. Taxpayer closed store A, which was then remodeled into three small retail stores such as a dress shop, drycleaning, and barber shop, which were leased to unrelated parties. The property is removed from the property factor on the date the remodeling of store A commenced.

N.D. Admin. Code 81-03-09-17 Property factor - Consistency in reporting

In filing returns with this state, if the taxpayer departs from or modifies the manner of valuing property, or of excluding or including property in the property factor, 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 of 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 valuation of property and in the exclusion or inclusion of property in the property factor, the taxpayer shall disclose in the taxpayer's return to this state the nature and extent of the variance.

N.D. Admin. Code 81-03-09-18 Property factor - Numerator

The numerator of the property factor shall include the average value of the real and tangible personal property owned or rented by the taxpayer and used in this state during the tax period in the regular course of the trade or business of the taxpayer. Property in transit between locations of the taxpayer to which it belongs shall be considered to be at the destination for purposes of the property factor. Property in transit between a buyer and seller which is included by a taxpayer in the denominator of its property factor in accordance with its regular accounting practices shall be included in the numerator according to the state of destination. The value of mobile or movable property such as construction equipment, trucks, or leased electronic equipment which are located within and without this state during the tax period shall be determined for purposes of the numerator of the factor on the

basis of total time within the state during the tax period. An automobile assigned to a traveling employee shall be included in the numerator of the factor of the state to which the employee's compensation is assigned under the payroll factor or in the numerator of the state in which the automobile is licensed.

N.D. Admin. Code 81-03-09-19 Property factor - Valuation of owned property

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.

History

• Law Implemented: NDCC 57-38.1-11, 57-59-01 (art.IV(11))

N.D. Admin. Code 81-03-09-20 Property factor - Valuation of rented property

1.Property rented by the taxpayer is valued at eight times its net annual rental rate. The net annual rental rate for any item of rented property is the annual rental rate paid by the taxpayer for such property, less the aggregate annual subrental rates paid by subtenants of the taxpayer. See sections 81-03-09-32, 81-03-09-33, and 81-03-09-34 for special sections where the use of such net annual rental rate produces a negative or clearly inaccurate value or where property is used by the taxpayer at no charge or rented at a nominal rental rate.

Subrents are not deducted when the subrents constitute business income because the property which produces the subrents is used in the regular course of a trade or business of the taxpayer when it is producing such income. Accordingly there is no reduction in its value.

Example a: The taxpayer receives subrents from a bakery concession in a food market operated by the taxpayer. Since the subrents are business income they are not deducted from rent paid by the taxpayer for the food market.

Example b: The taxpayer rents a five-story office building primarily for use in its multistate business, uses three floors for its offices and subleases two floors to various other businesses and persons such as professional people, shops, and the like. The rental of the two floors is incidental to the operation of the taxpayer's trade or business. Since the subrents are business income they are not deducted from the rent paid by the taxpayer.

Example c: The taxpayer rents a twenty-story office building and uses the lower two stories for its general corporation headquarters. The remaining eighteen floors are subleased to others. The rental of the eighteen floors is not incidental to but rather is separate from the operation of the taxpayer's trade or business. Since the subrents are nonbusiness income they are to be deducted from the rent paid by the taxpayer.

2."Annual rental rate" is the amount paid as rental for property for a twelve-month period, that is, the amount of the annual rent. Where property is rented for less than a twelve-month period, the rent paid for the actual period of rental shall constitute the "annual rental rate" for the tax period. However, where a taxpayer has rented property for a term of twelve or more months and the current tax period covers a period of less than twelve months, due, for example, to a reorganization or change of accounting period, the rent paid for the short tax period shall be annualized. If the rental term is for less than twelve months, the rent shall not be annualized beyond its term. Rent shall not be annualized because of the uncertain duration when the rental term is on a month-to-month basis.

Example d: Taxpayer A which ordinarily files the taxpayer's return based on a calendar year is merged into taxpayer B on April thirtieth. The net rent paid under a lease with five years remaining is two thousand five hundred dollars a month. The rent for the tax period January first to April thirtieth is ten thousand dollars. After the rent is annualized, the net rent is thirty thousand dollars (two thousand five hundred dollars times twelve).

Example e: Same facts as in example a except that the lease would have terminated on August thirty-first. In this case, the annualized net rent is twenty thousand dollars (two thousand five hundred dollars times eight).

3."Annual rent" is the actual sum of money or other consideration payable, directly or indirectly, by the taxpayer or for its benefit for the use of the property and includes:

a.Any amount payable for the use of real or tangible personal property, or any part thereof, whether designated as a fixed sum of money or as a percentage of sales, profits, or otherwise.

Example: A taxpayer, pursuant to the terms of a lease, pays a lessor one thousand dollars per month as a base rental and at the end of the year pays the lessor one percent of its gross sales of four hundred thousand dollars. The annual rent is sixteen thousand dollars, twelve thousand dollars plus one percent of four hundred thousand dollars or four thousand dollars.

b.Any amount payable as additional rent or in lieu of rents, such as interest, taxes, insurance, repairs, or any other items which are required to be paid by the terms of the lease or other arrangement, not including amounts paid as service charges, such as utilities, janitor services, and so forth. If a payment includes rent and other charges unsegregated, the amount of rent shall be determined by consideration of the relative values of the rent and the other items.

Example 1: A taxpayer, pursuant to the terms of the lease, pays the lessor twelve thousand dollars a year rent plus taxes in the amount of two thousand dollars and interest on a mortgage in the amount of one thousand dollars. The annual rent is fifteen thousand dollars.

Example 2: A taxpayer stores part of the taxpayer's inventory in a public warehouse. The total charge for the year was one thousand dollars of which seven hundred dollars was for the use of storage space and three hundred dollars for inventory insurance, handling and shipping charges, and cash on delivery collections. The annual rent is seven hundred dollars.

"Annual rent" does not include incidental day-to-day expenses such as hotel or motel accommodations, daily rental of automobiles, and so forth.

4.Leasehold improvements shall, for the purposes of the property factor, be treated as property owned by the taxpayer regardless of whether the taxpayer is entitled to remove the improvements or the improvements revert to the lessor upon expiration of the lease. Hence, the original cost of leasehold improvements shall be included in the factor.

History

• Law Implemented: NDCC 57-38.1-11, 57-59-01 (art.IV(11))

N.D. Admin. Code 81-03-09-21 Property factor - Averaging property values

As a general rule, the average value of property owned by the taxpayer shall be determined by averaging the values at the beginning and ending of the tax period. However, the tax commissioner may require or allow averaging by monthly values if such method of averaging is required to properly reflect the average value of the taxpayer's property for the tax period.

Averaging by monthly values will generally be applied if substantial fluctuations in the values of the property exist during the tax period or where property is acquired after the beginning of the tax period or disposed of before the end of the tax period.

Example: The monthly value of the taxpayer's property was as follows:

January$2,000.00July$15,000.00 February2,000.00August17,000.00 March3,000.00September23,000.00 April3,500.00October25,000.00 May4,500.00November13,000.00 June10,000.00December2,000.00 $25,000.00$95,000.00 Total$120,000.00 The average value of the taxpayer's property includable in the property factor for the income year is determined as follows: $120,000.00 divided by 12 = $10,000.00 Averaging with respect to rented property is achieved automatically by the method of determining the net annual rental rate of such property as set forth in section 81-03-09-20.

Intangible drilling and development costs incurred by oil and gas producing companies in connection with oil and gas properties must be included in the property factor. Intangible drilling and development costs include such elements as wages, fuel, repairs, hauling, draining, roadbuilding, surveying, geological works, construction of derricks, tanks, pipelines, and other physical structures necessary for the drilling of wells and their preparation for the production of oil and gas, and supplies incident to and necessary for the drilling of wells and clearing of ground.

The amount to be included in the property factor is the amount capitalized for financial reporting purposes using the successful effort accounting method. An election to expense intangible drilling costs for federal income tax purposes has no effect on their inclusion in the property factor.

Unproven properties must be included in the property factor until such time as they have been determined to be impaired and have been expensed for book purposes.

All costs relating to exploratory wells that have been capitalized and classified as uncompleted wells, equipment, and facilities (wells in progress or wells in process) must be included in the property factor until such time as the well is determined to be a dry hole and the costs have been expensed for book purposes.

Delay rentals, which are not capitalized for book purposes, are includable in the property factor at their net annual rental rate and are not capitalized times eight.

History

• Law Implemented: NDCC 57-38.1-12, 57-59-01 (art.IV(12)) 81-03-09-21.1. Property factor - Intangible drilling costs.
• Law Implemented: NDCC 57-38-12, 57-38-13, 57-38-14, 57-38.1-02, 57-38.1-10,57-38.1-11, 57-38.1-12, 57-59-01

N.D. Admin. Code 81-03-09-22 Payroll factor - In general

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.

History

• History: Amended effective June 1, 1992.

N.D. Admin. Code 81-03-09-23 Payroll factor - Denominator

The denominator of the payroll factor is the total compensation paid everywhere during the tax period. Accordingly, compensation paid to employees whose services are performed entirely in a state where the taxpayer is immune from taxation, for example, by Public Law 86-272, is included in the denominator of the payroll factor.

Example: A taxpayer has employees in its state of legal domicile, state A, and is taxable in state B.

In addition, the taxpayer has other employees whose services are performed entirely in state C where the taxpayer is immune from taxation by Public Law 86-272. As to these latter employees, the compensation will be assigned to state C where their services are performed, that is, included in the denominator, but not the numerator, of the payroll factor, even though the taxpayer is not taxable in state C.

N.D. Admin. Code 81-03-09-24 Payroll factor - Numerator

The numerator of the payroll factor is the total amount paid in this state during the tax period by the taxpayer for compensation. The tests in either North Dakota Century Code section 57-38.1-14 or

article IV(14) of North Dakota Century Code section 57-59-01 to be applied in determining whether compensation is paid in this state are derived from the Model Unemployment Compensation Act.

Accordingly, if compensation paid to employees is included in the payroll factor by use of the cash method of accounting or if the taxpayer is required to report such compensation under such method for unemployment compensation purposes, it shall be presumed that the total wages reported by the taxpayer to this state for unemployment compensation purposes constitutes compensation paid in this state except for compensation excluded under sections 81-03-09-22, 81-03-09-23, and 81-03-09-24.

The presumption may be overcome by satisfactory evidence that an employee's compensation is not properly reportable to this state for unemployment compensation purposes.

N.D. Admin. Code 81-03-09-25 Payroll factor - Compensation paid in this state

Compensation is paid in this state if any one of the following tests, applied consecutively, are met:

1.The employee's service is performed entirely within the state.

2.The employee's service is performed both within and without the state, but the service performed without the state is incidental to the employee's service within the state. The word "incidental" means any service which is temporary or transitory in nature, or which is rendered in connection with an isolated transaction.

3.If the employee's services are performed both within and without this state, the employee's compensation will be attributed to this state:

a.If the employee's base of operations is in this state; or

b.If there is no base of operations in any state in which some part of the service is performed, but the place from which the service is directed or controlled is in this state; or

c.If the base of operations or the place from which the service is directed or controlled is not in any state in which some part of the service is performed but the employee's residence is in this state.

The term "base of operation" is the place of more or less permanent nature from which the employee starts the employee's work and to which the employee customarily returns in order to receive instructions from the taxpayer or communications from the employee's customers or other persons or to replenish stock or other materials, repair equipment, or perform any other functions necessary to the exercise of the employee's trade or profession at some other point or points. The term "place from which the service is directed or controlled" refers to the place from which the power to direct or control is exercised by the taxpayer.

History

• Law Implemented: NDCC 57-38.1-14, 57-59-01 (art.IV(14))

N.D. Admin. Code 81-03-09-26 Sales factor - In general

1.Subsection 7 of North Dakota Century Code section 57-38.1-01 defines the term "sales" to mean all gross receipts of the taxpayer not allocated under North Dakota Century Code sections 57-38.1-04 through 57-38.1-08 and article IV(1)(g) of North Dakota Century Code

section 57-59-01 defines the term "sales" to mean all gross receipts of the taxpayer not allocated under paragraphs 5 through 8 of article IV. Thus, for the purposes of the sales factor of the apportionment formula for each trade or business of the taxpayer, the term "sales" means all gross receipts derived by the taxpayer from transactions and activities in the regular course of such trade or business. The following are rules for determining "sales" in various situations.

a.In the case of a taxpayer engaged in manufacturing and selling or purchasing and reselling goods or products, "sales" includes all gross receipts from the sales of such goods or products, or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the tax period, held by the taxpayer primarily for sale to customers in the ordinary course of its trade or business. Gross receipts for this purpose means gross sales, less returns and allowances, and includes all interest income, service charges, carrying charges, or time-price differential charges incidental to such sales. Federal and state excise taxes, including sales taxes, shall be included as part of such receipts if such taxes are passed on to the buyer or included as

part of the selling price of the product.

b.In the case of cost plus fixed fee contracts, such as the operation of a government-owned plant for a fee, "sales" includes the entire reimbursed cost, plus the fee.

c.In the case of a taxpayer engaged in providing services, such as the operation of an advertising agency, or the performance of equipment service contracts, research and development contracts, "sales" includes the gross receipts from the performance of such services including fees, commissions, and similar items.

d.In the case of a taxpayer engaged in renting real or tangible property, "sales" includes the gross receipts from the rental, lease, or licensing the use of the property.

e.In the case of a taxpayer engaged in the sale, assignment, or licensing of intangible personal property such as patents and copyrights, "sales" includes the gross receipts therefrom.

f.If a taxpayer derives receipts from the sale of equipment used in its business, such receipts constitute "sales". For example, a truck express company owns a fleet of trucks and sells its trucks under a regular replacement program. The gross receipts from the sale of the trucks are included in the sales factor.

2.In some cases, certain gross receipts should be disregarded in determining the sales factor in order that the apportionment formula will operate fairly to apportion to this state the income of the taxpayer's trade or business. See section 81-03-09-34.

3.In filing returns with this state, if the taxpayer departs from or modifies the basis for excluding or including gross receipts in the sales factor used in the 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 inclusion or exclusion of gross receipts, the taxpayer shall disclose in its return to this state the nature and extent of the variance.

History

• History: Amended effective March 1, 1988.

N.D. Admin. Code 81-03-09-27 Sales factor - Denominator

The denominator of the sales factor shall include the total gross receipts derived by the taxpayer from transactions and activity in the regular course of its trade or business, except receipts excluded under section 81-03-09-34.

History

• History: Amended effective March 1, 1988.

N.D. Admin. Code 81-03-09-28 Sales factor - Numerator

The numerator of the sales factor shall include gross receipts attributable to this state and derived by the taxpayer from transactions and activity in the regular course of its trade or business. All interest income, service charges, carrying charges, or time-price differential charges incidental to such gross receipts shall be included regardless of the place where the accounting records are maintained or the location of the contract or other evidence of indebtedness.

N.D. Admin. Code 81-03-09-29 Sales factor - Sales of tangible personal property in this state

1.Gross receipts from sales of tangible personal property, except sales to the United States government, see section 81-03-09-30, are in this state:

a.If the property is delivered or shipped to a purchaser within this state regardless of the free on board point or other conditions of sale; or

b.If the property is shipped from an office, store, warehouse, factory, or other place of storage in this state and the taxpayer is not taxable in the state of the purchaser.

2.Property shall be deemed to be delivered or shipped to a purchaser within this state if the recipient is located in this state, even though the property is ordered from outside this state.

Example: The taxpayer, with inventory in state A, sold one hundred thousand dollars of its products to a purchaser having branch stores in several states including this state. The order for the purchase was placed by the purchaser's central purchasing department located in state B. Twenty-five thousand dollars of the purchase order was shipped directly to purchaser's branch store in this state. The branch store in this state is the "purchaser within this state" with respect to twenty-five thousand dollars of the taxpayer's sales.

3.Property is delivered or shipped to a purchaser within this state if the shipment terminates in this state, even though the property is subsequently transferred by the purchaser to another Example: The taxpayer makes a sale to a purchaser who maintains a central warehouse in this state at which all merchandise purchases are received. The purchaser reships the goods to its branch stores in other states for sale. All of the taxpayer's products shipped to the purchaser's warehouse in this state is property "delivered or shipped to a purchaser within this state".

4.The term "purchaser within this state" shall include the ultimate recipient of the property if the taxpayer in this state, at the designation of the purchaser, delivers to or has the property shipped to the ultimate recipient within this state.

Example: A taxpayer in this state sold merchandise to a purchaser in state A. Taxpayer directed the manufacturer or supplier of the merchandise in state B to ship the merchandise to the purchaser's customer in this state pursuant to purchaser's instructions. The sale by the taxpayer is "in this state".

5.When property being shipped by a seller from the state of origin to a consignee in another state is diverted while en route to a purchaser in this state, the sales are in this state.

Example: The taxpayer, a produce grower in state A, begins shipment of perishable produce to the purchaser's place of business in state B. While en route, the produce is diverted to the purchaser's place of business in this state in which state the taxpayer is subject to tax. The sale by the taxpayer is attributed to this state.

6.If the taxpayer is not taxable in the state of the purchaser, the sale is attributed to this state if the property is shipped from an office, store, warehouse, factory, or other place of storage in this state.

Example: The taxpayer has its head office and factory in state A. It maintains a branch office and inventory in this state. Taxpayer's only activity in state B is the solicitation of orders by a resident salesman. All orders by the state B salesman are sent to the branch office in this state for approval and are filled by shipment from the inventory in this state. Since taxpayer is immune under Public Law 86-272 from tax in state B, all sales of merchandise to purchasers in state B are attributed to this state, the state from which the merchandise was shipped.

7.If a taxpayer whose salesman operates from an office located in this state makes a sale to a purchaser in another state in which the taxpayer is not taxable and the property is shipped directly by a third party to the purchaser, the following rules apply:

a.If the taxpayer is taxable in the state from which the third party ships the property, then the sale is in such state.

b.If the taxpayer is not taxable in the state from which the property is shipped, then the sale is in this state.

Example: The taxpayer in this state sold merchandise to a purchaser in state A. Taxpayer is not taxable in state A. Upon direction of the taxpayer, the merchandise was shipped directly to the purchaser by the manufacturer in state B. If the taxpayer is taxable in state B, the sale is in state B. If the taxpayer is not taxable in state B, the sale is in this state.

History

• Law Implemented: NDCC 57-38.1-16, 57-59-01 (art.IV(16))

N.D. Admin. Code 81-03-09-30 Sales factor - Sales of tangible personal property to United States government in this state

Gross receipts from sales of tangible personal property to the United States government are in this state if the property is shipped from an office, store, warehouse, factory, or other place of storage in this state. For the purposes of this section, only sales for which the United States government makes direct payment to the seller pursuant to the terms of a contract constitute sales to the United States government. Thus, as a general rule, sales by a subcontractor to a prime contractor, the party to the contract with the United States government, do not constitute sales to the United State government.

Example 1: A taxpayer contracts with general services administration to deliver X number of trucks which were paid for by the United States government. The sale is a sale to the United States government.

Example 2: The taxpayer as a subcontractor, to a prime contractor with the national aeronautics and space administration, contracts to build a component of a rocket for one million dollars. A sale by the subcontractor to the prime contractor is not a sale to the United States government.

History

• Law Implemented: NDCC 57-38.1-16, 57-59-01 (art.IV(16))

N.D. Admin. Code 81-03-09-31 Sales factor - Sales other than sales of tangible personal property in this state

1.In general. Both North Dakota Century Code section 57-38.1-17 and article IV(17) of North Dakota Century Code section 57-59-01 provide for the inclusion in the numerator of the sales factor of gross receipts from transactions other than sales of tangible personal property, including transactions with the United States government; under this section gross receipts are attributed to this state if the income-producing activity which gave rise to the receipts is performed wholly within this state. Also, gross receipts are attributed to this state if, with respect to a particular item of income, the income-producing activity is performed within and without this state but the greater proportion of the income-producing activity is performed in this state, based on costs of performance.

2.Income-producing activity defined. The term "income-producing activity" applies to each separate item of income and means the transactions and activity directly engaged in by the taxpayer in the regular course of its trade or business for the ultimate purpose of obtaining gains or profits. Such activity does not include transactions and activities performed on behalf of a taxpayer, such as those conducted on its behalf by an independent contractor.

Accordingly, income-producing activity includes, but is not limited to, the following:

a.The rendering of personal services by employees or the utilization of tangible and intangible property by the taxpayer in performing a service.

b.The sale, rental, leasing, licensing, or other use of real property.

c.The rental, leasing, licensing, or other use of tangible personal property.

d.The sale, licensing, or other use of intangible personal property.

The mere holding of intangible personal property is not, of itself, an income-producing activity.

3.Costs of performance defined. The term "costs of performance" means direct costs determined in a manner consistent with generally accepted accounting principles and in accordance with accepted conditions or practices in the trade or business of the taxpayer.

4.Application.

a.In general. Receipts, other than from sales of tangible personal property, in respect to a particular income-producing activity are in this state if:

(1)The income-producing activity is performed wholly within this state; or (2)The income-producing activity is performed both in and outside this state and a greater proportion of the income-producing activity is performed in this state than in any other state, based on costs of performance.

b.Special rules. The following are special rules for determining when receipts from the income-producing activities described below are in this state:

(1)Gross receipts from the sale, lease, rental, or licensing of real property are in this state if the real property is located in this state.

(2)Gross receipts from the rental, lease, or licensing of tangible personal property are in this state if the property is located in this state. The rental, lease, licensing, or other use of tangible personal property in this state is a separate income-producing activity from the rental, lease, licensing, or other use of the same property while located in another state; consequently, if property is within and without this state during the rental, lease, or licensing period, gross receipts attributable to this state shall be measured by the ratio which the time the property was physically present or was used in this state bears to the total time or use of the property everywhere during such period.

Example: Taxpayer is the owner of ten railroad cars. During the year, the total of the days each railroad car was present in this state was fifty days. The receipts attributable to the use of each of the railroad cars in this state are a separate item of income and shall be determined as follows:

(10x50=)500 x Total Receipts = Receipts attributable 3650 to this state

c.Gross receipts for the performance of personal services are attributable to this state to the extent such services are performed in this state. If services relating to a single item of income are performed partly within and partly without the state, the gross receipts for the performance of such services shall be attributable to this state only if a greater portion of the services were performed in this state, based on costs of performance. Usually where services are performed partly within and partly without this state the services performed in each state will constitute a separate income-producing activity; in such case the gross receipts for the performance of services attributable to this state shall be measured by the ratio which the time spent in performing such services in this state bears to the total time spent in performing such services everywhere. Time spent in performing services includes the amount of time expended in the performance of a contract or other obligation which gives rise to such gross receipts. Personal service not directly connected with the performance of the contract or other obligation, as for example, time expended in negotiating the contract, is excluded from the computations.

Example 1: Taxpayer, a road show, gave theatrical performances at various locations in state X and in this state during the tax period. All gross receipts from performances given in this state are attributed to this state.

Example 2: The taxpayer, a public opinion survey corporation, conducted a poll by its employees in state X and in this state for the sum of nine thousand dollars. The project required six hundred man hours to obtain the basic data and prepare the survey report.

Two hundred of the six hundred man hours were expended in this state. The receipts attributable to this state are three thousand dollars.

(200 man hours x $9,000.00) 600 man hours

History

• Law Implemented: NDCC 57-38.1-17, 57-59-01 (art.IV(17))

N.D. Admin. Code 81-03-09-32 Special rules - In general

Both North Dakota Century Code section 57-38.1-18 and article IV(18) of North Dakota Century Code section 57-59-01 provide that if the other allocation and apportionment provisions of either North Dakota Century Code chapter 57-38.1 or article IV of North Dakota Century Code chapter 57-59 do not fairly represent the extent of the taxpayer's business activity in this state, the taxpayer may petition for or the tax commissioner may require, in respect to all or any part of the taxpayer's business activity, if reasonable:

1.Separate accounting;

2.The exclusion of any one or more of the factors;

3.The inclusion of one or more additional factors which will fairly represent the taxpayer's business activity in this state; or

4.The employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer's income.

North Dakota Century Code section 58-38.1-18 and article IV(18) of North Dakota Century Code

section 57-59-01 permit a departure from the other allocation and apportionment provisions of North Dakota Century Code chapters 57-38.1 and 57-59 only in limited and specific cases. North Dakota Century Code section 57-38.1-18 or article IV(18) of North Dakota Century Code section 57-59-01 may be invoked only in specific cases where unusual fact situations, which ordinarily will be unique and nonrecurring, produce incongruous results under the other apportionment and allocation provisions contained in North Dakota Century Code chapters 57-38.1 and 57-59.

In the case of certain industries such as air transportation, rail transportation, ship transportation, trucking, television, radio, motion pictures, and various types of professional athletics, the foregoing sections in respect to the apportionment formula do not set forth appropriate procedures for determining the apportionment factors.

Nothing in North Dakota Century Code section 57-38.1-18 and article IV(18) of North Dakota Century Code section 57-59-01 or in sections 81-03-09-32, 81-03-09-33, and 81-03-09-34 shall preclude the tax commissioner from establishing appropriate procedures under North Dakota Century Code sections 57-38.1-10 through 57-38.1-17 and article IV(10) through IV(17) of North Dakota Century Code section 57-59-01 for determining the apportionment factors for each such industry, but such procedures shall be applied uniformly.

N.D. Admin. Code 81-03-09-33 Special rules - Property factor

The following special subsections are established in respect to the property factor of the apportionment formula:

1.If the subrents taken into account in determining the net annual rental rate under section 81-03-09-20 produce a negative or clearly inaccurate value for any item of property, another method which will properly reflect the value of rented property may be required by the tax commissioner or requested by the taxpayer.

In no case, however, shall such value be less than an amount which bears the same ratio to the annual rental rate paid by the taxpayer for such property as the fair market value of that portion of the property used by the taxpayer bears to the total fair market value of the rented property.

Example: The taxpayer rents a ten-story building at an annual rental rate of one million dollars. Taxpayer occupies two stories and sublets eight stories for one million dollars a year.

The net annual rental rate of the taxpayer must not be less than two-tenths of the taxpayer's annual rental rate for the entire year, or two hundred thousand dollars.

2.If property owned by others is used by the taxpayer at no charge or rented by the taxpayer for a nominal rate, the net annual rental rate for such property shall be determined on the basis of a reasonable market rental rate for such property.

N.D. Admin. Code 81-03-09-34 Special rules - Sales factor

The following special subsections are established in respect to the sales factor of the apportionment formula:

1.Where substantial amounts of gross receipts arise from an incidental or occasional sale of a fixed asset used in the regular course of the taxpayer's trade or business, such gross receipts shall be excluded from the sales factor. For example, gross receipts from the sale of a factory or plant will be excluded.

2.Insubstantial amounts of gross receipts arising from incidental or occasional transactions or activities may be excluded from the sales factor unless such exclusion would materially affect the amount of income apportioned to this state. For example, the taxpayer ordinarily may include or exclude from the sales factor gross receipts from such transactions as the sale of office furniture, business automobiles, and so forth.

3.Where the income-producing activity in respect to business income from intangible personal property can be readily identified, such income is included in the denominator of the sales factor and, if the income-producing activity occurs in this state, in the numerator of the sales factor as well. For example, usually the income-producing activity can be readily identified in respect to interest income received on deferred payments on sales of tangible personal property, subdivision a of subsection 1 of section 81-03-09-26, and income from the sale, licensing, or other use of intangible personal property, subdivision d of subsection 2 of section 81-03-09-31.

Where business income from intangible property cannot readily be attributed to any particular income-producing activity of the taxpayer, such income cannot be assigned to the numerator of the sales factor for any state and shall be excluded from the denominator of the sales factor. For example, where business income in the form of dividends received on stock, royalties received on patents or copyrights, or interest received on bonds, debentures, or government securities, results from the mere holding of the intangible personal property by the taxpayer, such dividends and interest shall be excluded from the denominator of the sales factor.

N.D. Admin. Code 81-03-09-35 Special rules - Railroads

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.

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

N.D. Admin. Code 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 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.

History

• Law Implemented: NDCC 57-38.1-01, 57-38.1-02, 57-38.1-05, 57-38.1-06, 57-38.1-07,

N.D. Admin. Code 81-03-09-36 Special rules - Airlines

The following special rules are established with respect to airlines:

1.In general. Where an airline has income from sources both within and without this state, the amount of business income from sources within this state shall be determined pursuant to North Dakota Century Code chapter 57-38.1 and article IV of North Dakota Century Code

section 57-59-01 of the multistate tax compact, except as modified by this section.

2.Apportionment of business income.

a.General definitions. The following definitions are applicable to the terms used in the apportionment factor descriptions:

(1)"Value" of owned real and tangible personal property means 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.

(2)"Cost of aircraft by type" means the average original cost or value of aircraft by type which are ready for flight.

(3)"Original cost" means the initial federal tax basis of the property plus the value of capital improvements to such property, except that, for this purpose, it must be assumed that safe harbor leases are not true leases and do not effect the original initial federal tax basis of the property. See section 81-03-09-19.

(4)"Average value" of property means the amount determined by averaging the values at the beginning and ending of the income year, but the office of the state tax commissioner may require the averaging of monthly values during the income year if such averaging is necessary to reflect properly the average value of the airline'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.

(5)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.

(6)"Net annual rental rate" means the annual rental rate paid by the taxpayer.

(7)"Property used during the income year" includes property that is available for use in the taxpayer's trade or business during the income year.

(8)"Aircraft ready for flight" means aircraft owned or acquired through rental or lease (but not interchange) which are in the possession of the taxpayer and are available for service on the taxpayer routes.

(9)"Revenue service" means the use of aircraft ready for flight for the production of revenue.

(10)"Transportation revenue" means revenue earned by transporting passengers, freight, and mail, as well as revenue earned from liquor sales, and pet crate rentals, and so forth.

(11)"Departures" means, for purposes of this section, all takeoffs, whether they be regularly scheduled or charter flights, that occur during revenue service.

b.Property factor.

(1)Property valuation. Owned aircraft must be valued at its original cost and rented aircraft must 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. The use of the taxpayer's owned or rented aircraft in an interchange program with another air carrier will not constitute a rental of such aircraft by the airline to the other participating airline. Such aircraft must be accounted for in the property factor of the owner. Parts and other expendables, including parts for use in contract overhaul work, will be valued at cost.

(2)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 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 aircraft ready for flight 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. Aircraft ready for flight must be included in the numerator of the property factor in the ratio calculated as follows: Departures of aircraft from locations in this state weighted as to the cost and value of aircraft by type compared to total departures similarly weighted.

c.The payroll factor. The denominator of the payroll factor is the total compensation paid everywhere by the taxpayer during the income year. The numerator of the payroll factor is the total amount paid in this state during the income year by the taxpayer for compensation. 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. With respect to nonflight personnel, 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. With respect to flight personnel (the air crew aboard an aircraft assisting in the operations of the aircraft or the welfare of passengers while in the air), compensation paid to such employees must be included in the ratio that departures of aircraft from locations in this state, weighted as to the cost and value of aircraft by type compared to total departures similarly weighted, multiplied by the total flight personnel compensation.

d.Sales (transportation revenue) factor. The transportation revenue derived from transactions and activities in the regular course of the trade or business of the taxpayer and miscellaneous sales of merchandise, and so forth, are 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

N.D. Admin. Code 81-03-09-06 Passive income items such as interest, rental income, dividends, and so forth, will not be included in the denominator nor will the proceeds or net gains or losses from the sale of aircraft be included. 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 is the result of the following calculation: The ratio of departures of aircraft in this state weighted as to the cost and value of aircraft by type, as compared to total departures similarly weighted multiplied by the total transportation revenue. The product of this calculation is to be added to any nonflight revenues directly attributable to this state

3.Records. The taxpayer must maintain the records necessary to arrive at departures by type of aircraft as used in these regulations. Such records are to be subject to review by the respective state taxing authorities or their agents.

History

• Law Implemented: NDCC 57-38.1-01, 57-38.1-02, 57-38.1-09, 57-38.1-10, 57-38.1-11,

N.D. Admin. Code 81-03-09-37 Special rules - Trucking companies

The following special rules are established with respect to trucking companies:

1.In general. As used in this section, the term "trucking company" means a motor common carrier, a motor contract carrier, or an express carrier which primarily transports tangible personal property of others by motor vehicle for compensation. Where a trucking company has income from sources both within and without this state, the amount of business income from sources within this state shall be determined pursuant to this section. In such cases, the first step is to determine what portion of the trucking company's income constitutes business income and what portion constitutes nonbusiness 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

N.D. Admin. Code 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) through IV(8) of North Dakota Century Code section 57-59-01. Business income is apportioned among the states in which the business is conducted and pursuant to the property, payroll, and sales apportionment factors set forth in this section. The sum of the items of nonbusiness income directly allocated to this state plus the amount of business income attributable to the state constitutes the amount of the taxpayer's entire net income which is subject to taxing in 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.

a.In general. The property factor must be determined in accordance with sections 81-03-09-15 through 81-03-09-21, 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, except as modified by this section.

(1)Property valuation. Owned property must be valued at its original cost and property rented from others must 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.

(2)General definitions. The following definitions are applicable to the numerator and denominator of the property factor, as well as other apportionment factor descriptions:

(a)"Average value" of property means the amount determined by averaging the values at the beginning and end of the income tax year, but the tax commissioner may require the averaging of monthly values during the income year or such averaging as is necessary to reflect properly the average value of the trucking company's property, in accordance with 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.

(b)"Mobile property" means all motor vehicles, including trailers, engaged directly in the movement of tangible personal property.

(c)"Mobile property mile" is the movement of a unit of mobile property a distance of one mile whether loaded or unloaded.

(d)"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 ascertainable 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 in accordance with section 81-03-09-19.

(e)"Property used during the course of the income year" includes property which is available for use in the taxpayer's trade or business during the income year.

(f)"Purchased transportation" means the taxpayer's use of a motor vehicle owned and operated by another for the purpose of transporting tangible personal property for which a charge, whether based upon a per diem, mileage, or other

basis is incurred.

(g)The "value" of owned real and tangible personal property means its original cost, 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 section 81-03-09-19.

(h)The "value" or rented real and tangible personal property means the product of 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 section 81-03-09-20.

(3)The denominator and numerator of the property factor. The denominator of the property factor must be the average value of all the taxpayer's real and tangible 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 the determination of the numerator of the property factor, all property, except mobile property as defined in this section, 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 and sections 81-03-09-15 through 81-03-09-21.

Mobile property, as defined in this section, which is located within and without this state during the income year must be included in the numerator of the property factor in the ratio which mobile property miles in the state bear to the total mobile property miles. Mobile property located solely within this state during the income year must be included in the numerator of the property factor. A trucking company's property factor may be modified to include a portion of purchased transportation to more fairly represent the company's in-state activities. Absent clear and convincing evidence to show otherwise, forty percent of the purchased transportation contract must be included in the property factor as rental property and capitalized in accordance with section 81-03-09-20. In addition, the mileage related to the purchased transportation contract must be included in the mobile property miles.

b.The payroll factor. The denominator of the payroll factor is the compensation paid everywhere by the taxpayer during the income year for the production of business income, in accordance with 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 personnel performing services within and without this state, 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 based on mobile property miles.

c.The sales factor.

(1)In general. All revenue derived from transactions and activities in the regular course of the taxpayer's trade or business which produce business income must be included in the denominator of the revenue factor, in accordance with 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 state revenue of the taxpayer, other than revenue from hauling freight, mail, and express, shall 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)The total revenue of the taxpayer attributable to this state during the income year from hauling freight, mail, and express shall be:

(a)Intrastate. All receipts from any shipment which both originates and terminates within this state.

(b)Interstate. That portion of the receipts from movements or shipments passing through, into, or out of this state as determined by the ratio which the mobile property miles traveled by such movements or shipments in this state bear to the total mobile property miles traveled by movements or shipments from points of origin to destination.

d.Records. The taxpayer shall maintain the records necessary to identify mobile property and to enumerate by state the mobile property miles traveled by such mobile property as those terms are used in this section. Such records are subject to review by the tax department or its agents.

e.De minimus nexus standard. Notwithstanding any provision contained herein, this section does not apply to require the apportionment of income to this state if the trucking company during the course of the income tax year neither:

(1)Owns nor rents any real or personal property in this state, except mobile property.

(2)Makes any pickups or deliveries within this state.

(3)Travels more than twenty-five thousand mobile property miles within this state provided that the total mobile property miles traveled within this state during the income tax year does not exceed three percent of the total mobile property miles traveled in all states by the trucking company during that period.

(4)Makes more than twelve trips into this state.

History

• History: Effective November 1, 1987; amended effective May 1, 1991.

N.D. Admin. Code 81-03-09-38 Special rules - Television and radio broadcasting

The following special rules are established in respect to the apportionment of income from television and radio broadcasting by a broadcaster that is taxable both in this state and in one or more other states.

1.In general. When a person in the business of broadcasting film or radio programming, whether through the public airwaves, by cable, direct or indirect satellite transmission or any other means of communication, either through a network, including owned and affiliated stations, or through an affiliated, unaffiliated, or independent television or radio broadcasting station, 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 North Dakota Century Code chapter 57-38.1 and article IV of North Dakota Century Code section 57-59-01, and the regulations issued thereunder by this state, except as modified by this section. This section also applies to telecasting by cable television systems.

2.Business and nonbusiness income. For definitions and regulations for determining whether income must be classified as business or nonbusiness income, see sections 81-03-09-03 through 81-03-09-05.

3.Definitions. The following definitions are applicable to the terms contained in this section, unless, the context clearly requires otherwise:

a."Film" or "film programming" means any and all performances, events, or productions telecast on television, including, but not limited to, news, sporting events, plays, stories, or other literary, commercial, educational, or artistic works, through the use of a videotape, disc, or any other type of format or medium. Each episode of a series of films produced for television constitutes a separate "film" notwithstanding that the series relates to the same principal subject and is produced during one or more tax periods.

b."Outer-jurisdictional" property means certain types of tangible personal property, such as orbiting satellites, undersea transmission cables, and the like, that are owned or rented by the taxpayer and used in the business of telecasting or broadcasting, but which are not physically located in any particular state.

c."Radio" or "radio programming" means any and all performances, events, or productions broadcast on radio, including, but not limited to, news, sporting events, plays, stories, or other literary, commercial, educational, or artistic works, through the use of an audiotape, disc, or any other format or medium. Each episode of a series of radio programming produced for radio broadcast constitutes a separate "radio programming" notwithstanding that the series relates to the same principal subject and is produced during one or more tax periods.

d."Release" or "in release" means the placing of film or radio programming into service. A film or radio program is placed into service when it is first broadcast to the primary audience for which the program was created. Thus, for example, a film is placed into service when it is first publicly telecast for entertainment, educational, commercial, artistic, or other purpose. Each episode of a television or radio series is placed in service when it is first broadcast. A program is not placed in service merely because it is completed and therefore in a condition or state of readiness and availability for broadcast or, merely because it is previewed to prospective sponsors or purchasers.

e."Rent" includes license fees or other payments or consideration provided in exchange for the broadcast or other use of television or radio programming.

f."Subscriber" to a television system is the individual residence or other outlet which is the ultimate recipient of the transmission.

g."Telecast" or "broadcast", (sometimes used interchangeably with respect to television), means the transmission of television or radio programming, respectively, by an electronic or other signal conducted by radiowaves or microwaves or by wires, lines, coaxial cables, wave guides, fiber optics, satellite transmissions directly or indirectly to viewers and listeners or by any other means of communications.

4.Apportionment of business income. The property factor must be determined in accordance with North Dakota Century Code sections 57-38.1-10 through 57-38.1-12, subsections 10, 11, and 12 of article IV of North Dakota Century Code section 57-59-01, and sections 81-03-09-15 through 81-03-09-21. The payroll factor must be determined in accordance with North Dakota Century Code sections 57-38.1-13, 57-38.1-14, subsections 13 and 14 of article IV of North Dakota Century Code section 57-59-01, and sections 81-03-09-22 through 81-03-09-25. The sales factor must be determined in accordance with North Dakota Century Code sections 57-38.1-01, 57-38.1-15, 57-38.1-16, subsections 15 and 16 of article IV of North Dakota Century Code section 57-59-01, and sections 81-03-09-26 through 81-03-09-30, except as modified by this section.

5.Property factor - In general.

a.In the case of rented studios, the net annual rental rate includes only the amount of the basic or flat rental charge by the studio for the use of a stage or other permanent equipment such as sound recording equipment and the like, except that additional equipment rented from other sources or from the studio not covered in the basic or flat rental charge and used for one week or longer, even though rented on a day-to-day

basis, must be included. Lump-sum net rental payments for a period which encompasses more than a single income year must be assigned ratably over the rental period.

b.No value or cost attributable to any outer-jurisdictional film or radio programming property may be included in the property factor at any time.

6.Property factor denominator.

a.All real property and tangible personal property, other than outer-jurisdictional and film or radio programming property, whether owned or rented, which is used in the business must be included in the denominator of the property factor.

b.Audio or video cassettes, discs, or similar medium containing film or radio programming and intended for sale or rental by the taxpayer for home viewing or listening must be included in the property factor at their original cost. To the extent that the taxpayer licenses or otherwise permits others to manufacture or distribute such cassettes, discs, or other medium containing film or radio programming for home viewing or listening, the value of said cassettes, discs, or other medium must include the license, royalty, or other fees received by the taxpayer capitalized at a rate of eight times the gross receipts derived therefrom during the income year.

c.Outer-jurisdictional, film and radio programming property must be excluded from the denominator of the property factor.

7.Property factor numerator.

a.With the exception of outer-jurisdictional, film and radio programming property, all real and tangible personal property owned or rented by the taxpayer and used in this state during the tax period must be included in the numerator of the property factor.

b.Outer-jurisdictional, film and radio programming property must be excluded from the numerator of the property factor.

Example: XYZ Television Company has a total value of all of its property everywhere of five hundred million dollars, including a satellite valued at fifty million dollars that was used to telecast programming into this state and one hundred fifty million dollars in film property of which one million dollars' worth was located in this state the entire tax year.

The total value of real and tangible personal property other than film programming property, located in this state for the entire income year was valued at two million dollars, and the moveable and mobile property described in subdivision a was determined to be of a value of four million dollars and such moveable and mobile property was used in this state for one hundred days. The total value of property to be attributed to this state would be determined as follows:

Value of property permanently in state:$2,000,000 Mobile and moveable property:

(100/365 x $4,000,000): $1,095,600 Total value of property to be included in the state's property factor numerator without apportionment of outer-jurisdictional and film property $3,095,600 Total value of property to be used in the denominator ($500,000,000-$200,000,000) $300,000,000 Total property factor percent ($3,095,600/$300,000,000): .0103

8.Payroll factor denominator. The denominator of the payroll factor must include all compensation, including residual and profit participation payments, paid to employees during the income year, including that paid to directors, actors, newscasters, and other talent in their status as employees.

9.Payroll factor numerator. Compensation for all employees must be attributed to the state or states as may be determined by the application of the provisions of North Dakota Century Code sections 57-38.1-13, 57-38.1-14, subsections 13 and 14 of article IV of North Dakota Century Code section 57-59-01, and sections 81-03-09-22 through 81-03-09-25.

10.Sales factor denominator. The denominator of the sales factor must include the total gross receipts derived by the taxpayer from transactions and activity in the regular course of its trade or business, except receipts excluded under subsection 2.

11.Sales factor numerator. The numerator of the sales factor must include all gross receipts of the taxpayer from sources within this state, including the following:

a.Gross receipts, including advertising revenue, from live television, film or radio programming in release to or by television and radio stations located in this state.

b.Gross receipts, including advertising revenue, from television film or radio programming in release to or by a television or radio station, independent or unaffiliated, or network of stations for broadcast must be attributed to this state in the ratio, hereafter "audience factor" that the audience for such station, or owned and affiliated stations in the case of networks, located in this state bears to the total audience for such station, or owned and affiliated stations in the case of networks.

c.The audience factor for television or radio programming must be determined by the ratio that the taxpayer's in-state viewing and listening audience bears to its total viewing and listening audience. Such audience factor must be determined either by reference to the books and records of the taxpayer or by reference to published rating statistics provided the method used by the taxpayer is consistently used from year to year for such purpose and fairly represents the taxpayer's activity in the state.

d.Gross receipts from film programming in release to or by a cable television system must be attributed to this state in the ratio, hereafter "audience factor", that the subscribers for such cable television system located in this state bears to the total subscribers of such cable television system. If the number of subscribers cannot be accurately determined from the books and records maintained by the taxpayer, such audience factor ratio must be determined on the basis of the applicable year's subscription statistics located in published surveys, provided that the source selected is consistently used from year to year for that purpose.

e.Receipts from the sale, rental, licensing, or other disposition of audio or video cassettes, discs, or similar medium intended for home viewing or listening must be included in the sales factor as provided in North Dakota Century Code section 57-38.1-16, subsection 16 of article IV of North Dakota Century Code section 57-59-01, and section 81-03-09-29.

History

• History: Effective June 1, 1992; amended effective September 1, 1997.

N.D. Admin. Code 81-03-09-39 Special rules - Publishing

The following special rules are established with respect to the apportionment of income derived from the publishing, sale, licensing, or other distribution of books, newspapers, magazines, periodicals, trade journals, or other printed material.

1.In general. Except as specifically modified by this rule, when a person in the business of publishing, selling, licensing, or distributing newspapers, magazines, periodicals, trade journals, or other printed material has income from sources both within and without this state, the amount of business income from sources within this state from such business activity must be determined under North Dakota Century Code chapter 57-38.1 and the rules adopted under that chapter.

2.Definitions. The following definitions are applicable to the terms contained in this rule, unless the context clearly requires otherwise.

a."Outer-jurisdictional property" means certain types of tangible personal property, such as orbiting satellites, undersea transmission cables, and the like, that are owned or rented by the taxpayer and used in the business of publishing, licensing, selling, or otherwise distributing printed material, but which are not physically located in any particular state.

b."Print or printed material" includes the physical embodiment or printed version of any thought or expression including a play, story, article, column, or other literary, commercial, educational, artistic, or other written or printed work. The determination of whether an item is or consists of print or printed material must be made without regard to its content. Printed material may take the form of a book, newspaper, magazine, periodical, trade journal, or any other form of printed matter and may be contained on any medium or property.

c."Purchaser" and "subscriber" mean the individual, residence, business, or other outlet that is the ultimate or final recipient of the print or printed material. Neither of such terms means or includes a wholesaler or other distributor of print or printed material.

d."Terrestrial facility" includes any telephone line, cable, fiber optic, microwave, earth station, satellite dish, antennae, or other relay system or device that is used to receive, transmit, relay, or carry any data, voice, image, or other information that is transmitted from or by any outer-jurisdictional property to the ultimate recipient thereof.

a.The property factor.

(1)Property factor denominator. All real and tangible personal property, including outer-jurisdictional property, whether owned or rented, which is used in the business must be included in the denominator of the property factor.

(2)Property factor numerator. All real and tangible personal property owned or rented by the taxpayer and used in this state during the tax period must be included in the numerator of the property factor.

(a)Outer-jurisdictional property owned or rented by the taxpayer and used in this state during the tax period must be included in the numerator of the property factor in the ratio that the value of such property which is attributable to its use by the taxpayer in business activities in this state bears to the total value of such property which is attributable to its use in the taxpayer's business activities everywhere.

The value of outer-jurisdictional property to be attributed to the numerator of the property factor of this state must be determined by the ratio that the number of uplinks and downlinks, sometimes referred to as "half-circuits", that were used during the tax period to transmit from this state and to receive in this state any data, voice, image, or other information bears to the total number of uplinks and downlinks or half-circuits that the taxpayer used for transmissions everywhere.

Should information regarding such uplink and downlink or half-circuit usage not be available or should such measurement of activity not be applicable to the type of outer-jurisdictional property used by the taxpayer, the value of such property to be attributed to the numerator of the property factor of this state must be determined by the ratio that the amount of time (in terms of hours and minutes of use) or such other measurement of use of outer-jurisdictional property that was used during the tax period to transmit from this state and to receive in this state any data, voice, image, or other information bears to the total amount of time or other measurement of use that was used for transmissions everywhere.

(b)Outer-jurisdictional property must be considered to have been used by the taxpayer in its business activities within this state when such property, wherever located, has been employed by the taxpayer in any manner in the publishing, sale, licensing, or other distribution of books, newspapers, magazines, or other printed material and any data, voice, image, or other information is transmitted to or from this state either through an earth station or terrestrial facility located in this state.

Example: One example of the use of outer-jurisdictional property is where the taxpayer either owns its own communications satellite or leases the use of uplinks, downlinks, or circuits or time on a communications satellite for the

purpose of sending messages to its newspaper printing facilities or employees in a state. The state or states in which any printing facility that receives the satellite communications is located and the state from which the communications were sent would, under this rule, apportion the cost of the owned or rented satellite to their respective property factors based upon the ratio of the instate use of said satellite to its total usage everywhere.

Assume that ABC Newspaper Co. owns a total of four hundred million dollars of property everywhere and that, in addition, it owns and operates a communication satellite for the purpose of sending news articles to its printing plant in this state, as well as for communicating with its printing plants and facilities or news bureaus, employees, and agents located in other states and throughout the world. Also assume that the total value of its real and tangible personal property that was permanently located in this state for the entire income year was valued at three million dollars. Assume also that the total original cost of the satellite is one hundred million dollars for the tax period and that of the ten thousand uplinks and downlinks of satellite transmissions used by the taxpayer during the tax period, two hundred or two percent are attributable to its satellite communications received in and sent from this state.

Assume further that the company's mobile property that was used partially within this state, consisting of forty delivery trucks, were determined to have an original cost of four million dollars and such mobile property was used in this state for ninety-five days.

The total value of property to be attributed to this state would be determined as follows:

Value of property permanently in state$3,000,000 Value of mobile property: 95/365 or (.2602) x $4,000,000:$1,048,000 Value of leased satellite property used instate (.02) x $100,000,000: $2,000,000 Total value of property attributable to state:$6,048,000 Total property factor percent: $6,048,000/($500,000,000):.01209

b.The payroll factor. The payroll factor must be determined in accordance with North Dakota Century Code chapter 57-38.1 and the rules adopted under that chapter.

c.The sales factor.

(1)Sales factor denominator. The denominator of the sales factor must include the total gross receipts derived by the taxpayer from transactions and activity in the regular course of its trade or business, except receipts that may be excluded under North Dakota Century Code sections 57-38.1-15, 57-38.1-16, 57-38.1-17, and 57-38.1-18 and the rules adopted under those sections.

(2)Sales factor numerator. The numerator of the sales factor must include all gross receipts of the taxpayer from sources within this state, including the following:

(a)Gross receipts derived from the sale of tangible personal property, including printed materials, delivered or shipped to a purchaser or a subscriber in this (b)Except as provided in subparagraph c, gross receipts derived from advertising and the sale, rental, or other use of the taxpayer's customer lists or any portion thereof must be attributed to this state as determined by the taxpayer's "circulation factor" during the tax period. The circulation factor must be determined for each individual publication by the taxpayer of printed material containing advertising and must be equal to the ratio that the taxpayer's instate circulation to purchasers and subscribers of its printed material bears to its total circulation to purchasers and subscribers everywhere.

The circulation factor for an individual publication must be determined by reference to the rating statistics as reflected in such sources as audit bureau of circulations or other comparable sources, provided that the source selected is consistently used from year to year for such purpose. If none of the foregoing sources are available, or, if available, none is in form or content sufficient for such purposes, then the circulation factor must be determined from the taxpayer's books and records.

(c)When specific items of advertisements can be shown, upon clear and convincing evidence, to have been distributed solely to a limited regional or local geographic area in which this state is located, the taxpayer may petition, or the tax commissioner may require, that a portion of such receipts be attributed to the sales factor numerator of this state on the basis of a regional or local geographic area circulation factor and not upon the basis of the circulation factor provided by subparagraph b. Such attribution must be based upon the ratio that the taxpayer's circulation to purchasers and subscribers located in this state of the printed material containing such specific items of advertising bears to its total circulation of such printed material to purchasers and subscribers located within such regional or local geographic area. This alternative attribution method is permitted only upon the condition that such receipts are not double counted or otherwise included in the numerator of any other state.

(d)If the purchaser or subscriber is the United States government or the taxpayer is not taxable in a state, the gross receipts from all sources, including the receipts from the sale of printed material, from advertising, and from the sale, rental, or other use of the taxpayer's customer's lists, or any portion thereof that would have been attributed by the circulation factor to the numerator of the sales factor for such state, must be included in the numerator of the sales factor of this state if the printed material or other property is shipped from an office, store, warehouse, factory, or other place of storage or business in this

History

• History: Effective April 1,1995.

Chapter 81-03-09.1 Division of Income for Financial Institutions

N.D. Admin. Code 81-03-09.1 Division of Income for Financial Institutions

CHAPTER 81-03-09.1

DIVISION OF INCOME FOR FINANCIAL INSTITUTIONS

Section 81-03-09.1-01Special Rules - Financial Institutions 81-03-09.1-02Definitions 81-03-09.1-03Apportionment and Allocation - Property Factor 81-03-09.1-04Apportionment and Allocation - Receipts Factor 81-03-09.1-05Apportionment and Allocation - Payroll Factor 81-03-09.1-06Taxable Years 81-03-09.1-01. Special rules - Financial institutions.

Except as otherwise specifically provided, a financial institution whose business activity is taxable both within and without this state shall allocate and apportion its net income as provided in this chapter.

The provisions of North Dakota Century Code chapter 57-38.1, including section 57-38.1-18, not inconsistent with this chapter, shall apply to the allocation and apportionment of the income of a financial institution. All items of nonbusiness income that are not includable in the apportionable income tax base must be allocated under North Dakota Century Code chapter 57-38.1.

History: Effective July 1, 1985; amended effective April 1, 2014. 81-03-09.1-02. Definitions.

As used in this chapter, unless the context otherwise requires:

1."Billing address" means the location indicated in the books and records of the taxpayer on the first day of the taxable year, or on a later date in the taxable year when the customer relationship began, as the address where any notice, statement, or bill relating to a customer's account is mailed.

2."Borrower or credit card holder located in this state" means:

a.A borrower, other than a credit card holder, who is engaged in a trade or business that maintains its commercial domicile in this state; or

b.A borrower who is not engaged in a trade or business or a credit card holder whose billing address is in this state.

3."Commercial domicile" means:

a.The headquarters of the trade or business, meaning the place from which the trade or business is principally managed and directed; or

b.If a taxpayer is organized under the laws of a foreign country, or of the Commonwealth of Puerto Rico, or any territory or possession of the United States, the taxpayer's commercial domicile must be deemed for the purposes of this chapter to be the state of the United States or the District of Columbia from which the taxpayer's trade or business in the United States is principally managed and directed. It is presumed, subject to rebuttal, that the location from which the taxpayer's trade or business is principally managed and directed is the state of the United States or the District of Columbia to which the greatest number of employees are regularly connected or out of which they are working, irrespective of where the services of the employees are performed, as of the last day of the taxable year.

4."Compensation" means wages, salaries, commissions, and any other form of remuneration paid to employees for personal service that are included in the employees' gross income under the Internal Revenue Code. In the case of employees not subject to the Internal Revenue Code, such as those employed in foreign countries, the determination of whether payments would constitute gross income to employees under the Internal Revenue Code must be made as though those employees were subject to the Internal Revenue Code.

5."Credit card" means a credit, travel, or entertainment card.

6."Credit card issuer's reimbursement fee" means the fee a taxpayer receives from a merchant's bank because one of the persons to whom the taxpayer has issued a credit card has charged merchandise or services to the credit card.

7."Employee" means, with respect to a particular taxpayer, any individual who, under the usual common-law rules applicable in determining the employer-employee relationship, has the status of an employee of that taxpayer.

8."Financial institution" means:

a.A corporation or other business entity registered under state law as a bank holding company, registered under the Bank Holding Company Act of 1956, as amended [Pub. L. 84-240; 70 Stat. 133; 12 U.S.C. 1841 et seq.], or registered as a savings and loan holding company under the National Housing Act, as amended [Pub. L. 73-847; 48 Stat. 1246; 12 U.S.C. 1701 et seq.];

b.A national bank organized and existing as a national bank association pursuant to the provisions of the National Bank Act [1864 ch. 106, 5; 13 Stat. 100; 12 U.S.C. 21 et seq.];

c.A savings association or federal savings bank as defined in the Federal Deposit Insurance Act [Pub. L. 81-967; 64 Stat. 873; 12 U.S.C. 1813(b)(1)];

d.A bank or thrift institution incorporated or organized under the laws of any state;

e.A trust company organized under the laws of any state, the United States, a dependency or insular possession of the United States, or a foreign country;

f.A corporation organized under the provisions of Public Law No. 63-6, 25A [38 Stat. 273; 12 U.S.C. 611 to 631];

g.An agency or branch of a foreign depository as defined in Public Law No. 95-369 [92 Stat. 607; 12 U.S.C. 3101];

h.A production credit association organized under the Farm Credit Act of 1933 [Pub. L. 73-98; 48 Stat. 257; 12 U.S.C. 1131 et seq.], all of the stock of which held by the federal production credit corporation has been retired;

i.A corporation the voting stock of which is more than fifty percent owned, directly or indirectly, by any person or business entity described in subdivisions a through h other than an insurance company taxable under North Dakota Century Code chapter 26.1-03; or

j.A corporation or other business entity that derives more than fifty percent of its total gross income for financial accounting purposes from finance lease. For purposes of this subdivision, a "finance lease" means any lease transaction that is the functional equivalent of an extension of credit and which transfers substantially all of the benefits and risks incident to the ownership of property. The phrase includes any "direct financing lease" or "leverage lease" that meets the criteria of financial accounting standards board statement no. 13, "accounting for leases", or any other lease that is accounted for as a financing by a lessor under generally accepted accounting principles. For the classification under this subdivision to apply:

(1)The average of the gross income in the current tax year and immediately preceding two tax years must satisfy the more than fifty percent requirement; and (2)Gross income from incidental or occasional transactions must be disregarded.

9."Gross rents" means the actual sum of money or other consideration payable for the use or possession of property.

a.Gross rents includes:

(1)Any amount payable for the use or possession of real property or tangible property whether designated as a fixed sum of money or as a percentage of receipts, profits, or otherwise;

(2)Any amount payable as additional rent or in lieu of rent, including interest, taxes, insurance, repairs, or any other amount required to be paid by the terms of a lease or other arrangement; and (3)A proportionate part of the cost of any improvement to real property made by or on behalf of the taxpayer which reverts to the owner or lessor upon termination or a lease or other arrangement. The amount to be included in gross rents is the amount of the amortization or depreciation allowed in computing the taxable income base for the taxable year. However, if a building is erected on leased land by or on behalf of the taxpayer, the value of the land is determined by multiplying the gross rent by eight and the value of the building is determined in the same manner as if owned by the taxpayer.

a.Gross rents does not include:

(1)Reasonable amounts payable as separate charges for water and electric service furnished by the lessor;

(2)Reasonable amounts payable as service charges for janitorial services furnished by the lessor;

(3)Reasonable amounts payable for storage, provided the amounts are payable for space not designated and not under the control of the taxpayer; and (4)That portion of any rental payment which is applicable to the space subleased from the taxpayer and not used by it.

10."Loan" means any extension of credit resulting from direct negotiations between the taxpayer and its customer, or the purchase, in whole or in part, of the extension of credit from another.

Loans include participation, syndications, and leases treated as loans for federal income tax purposes. "Loan" does not include properties treated as loans under section 595 of the Internal Revenue Code; futures or forward contracts; options, notional principal contracts such as swaps; credit card receivables, including purchased credit card relationships; non-interest-bearing balances due from depository institutions; cash items in the process of collection; federal funds sold; securities purchased under agreements to resell; assets held in a trading account; securities; interests in an REMIC, or other mortgage-backed or asset-backed security; and other similar items.

11."Loan secured by real property" means that fifty percent or more of the aggregate value of the collateral used to secure a loan or other obligation, when valued at fair market value as of the time the original loan or obligation was incurred, was real property.

12."Merchant discount" means the fee or negotiated discount charged to a merchant by the taxpayer for the privilege of participating in a program whereby a credit card is accepted in payment for merchandise or services sold to the credit card holder.

13."Participation" means an extension of credit in which an undivided ownership interest is held on a pro rata basis in a single loan or pool of loans and related collateral. In a loan participation, the credit originator initially makes the loan and then subsequently resells all or a portion of it to other lenders. The participation may or may not be known to the borrower.

14."Principal base of operations" with respect to transportation property means the place of more or less permanent nature from which said property is regularly directed or controlled. With respect to an employee, the "principal base of operations" means the place of more or less permanent nature from which the employee regularly starts the employee's work and to which the employee customarily returns in order to receive instructions from the employee's employer, communicates with the employee's customers or other persons, or performs any other functions necessary to the exercise of the employee's trade or profession at some other point or points.

15."Real property owned" and "tangible personal property owned" mean real and tangible personal property, respectively, on which the taxpayer may claim depreciation for federal income tax purposes, or to which the taxpayer holds legal title and on which no other person may claim depreciation for federal income tax purposes, or could claim depreciation if subject to federal income tax. Real and tangible personal property do not include coin, currency, or property acquired in lieu of or pursuant to a foreclosure.

16."Regular place of business" means an office at which the taxpayer carries on its business in a regular and systematic manner and which is continuously maintained, occupied, and used by employees of the taxpayer.

17."Syndication" means an extension of credit in which two or more persons fund and each person is at risk only up to a specified percentage of the total extension of credit or up to a specified dollar amount.

18."Transportation property" means vehicles and vessels capable of moving under their own power, such as aircraft, trains, water vessels, and motor vehicles, as well as any equipment or containers attached to the property, including rolling stock, barges, trailers, or the like. 81-03-09.1-03. Apportionment and allocation - Property factor.

1.General. The property factor is a fraction, the numerator of which is the average value of real property and tangible personal property rented to the taxpayer that is located or used within this state during the taxable year, the average value of the taxpayer's real and tangible personal property owned that is located or used within this state during the taxable year, and the average value of the taxpayer's loans and credit card receivables that are located within this state during the taxable year, and the denominator of which is the average value of all property located or used within and without this state during the taxable year.

2.Property included. The property factor includes only property the income or expenses of which are included, or would have been included if not fully depreciated or expensed or depreciated or expensed to a nominal amount, in the computation of the apportionable income base for the taxable year.

3.Value of property owned by the taxpayer.

a.The value of real property and tangible personal property owned by the taxpayer is the original cost or other basis of the property for federal income tax purposes without regard to depletion, depreciation, or amortization.

b.Loans are valued at their outstanding principal balance, without regard to any reserve for bad debts. If a loan is charged off in whole or in part for federal income tax purposes, the portion of the loan charged off is not outstanding. A specifically allocated reserve established pursuant to regulatory or financial accounting guidelines which is treated as charged off for federal income tax purposes must be treated as charged off for purposes of this section.

c.Credit card receivables are valued at their outstanding principal balance, without regard to any reserve for bad debts. If a credit card receivable is charged off in whole or in part for federal income tax purposes, the portion of the receivable charged off is not outstanding.

4.Average value of property owned by the taxpayer. The average value of property owned by the taxpayer is computed on an annual basis by adding the value of the property on the first day of the taxable year and the value on the last day of the taxable year and dividing the sum by two. If averaging on this basis does not properly reflect average value, the commissioner may require averaging on a more frequent basis. The taxpayer may elect to average on a more frequent basis. When averaging on a more frequent basis is required by the commissioner or is elected by the taxpayer, the same method of valuation must be used consistently by the taxpayer with respect to property within and without this state and on all subsequent returns unless the taxpayer receives prior permission from the commissioner or the commissioner requires a different method of determining average value.

5.Average value of real property and tangible personal property rented to the taxpayer.

a.The average value of real property and tangible personal property that the taxpayer has rented from another, and which is not treated as property owned by the taxpayer for federal income tax purposes, must be determined annually by multiplying the gross rents payable during the taxable year by eight.

b.If the use of the general method described in this subsection results in inaccurate valuations of rented property, any other method that properly reflects the value may be adopted by the commissioner or by the taxpayer when approved in writing by the commissioner. Once approved, the other method of valuation must be used on all subsequent returns unless the taxpayer receives prior approval from the commissioner or the commissioner requires a different method of valuation.

6.Location of real property and tangible personal property owned by or rented to the taxpayer.

a.Except as described in subdivision b, real property and tangible personal property owned by or rented to the taxpayer is considered to be located within this state if it is physically located, situated, or used within this state.

b.Transportation property is included in the numerator of the property factor to the extent that the property is used in this state. The extent an aircraft will be deemed to be used in this state and the amount of value that is to be included in the numerator of this state's property factor is determined by multiplying the average value of the aircraft by a fraction, the numerator of which is the number of landings of the aircraft in this state and the denominator of which is the total number of landings of the aircraft everywhere. If the extent of the use of any transportation property within this state cannot be determined, then the property will be deemed to be used wholly in the state in which the property has its principal base of operations. A motor vehicle will be deemed to be used wholly in the state in which it is registered.

7.Location of loans. a.(1)A loan is considered to be located within this state if it is properly assigned to a regular place of business of the taxpayer within this state.

(2)A loan is properly assigned to the regular place of business with which it has a preponderance of substantive contacts. A loan assigned by the taxpayer to a regular place of business without the state must be presumed to have been properly assigned if:

(a)The taxpayer has assigned, in the regular course of the taxpayer's business, the loan on its records to a regular place of business consistent with federal or state regulatory requirements.

(b)The assignment on the taxpayer's records is based upon substantive contacts of the loan to that regular place of business; and (c)The taxpayer uses those records reflecting assignment of loans for the filing of all state and local tax returns for which an assignment of loans to a regular place of business is required.

(3)The presumption of proper assignment of a loan provided in paragraph 2 may be rebutted upon a showing by the commissioner, supported by a preponderance of the evidence, that the preponderance of substantive contacts regarding the loan did not occur at the regular place of business to which it was assigned on the taxpayer's records. When the presumption has been rebutted, the loan must then be located within this state if the taxpayer had a regular place of business within this state at the time the loan was made and the taxpayer fails to show, by a preponderance of the evidence, that the preponderance of substantive contacts regarding the loan did not occur within this state.

b.In the case of a loan that is assigned by the taxpayer to a place without this state which is not a regular place of business, it must be presumed, subject to rebuttal by the taxpayer on a showing supported by the preponderance of evidence, that the preponderance of substantive contacts regarding the loan occurred within this state if, at the time the loan was made, the taxpayer's commercial domicile, as defined in subsection 3 of section 81-03-09.2-02, was within this state.

c.To determine the state in which the preponderance of substantive contacts relating to a loan have occurred, the facts and circumstances regarding the loan at issues must be reviewed on a case-by-case basis and consideration must be given to such activities as the solicitation, investigation, negotiation, approval, and administration of the loan. For purposes of this subdivision:

(1)"Administration" means the process of managing the account. This process includes bookkeeping, collecting the payments, corresponding with the customer, reporting to management regarding the status of the agreement, and proceeding against the borrower or the security interest if the borrower is in default. This activity is located at the regular place of business which oversees this activity.

(2)"Approval" means the procedure by which employees or the board of directors of the taxpayer make the final determination whether to enter into the agreement. This activity is located at the regular place of business which the taxpayer's employees are regularly connected with or working out of, regardless of where the services of the employees were actually performed. If the board of directors makes the final determination, the activity is located at the commercial domicile of the taxpayer.

(3)"Investigation" means the procedure by which employees of the taxpayer determine the creditworthiness of the customer as well as the degree of risk involved in making a particular agreement. This activity is located at the regular place of business which the taxpayer's employees are regularly connected with or working out of, regardless of where the services of the employees were actually performed.

(4)"Negotiation" means the procedure by which employees of the taxpayer and the taxpayer's customer determine the terms of the agreement, including the amount, duration, interest rate, frequency of repayment, currency denomination, and security required. This activity is located at the regular place of business which the taxpayer's employees are regularly connected with or working out of, regardless of where the services of the employees were actually performed.

(5)"Solicitation" means either active or passive solicitation. Active solicitation occurs when an employee of the taxpayer initiates the contact with the customer. This activity is located at the regular place of business which the taxpayer's employee is regularly connected with or working out of, regardless of where the services of the employee where actually performed. Passive solicitation occurs when the customer initiates the contact with the taxpayer. If the customers initial contact was not a regular place of business of the taxpayer, the regular place of business, if any, where the passive solicitation occurred is determined by the facts in each case.

8.Location of credit card receivables. For purposes of determining the location of credit card receivables, credit card receivables must be treated as loans and are subject to the provisions of subsection 7.

9.Period for which properly assigned loan remains assigned. A loan that has been properly assigned to a state, absent any change of material fact, must remain assigned to that state for the length of the original term of the loan. Thereafter, that loan may be properly assigned to another state if that loan has a preponderance of substantive contact to a regular place of business there. 81-03-09.1-04. Apportionment and allocation - Receipts factor.

1.General. The receipts factor is a fraction, the numerator of which is the receipts of the taxpayer in this state during the taxable year and the denominator of which is the receipts of the taxpayer within and without this state during the taxable year. The method of calculating receipts for purposes of the denominator is the same as the method used in determining receipts for the purpose of the numerator. The receipts factor includes only those receipts described in this section which constitute business income and are included in the computation of the apportionable income base for the taxable year.

2.Receipts from the lease of real property. The numerator of the receipts factor includes receipts from the lease or rental of real property owned by the taxpayer if the property is located within this state or receipts from the sublease of real property if the property is located within this state.

3.Receipts from the lease of tangible personal property.

a.Except as described in subdivision b, the numerator of the receipts factor includes receipts from the lease or rental of tangible personal property owned by the taxpayer if the property is located within this state when it is first placed in service by the lessee.

b.Receipts from the lease or rental of transportation property owned by the taxpayer are included in the numerator of the receipts factor to the extent that the property is used in this state. The extent an aircraft will be deemed to be used in this state and the amount of receipts that is to be included in the numerator of this state's receipts factor is determined by multiplying all the receipts from the lease or rental of the aircraft by a fraction, the numerator of which is the number of landings of the aircraft in this state and the denominator of which is the total number of landings of the aircraft. If the extent of the use of any transportation property within this state cannot be determined, then the property will be deemed to be used wholly in the state in which the property has its principal base of operations. A motor vehicle will be deemed to be used wholly in the state in which it is registered.

4.Interest from loans secured by real property.

a.The numerator of the receipts factor includes interest and fees or penalties in the nature of interest from loans secured by real property if the property is located within this state.

If the property is located both within this state and one or more other states, the receipts described in this subsection are included in the numerator of the receipts factor if more than fifty percent of the fair market value of the real property is located within this state. If more than fifty percent of the fair market value of the real property is not located within any one state, then the receipts described in this subsection must be included in the numerator of the receipts factor if the borrower is located in this state.

b.The determination of whether the real property securing a loan is located within this state must be made as of the time the original agreement was made and any and all subsequent substitutions of collateral must be disregarded.

5.Interest from loans not secured by real property. The numerator of the receipts factor includes interest and fees or penalties in the nature of interest from loans not secured by real property if the borrower is located in this state.

6.Net gains from the sale of loans. The numerator of the receipts factor includes net gains from the sale of loans. Net gains from the sale of loans include income recorded under the coupon stripping rules of section 1286 of the Internal Revenue Code.

a.The amount of net gains, but not less than zero, from the sale of loans secured by real property included in the numerator is determined by multiplying the net gains by a fraction, the numerator of which is the amount included in the numerator of the receipts factor under subsection 4 and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans secured by real property.

b.The amount of net gains, but not less than zero, from the sale of loans not secured by real property included in the numerator is determined by multiplying the net gains by a fraction, the numerator of which is amount included in the numerator of the receipts factor under subsection 5 and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans not secured by real property.

7.Receipts from credit card receivables. The numerator of the receipts factor includes interest and fees or penalties in the nature of interest from credit card receivables and receipts from fees charged to cardholders, such as annual fees, if the billing address of the cardholder is in this state.

8.Net gains from the sale of credit card receivables. The numerator of the receipts factor includes net gains, but not less than zero, from the sale of credit card receivables multiplied by a fraction, the numerator of which is the amount included in the numerator of the receipts factor under subsection 7 and the denominator of which is the taxpayer's total amount of interest and fees or penalties in the nature of interest from credit card receivables and fees charged to cardholders.

9.Credit card issuer's reimbursement fees. The numerator of the receipts factor includes all credit card issuer's reimbursement fees multiplied by a fraction, the numerator of which is the amount included in the numerator of the receipts factor under subsection 7 and the denominator of which is the taxpayer's total amount of interest and fees or penalties in the nature of interest from credit card receivables and fees charged to cardholders.

10.Receipts from merchant discount. The numerator of the receipts factor includes receipts from merchant discount if the commercial domicile of the merchant is in this state. Such receipts must be computed net of any cardholder chargebacks but may not be reduced by any interchange transaction fees or by any issuer's reimbursement fees paid to another for charges made by its cardholders.

11.Loan servicing fees. a.(1)The numerator of the receipts factor includes loan servicing fees derived from loans secured by real property multiplied by a fraction, the numerator of which is the amount included in the numerator of the receipts factor under subsection 4 and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans secured by real property.

(2)The numerator of the receipts factor includes loan servicing fees derived from loans not secured by real property multiplied by a fraction, the numerator of which is the amount included in the numerator of the receipts factor under subsection 5 and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans not secured by real property.

b.In circumstances in which the taxpayer receives loan servicing fees for servicing either the secured or the unsecured loans of another, the numerator of the receipts factor must include the fees if the borrower is located in this state.

12.Receipts from services. The numerator of the receipts factor includes receipts from the services not otherwise apportioned under this section if the service is performed in this state.

If the service is performed both within and without this state, the numerator of the receipts factor includes receipts from services not otherwise apportioned under this section, if a greater proportion of the income-producing activity is performed in this state based on cost of performance.

13.Receipts from investment assets and activities and trading assets and activities.

a.Interest; dividends; net gains, but not less than zero; and other income from investment assets and activities and from trading assets and activities must be included in the receipts factor. Investment assets and activities and trading assets and activities include investment securities, trading account assets, federal funds, securities purchased and sold under agreements to resell or repurchase, options, futures contracts, forward contracts, notional principal contracts, such as swaps, equities, and foreign currency transactions. With respect to the investment and trading assets and activities described in paragraphs 1 and 2, the receipts factor must include the amounts described in those paragraphs.

(1)The receipts factor must include the amount by which interest from federal funds sold and securities purchased under resale agreements exceeds interest expense on federal funds purchased and securities sold under repurchase agreements.

(2)The receipts factor must include the amount by which interest, dividends, gains, and other income from trading assets and activities, including assets and activities in the matched book, in the arbitrage book, and foreign currency transactions, exceeds amounts paid in lieu of interest, amounts paid in lieu of dividends, and losses from these assets and activities.

b.The numerator of the receipts factor includes interest; dividends; net gains, but not less than zero; and other income from investment assets and activities and from trading assets and activities described in subdivision a which are attributable to this state.

(1)The amount of interest; dividends; net gains, but not less than zero; and other income from investment assets and activities in the investment account to be attributed to this state and included in the numerator is determined by multiplying all income from these assets and activities by a fraction, the numerator of which is the average value of the assets which are properly assigned to a regular place of business of the taxpayer within this state and the denominator of which is the average value of all such assets.

(2)The amount of interest from federal funds sold and purchased and from securities purchased under resale agreements and securities sold under repurchase agreements attributable to this state and included in the numerator is determined by multiplying the amount described in paragraph 1 of subdivision a from such funds and securities by a fraction, the numerator of which is the average value of federal funds sold and securities purchased under agreements to resell which are properly assigned to a regular place of business of the taxpayer within this state and the denominator of which is the average value of all such funds and securities.

(3)The amount of interest, dividends, gains, and other income from trading assets and activities, including assets and activities in the matched book, in the arbitrage book, and foreign currency transactions, but excluding amounts described in paragraph 1 or 2, attributable to this state and included in the numerator is determined by multiplying the amount described in paragraph 2 of subdivision a by a fraction, the numerator of which is the average value of the trading assets which are properly assigned to a regular place of business of the taxpayer within this state and the denominator of which is the average value of all such assets.

(4)For purposes of this subdivision, average value must be determined using the rules for determining the average value of tangible personal property set forth in subsections 3 and 4 of section 81-03-09.1-03.

c.In lieu of using the method set forth in subdivision b, the taxpayer may elect, or the commissioner may require in order to fairly represent the business activity of the taxpayer in this state, the use of the method set forth in this subdivision.

(1)The amount of interest; dividends; net gains, but not less than zero; and other income from investment assets and activities in the investment account to be attributed to this state and included in the numerator is determined by multiplying all such income from such assets and activities by a fraction, the numerator of which is the gross income from such assets and activities which are properly assigned to a regular place of business of the taxpayer within this state and the denominator of which is the gross income from all such assets and activities.

(2)The amount of interest from federal funds sold and purchased and from securities purchased under resale agreements and securities sold under repurchase agreements attributable to this state and included in the numerator is determined by multiplying the amount described in paragraph 1 of subdivision a from such funds and such securities by a fraction, the numerator of which is the gross income from such funds and such securities which are properly assigned to a regular place of business of the taxpayer within this state and the denominator of which is the gross income from all such funds and such securities.

(3)The amount of interest, dividends, gains, and other income from trading assets and activities, including assets and activities in the matched book, in the arbitrage book, and foreign currency transactions, but excluding amounts described in paragraphs 1 and 2, attributable to this state and included in the numerator is determined by multiplying the amount described in paragraph 2 of subdivision a by a fraction, the numerator of which is the gross income from such trading assets and activities which are properly assigned to a regular place of business of the taxpayer within this state and the denominator of which is the gross income from all such assets and activities.

d.If the taxpayer elects or is required by the commissioner to use the method set forth in subdivision c, the taxpayer shall use this method on all subsequent returns unless the taxpayer receives prior permission from the commissioner to use, or the commissioner requires, a different method.

e.The taxpayer has the burden of proving that an investment asset or activity or trading asset or activity was properly assigned to a regular place of business outside this state by demonstrating that the day-to-day decisions regarding the asset or activity occurred at a regular place of business outside this state. If the day-to-day decisions regarding an investment asset or activity or trading asset or activity occur at more than one regular place of business and one regular place of business is in this state and one regular place of business is outside this state, the asset or activity must be considered to be located at the regular place of business of the taxpayer where the investment or trading policies or guidelines with respect to the asset or activity are established. Unless the taxpayer demonstrates to the contrary, the investment or trading policies and guidelines are presumed to be established at the commercial domicile of the taxpayer.

14.All other receipts. The numerator of the receipts factor includes all other receipts under the rules set forth in North Dakota Century Code chapter 57-38.1 and North Dakota Administrative Code chapter 81-03-09, to the extent not inconsistent with this section.

15.Attribution of certain receipts to commercial domicile. All receipts that would be assigned under this section to a state in which the taxpayer is not taxable must be included in the numerator of the receipts factor if the taxpayer's commercial domicile is in this state. 81-03-09.1-05. Apportionment and allocation - Payroll factor.

1.General. The payroll factor is a fraction, the numerator of which is the total amount paid in this state during the taxable year by the taxpayer for compensation and the denominator of which is the total compensation paid both within and without this state during the taxable year. The payroll factor must include only that compensation that is included in the computation of the apportionable income tax base for the taxable year.

2.Compensation relating to nonbusiness income. The compensation of any employee for services or activities that are connected with the production of nonbusiness income, meaning income which is not includable in the apportionable income base, and payments made to any independent contractor or any other person not properly classifiable as an employee must be excluded from both the numerator and denominator of the factor.

3.When compensation paid in this state. Compensation is paid in this state if any one of the following tests, applied consecutively, is met:

a.The employee's services are performed entirely within this state.

b.The employee's services are performed both within and without the state, but the service performed without the state is incidental to the employee's service within the state. The term "incidental" means any service that is temporary or transitory in nature or which is rendered in connection with an isolated transaction.

c.If the employee's services are performed both within and without this state, the employee's compensation must be attributed to this state:

(1)If the employee's principal base of operations is within this state;

(2)If there is no principal base of operations in any state in which some part of the services are performed, but the place from which the services are directed or controlled is in this state; or (3)If the principal base of operations and the place from which the services are directed or controlled are not in any state in which some part of the service is performed but the employee's residence is in this state. 81-03-09.1-06. Taxable years.

This chapter is applicable to tax years beginning after December 31, 2012.

Chapter 81-03-09.2 Sales Factor Weighting Election

N.D. Admin. Code 81-03-09.2 Sales Factor Weighting Election

CHAPTER 81-03-09.2

SALES FACTOR WEIGHTING ELECTION

Section 81-03-09.2-01Definitions 81-03-09.2-02Sales Factor Weighting Election 81-03-09.2-03Sales Factor Weighting Election Applicability 81-03-09.2-04Rescission of Sales Factor Weighting Election 81-03-09.2-05Provisions of Income Tax Laws Applicable 81-03-09.2-06Taxable Years 81-03-09.2-01. Definitions.

1."Affiliated corporation" means a corporation whose voting stock is over fifty percent owned, directly or indirectly, by another corporation.

2."Apportionment factor" means the resulting computation of the percentage of a taxpayer's business income that is assignable to this state.

3."Consolidated return" means a single corporation income tax return that reports the tax liability of more than one corporation engaged in business in or having sources of income from North Dakota.

4."Passthrough entity" has the same meaning as in North Dakota Century Code section 57-38-01.

5."Sales factor" has the same meaning as in North Dakota Century Code section 57-38.1-15.

6."Sales factor weighting election" means the election provided in North Dakota Century Code

section 57-38.1-09 allowing a taxpayer to weight its sales factor fifty percent for tax years 2016 and 2017, seventy-five percent for tax year 2018, and one hundred percent for tax years 2019 and thereafter.

7."Taxpayer" means a person other than a passthrough entity that is required to file a North Dakota income tax return.

8."Unitary business" means a group of corporations engaged in a unitary business described in

chapter 81-03-05.3. 81-03-09.2-02. Sales factor weighting election.

1.A taxpayer that is a corporation makes a sales factor weighting election by checking the sales factor weighting election box on its original North Dakota income tax return for the first year to which the election applies.

2.A taxpayer that is a sole proprietor apportioning income under subsection 5 of North Dakota Century Code section 57-38-04 makes a sales factor weighting election by attaching a statement to the taxpayer's individual income tax return for the first year to which the election applies.

3.A taxpayer's return making a sales factor weighting election for the first year is considered timely if filed by the prescribed due date, including extensions.

4.A sales factor weighting election is binding for five consecutive tax years. An election made on a tax return for a sixth consecutive year constitutes a new five-year election.

5.For any tax year that is not included under a sales factor weighting five-year election period, income is apportioned using equal weighting of the three factors under subsection 1 of North Dakota Century Code section 57-38.1-09. 81-03-09.2-03. Sales factor weighting election applicability.

1.If a taxpayer is a member of a unitary business, the sales factor weighting election applies to each taxpayer in the unitary business.

2.If a taxpayer files a consolidated return, the election made on that return applies to all corporations included in that return.

3.An affiliated corporation is considered to have consented to the sales factor weighting election if the corporation becomes a member of the unitary group after the group elects to use the sales factor weighting election.

4.If a taxpayer's apportionment factor includes its share of a passthrough entity's apportionment factors, the taxpayer's sales factor weighting election includes its share of factors from a passthrough entity. 81-03-09.2-04. Rescission of a sales factor weighting election.

1.A sales factor weighting election of a taxpayer that has had more than fifty percent of its voting stock acquired by a nonaffiliated entity is rescinded.

2.A sales factor weighting election of a taxpayer formed due to reorganization or spinoff from an existing taxpayer is rescinded if, after the reorganization or spinoff, it is no longer an affiliated member of the unitary group.

3.The sales factor weighting election of a taxpayer that is completely liquidated is rescinded.

The election does not carry over to the entity receiving the liquidated assets. This provision does not affect the sales factor weighting election made by any taxpayer that receives liquidated assets.

4.If a taxpayer's sales factor weighting election is rescinded under this section, it is not precluded from making a new sales factor weighting election in the first tax year following the rescission. 81-03-09.2-05. Provisions of income tax laws applicable.

Administration of the sales factor weighting election is governed by the provisions in North Dakota Century Code chapters 57-38 and 57-38.1, not in conflict with this chapter. 81-03-09.2-06. Taxable years.

This chapter applies to tax years beginning after December 31, 2015.

Chapter 81-03-10 Voluntary Contributions

N.D. Admin. Code 81-03-10-01 Designation of overpayment amount

An individual income taxpayer with an available overpayment of tax of at least five dollars may designate a portion of the overpayment, as a voluntary contribution, a minimum of one dollar to either or both of the following:

1.The watchable wildlife fund.

2.The trees for North Dakota program trust fund.

History

• History: Effective July 1, 1989; amended effective November 1, 1991; June 1, 2002; July 1, 2016.

N.D. Admin. Code 81-03-10-02 Available overpayment

The procedure by which the taxpayer's return is originally processed by the tax department may result in adjustments to the available overpayment amount computed by the taxpayer for errors on the return; reduction for taxes, including interest and penalty, owed for prior years; or reduction for amounts owed pursuant to North Dakota Century Code chapter 57-38.3.

When the overpayment amount computed by the taxpayer is reduced by the tax department, taxpayer designations will be reduced in the following order, each designated item to be reduced to zero before proceeding to reduce the next item:

1.The amount of the overpayment that the taxpayer has designated as voluntary contributions to the watchable wildlife fund and the trees for North Dakota program trust fund. If the tax department does not reduce the overpayment computed by the taxpayer by the total amount of the voluntary contributions, any remaining overpayment will be allocated between the funds in the same ratio as the designations bear to one another on the taxpayer's return.

2.The amount of the overpayment that the taxpayer has designated as a refund.

3.The amount of the overpayment that the taxpayer has designated as an estimated tax payment for a succeeding year.

History

• Law Implemented: NDCC 57-38-34.3, 57-38-35.1(3), 57-38-38(1), 57-38-62, 57-38.3

N.D. Admin. Code 81-03-10-03 Designation for taxpayers owing tax

Taxpayers who have a tax balance due, including penalty and interest, of at least five dollars on their income tax return may designate that an additional amount of at least one dollar be paid to the watchable wildlife fund or to the trees for North Dakota program trust fund by paying the entire balance that is due for both tax and the designations at the same time that the return is filed. Any designations to the watchable wildlife fund or to the trees for North Dakota program trust fund are not obligations enforceable by the tax department. If the amount that is paid with the return does not equal the total of the tax balance due and the amounts designated, the amount of the tax balance due must be paid first and the optional designations must be reduced to the amount paid with the return which is in excess of the tax balance due. The amount paid which is in excess of the tax balance due must be allocated between the funds in the same ratio as the taxpayer designations bear to one another on the taxpayer's return.

N.D. Admin. Code 81-03-10-04 Taxpayers with no overpayment or balance due

A taxpayer with no overpayment of tax of at least five dollars or tax balance due of at least five dollars, may not use the state income tax return to make voluntary contributions. Taxpayers may make contributions directly to the North Dakota game and fish department for the watchable wildlife fund, or to the North Dakota state forester for the trees for North Dakota program trust fund.

Article 81-04.1 Sales and Use Taxes

Chapter 81-04.1-01 General Rules

N.D. Admin. Code 81-04.1-01 General Rules

ARTICLE 81-04.1

SALES AND USE TAXES

Chapter 81-04.1-01General Rules 81-04.1-02Sales to Government Entities 81-04.1-03Miscellaneous Sales 81-04.1-04Specific Occupations

CHAPTER 81-04.1-01

GENERAL RULES

Section 81-04.1-01-01Purpose 81-04.1-01-02Confidential Information [Repealed] 81-04.1-01-03Taxable Sales - Engaging in Business [Repealed] 81-04.1-01-03.1Definitions 81-04.1-01-04Permits 81-04.1-01-05Direct Payment Permits 81-04.1-01-06Sale of Business - Permit Not Transferable 81-04.1-01-07Change of Location 81-04.1-01-08Deduction for Administrative Expense 81-04.1-01-08.1Monthly Sales Tax Returns 81-04.1-01-09Deposits or Prepayments on Purchase Price of Tangible Personal Property 81-04.1-01-09.1Effect of Rate Changes 81-04.1-01-10Freight, Delivery, and Other Transportation Charges 81-04.1-01-11Finance or Carrying Charges 81-04.1-01-12Processing 81-04.1-01-13Containers, Wrapping Materials, Cartons, String 81-04.1-01-14Receipts From Sales of Taxable Materials, Supplies, and Services 81-04.1-01-15Certificate of Resale 81-04.1-01-16Casual or Occasional Sales 81-04.1-01-17Used or Secondhand Tangible Personal Property 81-04.1-01-18Goods on Consignment 81-04.1-01-19Sale of Traded-In Property 81-04.1-01-20Repossessed and Returned Property 81-04.1-01-21Articles Made to Order 81-04.1-01-22Services 81-04.1-01-23Manufacturing Machinery and Equipment 81-04.1-01-23.1Recyclers 81-04.1-01-23.2Agricultural Commodity Processing Facility 81-04.1-01-23.3Computer and Telecommunications Equipment 81-04.1-01-24Manufacturer's and Retailer's Federal Excise Tax [Repealed] 81-04.1-01-25Credit Sales and Bad Debts 81-04.1-01-26Purchases Subject to Use Tax 81-04.1-01-27Bookkeeping Requirements [Repealed] 81-04.1-01-27.1Recordkeeping a Sales and Use Tax Transaction [Repealed] 81-04.1-01-28Coupons 81-04.1-01-29Calculation of Tax 81-04.1-01-30Taxing Separate Articles [Repealed] 81-04.1-01-01. Purpose.

The retail sales tax is imposed on the gross receipts of retail sales of tangible personal property within North Dakota. The statutes governing sales tax in North Dakota are found in North Dakota Century Code chapter 57-39.2.

The use tax is imposed on the storage, use, or consumption of tangible personal property in North Dakota. If property is purchased at retail for use, storage, or consumption in North Dakota and is not subject to sales tax in North Dakota, it is subject to use tax. The statutes governing use tax in North Dakota are found in North Dakota Century Code chapter 57-40.2.

The purpose of the administrative rules covering sales and use tax in North Dakota is to define and expand upon the relevant statutes in the North Dakota Century Code. Therefore, these rules are to be used in conjunction with relevant statutes.

Law Implemented: NDCC 57-39.2-01 81-04.1-01-02. Confidential information.

Repealed effective July 1, 2016. 81-04.1-01-03. Taxable sales - Engaging in business.

Repealed effective November 1, 1987. 81-04.1-01-03.1. Definitions.

Any person having nexus in North Dakota and making taxable sales in or making taxable sales having a destination in North Dakota must obtain a North Dakota sales and use tax permit from the tax commissioner and collect and remit tax on these sales.

For purposes of implementing subsection 8 of North Dakota Century Code section 57-39.2-01 and subsection 6 of North Dakota Century Code section 57-40.2-01, unless the context otherwise requires:

1."Advertisement" means any message by which a retailer solicits retail sales of tangible personal property. It includes but is not limited to:

a.Each transmittance, by United States mail, common carrier or otherwise, of a printed sales solicitation message in the form of a bulk mailing or bulk delivery, a sales catalog, brochure, advertising flier, billing or package insert, or similar publication or device.

b.Each transmittance of a sales solicitation message by space advertising in a newspaper, magazine, or other publication, which is local, regional, or national in nature.

c.Each transmittance of a sales solicitation message by radio, television, telephone, telegraph, computer data base, or by cable, optic, microwave or other electronic means, or by any other communications means.

2."Destination" means the location to which the delivery of tangible personal property is made by a retailer or the retailer's agent.

3."Regular or systematic solicitation" means three or more separate transmittances of any advertisement or advertisements during a testing period.

4."Separate transmittance" means any transmittance of an advertisement during any twenty-four-hour period.

5."Solicitation" means:

a.Offering, by advertisement, to make a taxable sale with a destination in North Dakota.

b.Inviting offers to purchase tangible personal property for delivery in North Dakota.

6."Taxable sale" means a sale made by a retailer or a retailer maintaining a place of business in this state to purchasers for final use or consumption and not for resale or processing.

7."Testing period", with respect to the determination of whether a person is required to obtain a permit and collect use tax as a retailer for tax periods commencing on or after the effective date of this section, means the twelve-month period ending on September thirtieth of the preceding calendar year.

History: Effective November 1, 1987; amended effective March 1, 1988; November 1, 1991.

Law Implemented: NDCC 57-39.2-19, 57-40.2-01 81-04.1-01-04. Permits.

A sales tax permit will not be issued to a person not engaged in a retail business for the purpose of permitting that person to purchase at wholesale or to purchase without payment of sales tax to the seller.

Law Implemented: NDCC 57-39.2-14 81-04.1-01-05. Direct payment permits.

The direct payment permit authorizes the applicant to make direct payment of sales or use tax to the tax commissioner.

An applicant electing to pay taxes directly to the tax commissioner must issue a direct payment certificate to the retailer in the form prescribed by the tax commissioner. The certificate exempts the retailer from liability for sales or use tax and obligates the applicant to pay taxes directly to the tax commissioner.

1.To qualify for a direct payment permit, a business must demonstrate to the satisfaction of the tax commissioner that:

a.The person purchases substantial amounts of tangible personal property for business use under circumstances which make it difficult or impractical at the time of purchase to determine whether such property is subject to sales or use tax.

b.The person holds or has applied for a sales and use tax permit.

c.The direct payment method will materially reduce the administrative work of collecting the tax.

d.The firm's accounting system will clearly reflect the proper amount of tax due.

e.The firm makes taxable purchases in sufficient volume to justify the expense of regular tax department audits.

2.Application for a direct payment permit must be submitted to the tax commissioner. The application must be a letter containing the applicant's name, address, sales and use tax account number, description of the business, the accounting system used, volume of purchases, and justification for adopting the direct payment method.

3.Each application accepted will receive a direct payment permit numbered, dated, and signed by the tax commissioner or the commissioner's representative. The tax commissioner will issue a direct payment permit only when, in the tax commissioner's judgment, it is in the best interest of the state to do so.

4.Each person issued a direct payment permit must keep a list of all vendors from whom purchases are made under the direct payment method and must submit such list for examination upon the tax commissioner's request.

5.The holder of a direct payment permit must either issue the permit to all vendors required to collect North Dakota sales and use taxes and accrue all liability as a use tax, or maintain accounting records sufficient to show the amount of sales tax paid to vendors in each reporting period.

6.If the holder of the permit chooses the latter alternative, all purchases from any one supplier must be made either exempt or taxable. The vendor may not assess the sales tax on only selected transactions.

7.A direct payment permit may not be used in connection with:

a.Purchases of taxable food or beverages.

b.Purchases of taxable lodging or related services.

c.Purchases of admissions to places of amusement or athletic events, or the use of amusement devices.

8.A direct payment permit is not transferable. The tax commissioner may revoke a direct payment permit at any time with or without cause.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-14.1, 57-40.2-13 81-04.1-01-06. Sale of business - Permit not transferable.

When the holder of a sales tax permit sells the business to another person, all sales tax for which the holder is liable is due immediately. The holder must immediately notify the tax commissioner and surrender the holder's permit for cancellation. Within fifteen days, the holder must make a final sales tax return and remit all sales tax due. The purchaser of the business must make application for a new permit in the purchaser's own name.

If the ownership status of a business which holds a sales tax permit changes from one type of business ownership to another, the new owner must apply for a new permit.

When a corporation is sold, or when new corporate officers are added or replaced, the tax commissioner must be notified of these changes although no new sales tax permit is required. A new permit is required if one or more partners enter or leave a partnership.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-10, 57-39.2-11, 57-39.2-14, 57-39.2-20 81-04.1-01-07. Change of location.

When a holder of a retail sales tax permit changes the business location of the retail business without changing the nature of the business, the permitholder must notify the tax commissioner of the change of location and of the new address. Upon notification, the tax commissioner will issue without charge a corrected sales tax permit showing the new business address.

Law Implemented: NDCC 57-39.2-01, 57-39.2-14 81-04.1-01-08. Deduction for administrative expense.

Compensation for sales or use tax permitholders is applied as follows:

1.A sales and use tax permitholder registered to report and remit sales, use, or gross receipts tax under North Dakota Century Code chapter 57-39.2, 57-39.5, 57-39.6, or 57-40.2 may deduct and retain one and one-half percent of the tax due, but this deduction may not exceed one hundred ten dollars per return.

2.A sales and use tax permitholder that is a remote seller, or a certified service provider assigned by the qualifying permitholder, is allowed to deduct and retain up to one and one-half percent of the tax due or such lower percentage as agreed in the compensation or monetary allowance agreement approved by the streamlined sales and use tax governing board. For purposes of this subsection, "remote seller" means a retailer that does not have adequate physical presence to establish nexus in this state for sales tax purposes.

Qualified sales or use tax permitholders, including permitholders and certified service providers who pay tax due under chapter 57-39.4, who fail to file the forms on time, or fail to pay the tax due on time, forfeit the one and one-half percent compensation for expenses.

History: Effective June 1, 1984; amended effective July 1, 1985; November 1, 1987; April 1, 2006;

July 1, 2016.

Law Implemented: NDCC 57-39.2-12.1, 57-40.2-07.1 81-04.1-01-08.1. Monthly sales tax returns.

1.A sales and use tax permitholder having taxable sales and purchases equal to or exceeding three hundred thirty-three thousand dollars for the preceding calendar year shall file sales and use tax returns and pay the tax due monthly. All returns and tax payments are due on or before the last day of the month following the reporting period.

2.Returns required to be filed monthly under section 1 must be filed by an electronic method approved by the tax commissioner.

3.All returns filed under North Dakota Century Code chapters 57-39.2, 57-39.5, 57-39.6, and 57-40.2 will be reviewed by the tax commissioner each calendar year to determine if new sales or use tax permitholders meet the monthly filing requirement and to determine if sales or use tax permitholders who have filed monthly returns may revert to quarterly filing status.

Changes in filing status as a result of the calendar year reviews are effective on or after July first of the following year.

History: Effective July 1, 2016.

Law Implemented: NDCC 57-39.2-12, 57-40.2-07 81-04.1-01-09. Deposits or prepayments on purchase price of tangible personal property.

When retailers of tangible personal property accept deposits from customers for goods to which the purchaser obtains possession only upon payment of the full purchase price, if there is a contract to sell specific goods, title passes to the buyer when the parties to the contract intend it to be transferred, with consideration of the terms of the contract, the conduct of the parties, usage of trade, and the circumstances of the case.

If the buyer makes a deposit on the purchase price of specific goods, and the seller assigns those goods to the sale, title to the goods passes and the sale is made at the time the contract is entered into irrespective of the fact that the full amount of the purchase price may not have been paid by the buyer.

The prepayment or deposit must be included in the measure of the seller's tax at that time.

If no specific goods are selected by the buyer or assigned to the sale by the seller, title to the goods does not pass until the buyer selects specific goods, and they are assigned to the sale by the seller.

Here the seller merely acts as a depository of funds left with the seller by the buyer, and such prepayments or deposits are not receipts from a sale of tangible personal property until a sale is actually made. In such case, the sale takes place when possession of the goods is delivered to the buyer, and the seller must report as gross receipts from the sale the total amount of the purchase price as of the time of sale.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.2, 57-39.2-03.3, 57-39.2-10, 57-39.2-11, 57-39.2-12, 57-39.2-12.1 81-04.1-01-09.1. Effect of rate changes.

Except for contracts for the construction of highways, roads, bridges, and buildings, when an unconditional contract to sell tangible personal property is entered into prior to the effective date of a rate change, and the goods are delivered after that date, the new rates are applied to the transaction.

When an unconditional contract to sell tangible personal property is entered into prior to the effective date, and the goods are delivered prior to that date, the tax rates in effect for the prior period are applied to the transaction.

When a contract to sell tangible personal property contains a specific provision to pass title prior to delivery of the goods, the rates in effect at the time title transfers are applied.

Lessors who lease tangible personal property are required to collect tax from their lessees at the rate in effect at the time the lease or rental payment is due, including payments on contracts entered into prior to a rate change.

For services covering a period starting before and ending after the effective date of a rate increase, the new rate shall apply to the first billing period starting on or after the effective date. For a rate decrease, the new rate shall apply to bills rendered on or after the effective date.

History: Effective March 1, 1988; amended effective March 1, 1990; April 1, 2006.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-10, 57-39.4-30, 57-40.2-01, 57-40.2-02.1, 57-40.2-03.3, 57-40.2-09 81-04.1-01-10. Freight, delivery, and other transportation charges.

Freight, delivery, and other transportation charges are considered part of the selling price. If the sale is taxable, the freight, delivery, and other transportation charges that are part of the sale and billed by the seller are taxable. If the product being delivered is exempt from sales tax, then freight, delivery, and other transportation charges are also exempt. Delivery charges billed directly to the customer by delivery services that are not making the sale of tangible personal property remain exempt from sales and use tax.

History: Effective June 1, 1984; amended effective April 1, 2006.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.2, 57-39.2-04, 57-40.2-01, 81-04.1-01-11. Finance or carrying charges.

Finance, carrying, and interest charges are not taxable if separately agreed upon by the buyer and the seller and if separately billed by the seller to the buyer.

History: Effective June 1, 1984; amended effective March 1, 1988; April 1, 2006.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-04 81-04.1-01-12. Processing.

The nonreturnable containers in which tangible personal property is sold, when sold for processing, are exempt from sales tax if it is intended that such containers become an integral, ingredient, or component part of tangible personal property intended to be sold ultimately at retail. Receipts from the sale of tangible personal property to fabricators, manufacturers, producers, or processors which will not actually become an integral, ingredient, or component part of the product produced are taxable.

The sale of an item of tangible personal property for the purpose of incorporating it in or attaching it to real property is a sale of tangible personal property for a purpose other than for processing and is taxable sold to a contractor or subcontractor for attachment to real property situated outside of North Dakota if taxable in state of attachment.

Law Implemented: NDCC 57-39.2-01 81-04.1-01-13. Containers, wrapping materials, cartons, string.

Receipts from the sale of containers, labels, cartons, packing cases, wrapping paper, wrapping twine, bags, bottles, shipping cases, and similar articles and receptacles sold to manufacturers, producers, wholesalers, retailers, or jobbers, which are used as containers of tangible personal property and are sold either for resale or at retail, are not subject to sales tax if the charge made for the property sold includes the container and title to the container passes to the purchaser with the merchandise sold.

Receipts from the sale of containers, labels, and cartons sold to those businesses rendering service are subject to the sales tax since these businesses are the users or consumers of such items, and sales to them are taxable.

Containers used for the purpose of delivering tangible personal property sold to customers, which may be returned to the seller, are not subject to sales tax when sold to the customer. The seller consumes or uses the containers in the seller's business, and the sale to the seller of such containers is subject to the tax. A deposit made by or required of the customer to secure the return of the container is not regarded as a retail sale, and it is not subject to the sales tax.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.2, 57-39.2-03.3, 57-39.2-04 81-04.1-01-14. Receipts from sales of taxable materials, supplies, and services.

Receipts from sales of taxable materials, supplies, and services to retail stores for their own use in maintenance, advertising, and office use are not for resale and are subject to sales tax.

The retailer must pay tax on all items for final use when purchasing them from the supplier. If the retailer fails to pay the tax when buying these items, the retailer must report them on the retailer's regular sales and use tax return for the filing period in which the items were purchased.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.2, 57-39.2-07 81-04.1-01-15. Certificate of resale.

Receipts from the sale of tangible personal property for the purpose of resale by the purchaser are not subject to sales tax if the buyer furnishes a North Dakota resale certificate, the multistate tax commission uniform sales and use tax certificate, or a certificate of exemption authorized by the streamlined sales tax agreement. A new certificate is not needed for each sale, but the seller must have a signed certificate from all customers who buy for resale.

If a seller claims a sale as a sale for resale, and it is determined that such sale is not exempt, any tax and penalty due thereon will be collected from the buyer.

Whenever a person submits a false certificate to a seller, the person submitting the false certificate is liable for any tax and penalties which attach on the sale.

History: Effective June 1, 1984; amended effective April 1, 2006.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.2, 57-39.2-03.3, 57-39.2-04, 57-39.2-10, 57-39.4-18 81-04.1-01-16. Casual or occasional sales.

Casual or occasional sales made by an individual are not subject to sales tax. Sales made in the course of a regularly conducted business are subject to sales tax. The following are retailers who must collect and remit sales tax:

1.The auctioneer who auctions the belongings of several undisclosed individuals at a public auction.

2.Persons who buy antiques from others and offer them for sale at a public auction or through a private sale.

3.Persons who conduct permanent rummage sales through which they dispose of the property of others.

A retailer may not claim a casual sale if the property sold is similar to property sold by the retailer in the regular course of business.

A person selling one's own products occasionally is making casual sales, and such sales are not taxable. Sales of such number, volume, or frequency as to indicate that the sale is not a casual or isolated one are subject to tax.

The sale of capital assets, such as equipment, machinery, and furnishings which are not sold as inventory, shall be deemed outside the regular course of a business and deemed to be a casual sale and no sales tax is due. If the business being sold is a retail business and the business will be sold in its entirety by the owner, the inventory is considered to be sold for resale while the sale of the other business assets is considered to be a casual sale. Sale of a retail inventory through auction is subject to section 81-04.1-04-11.

History: Effective June 1, 1984; amended effective August 1, 1994; June 1, 2002.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.2, 57-39.2-03.3, 57-39.2-04, 57-39.2-20, 57-40.3 81-04.1-01-17. Used or secondhand tangible personal property.

Used or secondhand tangible personal property in the form of goods, wares, and merchandise is taxable in the same manner as new property would be taxed, unless the sale is a casual or isolated one.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-04, 57-39.2-20 81-04.1-01-18. Goods on consignment.

Persons engaged in the business of selling tangible personal property of others are retailers. Sales are subject to sales tax if such property is sold in the retailer's place of business or is sold by the retailer for an undisclosed principal. This also applies to an auctioneer who sells tangible personal property belonging to a retailer, no matter where the sale is located.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.2, 57-39.2-03.3 81-04.1-01-19. Sale of traded-in property.

When one article is traded in on another article, the sales tax applies only on the difference in value between the two articles. The secondhand article is subject to sales tax when resold.

Whenever property not subject to sales tax or to motor vehicle excise tax is taken as part consideration of the purchase price, the purchaser is required to pay sales tax on the full purchase price.

When a used manufactured home is traded in for other tangible personal property, sales tax applies on the full purchase price with no deduction for the value of the trade-in.

When used farm machinery is traded in for new farm machinery or other tangible personal property, farm machinery gross receipts tax or sales tax applies on the net selling price after deduction for the value of the trade-in.

History: Effective June 1, 1984; amended effective April 1, 2006; July 1, 2016.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.5-01.1 81-04.1-01-20. Repossessed and returned property.

When tangible personal property which has been repossessed by the original seller or by a finance company is resold, the entire gross receipts from such sales are taxable.

When retailers sell tangible personal property on time payments, and it becomes necessary for the retailer to repossess the tangible personal property, the transaction is handled as follows:

1.If the retailer previously included the total selling price of the tangible personal property in the retailer's gross sales and remitted tax to the tax commissioner but did not collect sales tax from the buyer, the retailer may enter a credit in the amount of the unpaid balance of the original sale. This credit is deductible by the retailer regardless of whether or not the retailer has assigned the installment contract. If the retailer assigns the contract, it must be assigned subject to an agreement to repurchase it in the event of default by the purchaser under the contract or subject to a guarantee that the payment under the contract will be made.

2.If the retailer collected and remitted the full amount of sales tax on the full sales price at the time of sale, the retailer is not entitled to take a deduction for the goods returned unless the tax is returned to the purchaser on the unpaid balance.

3.If the retailer included in gross receipts only the amount of cash actually received from the sale and did not collect full sales tax from the customer, no credit for return of the repossessed property to the retailer's stock will be allowed.

When goods are returned to a retailer, and the purchase price is returned to the buyer, the retailer may claim a credit on a subsequent sales and use tax return for the amount of the sale claimed on a prior return if the previously paid tax is returned to the customer.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-05, 57-39.2-24, 57-39.2-27 81-04.1-01-21. Articles made to order.

When manufacturers, fabricators, or retailers agree to furnish the material and fabricate articles of tangible personal property, the total receipts from the sale of such articles are subject to sales tax.

These businesses may not deduct labor or service costs of fabrication or production from the sales tax base even though such charges are billed to customers apart from charges for materials.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1 81-04.1-01-22. Services.

Personal and professional services are not subject to sales tax, but materials and supplies used solely in rendering services are subject to sales tax when purchased. Materials and supplies which may be used either in rendering service or sold at retail may be purchased for resale, and sales tax must be collected when these items are sold at retail. The portion of these materials and supplies sold separately to the customer is subject to sales tax and must be included in the sales and use tax report as gross sales. The portion of these materials and supplies used and consumed in rendering service is taxable. The purchase cost must be included as use tax on the sales and use tax return of the person rendering the service.

If taxable materials and supplies are purchased from a supplier holding a North Dakota sales and use tax permit, sales tax must be paid to the supplier, but if taxable materials and supplies are purchased from an out-of-state supplier who does not collect North Dakota sales tax, the use tax must be remitted to the tax commissioner by the purchaser.

Persons engaged in the business of repairing, altering, restoring, or cleaning of tangible personal property belonging to others must collect sales tax on the itemized charge for tangible personal property used in the repair. Separately stated charges for repair labor are not subject to sales tax. If the charge for tangible personal property used in the repair is not itemized, the repairer must pay sales or use tax on the cost of the repair parts.

History: Effective June 1, 1984; amended effective March 1, 1990; June 1, 2002.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-04, 57-39.2-11, 57-39.2-14, 57-40.2-01, 57-40.2-02.1, 57-40.2-05, 57-40.2-06, 57-40.2-13 81-04.1-01-23. Manufacturing machinery and equipment.

Manufacturing is a process which produces a new article with a different form, use, and name. The modification of articles of tangible personal property is not manufacturing. For example, the creation of steel ducts or I-beams is manufacturing whereas the modification of steel ducts or I-beams to meet the specifications of a particular real property construction contract is not manufacturing. To be considered manufacturing, the raw materials must be materially altered.

By way of illustration and not of limitation, the following are manufacturers: agricultural commodity production facility, food, beverage, confectionary plants; bakeries; textile mills; apparel makers; wood and lumber plants; furniture and fixture makers; paper product makers; printers and publishers (includes newspapers); chemical producers; leather good plants; stone, clay, glass, concrete product makers; cement and asphalt plants; metal ware makers; auto/aircraft makers; dairy processors (not producers); photo finishers (not photographers); and dental, medical, and ophthalmolic labs.

By way of illustration and not of limitation, the following are not manufacturers: farmers or ranchers, construction contractors, refining companies, artists, utilities, nurseries, restaurants, pharmacists, drycleaners, photographers, advertisement agencies, secretarial services, computer programmers, auto body shops, repair shops, radio and television stations, architects, jewelers, grain elevators, and tire retreaders or recappers.

The purchase or rental of machinery and equipment is exempt from sales and use taxes if the machinery or equipment:

1.Is used directly in the process of manufacturing tangible personal property for wholesale, retail, or lease;

2.Is used in a new manufacturing plant or in a physical or economic expansion of an existing plant; and

3.Is used directly in the manufacturing process more than fifty percent of the time the machinery or equipment is used by the manufacturer.

The manufacturing process begins at the point where the raw materials are first received at the plantsite and includes all direct processes prior to transporting the finished product from the plantsite. In addition, machinery and equipment used by a manufacturer to conduct research, development, and design activities qualify for the sales and use tax exemption. Examples of research, development, and design equipment include computer software and hardware used to draw, design, or plan products and machinery and equipment used to build or test prototype models.

Machinery and equipment used directly in the manufacturing process include molds and dies that determine the physical characteristics of the finished product or its packaging material, computers and related equipment that directly control or measure the manufacturing process, and testing equipment used to measure or test product quality.

Machinery and equipment used directly in the manufacturing process also include temperature or humidity control equipment necessary to maintain certain temperature or humidity levels in a limited area of the processing or manufacturing facility where either temperature or humidity must be closely regulated for the proper function or production process to occur.

Equipment or machinery used for pollution control or general heating or cooling of the facility or used to otherwise control the working environment does not qualify for the tax exemption. Also, items which are consumed or destroyed in the manufacturing process but which do not become a part of the finished product are not machinery and equipment and are subject to sales and use tax. Machinery and equipment not used directly in the manufacturing process include repair parts and equipment used for repairing, cleaning, or maintaining facilities, machinery, or equipment; handtools; backup or standby power supplies; computer hardware and software used to maintain inventory, production, or scheduling records; waste disposal or treatment facilities; and safety and security equipment such as fire sprinkler systems and burglar alarms. Purchase of these items by a manufacturer is taxable, and suppliers shall charge sales or use tax on these items. If the items are purchased from an out-of-state supplier or if a North Dakota supplier fails to charge the tax, the North Dakota manufacturer shall report the sales or use tax directly to the North Dakota tax commissioner.

Requests by the manufacturer to purchase or lease machinery and equipment without paying tax or for refunds of tax paid on machinery or equipment which qualify for exemption must be made in writing to the tax commissioner. Only the manufacturer may apply for a refund of the sales or use tax paid on exempt machinery or equipment. A request for refund must include documentation showing the amount of tax paid by the manufacturer or the contractor. The tax commissioner reserves the right to make an onsite inspection prior to granting permission to purchase qualifying machinery and equipment without paying tax or prior to approving a refund. An onsite inspection by the tax commissioner does not preclude an audit of the taxpayer's books and records.

The tax commissioner shall respond in writing to each exemption request stating whether or not the machinery or equipment qualifies for the exemption. The manufacturer may provide the approval letter to its equipment and machinery suppliers to avoid paying sales or use taxes on approved equipment. If a manufacturer purchases equipment before requesting a sales tax exemption, it shall pay all applicable sales and use taxes at the time of purchase but may apply to the tax commissioner for a refund of the taxes paid.

A contractor consuming or installing materials, machinery, or equipment shall pay the applicable sales or use taxes and the manufacturer shall apply in writing for a refund of the taxes paid by the contractor on machinery or equipment qualifying for a sales and use tax exemption.

To receive a refund of taxes paid by a contractor, the manufacturer must provide documentation showing that the contractor paid North Dakota sales or use taxes on the qualifying machinery and equipment installed into the manufacturing facility. The tax commissioner may request an onsite inspection of the manufacturing facility before approving the refund of taxes paid by a contractor. The manufacturing facility may request that the refund amount be taken as a credit adjustment on its next sales and use tax return; however, the tax exemption must be approved in writing by the tax commissioner before the tax credit may be applied on a sales and use tax return. A letter from the tax commissioner stating the amount of the approved credit must be attached to the sales and use tax return on which the credit was applied.

History: Effective June 1, 1984; amended effective March 1, 1990; November 1, 1991; August 1, 1994;

April 1, 1995; June 1, 2002.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-04, 57-39.2-04.3, 57-39.2-25, 81-04.1-01-23.1. Recyclers.

Recycling means collecting or recovering solid waste material and processing it so it becomes a raw material or another product for sale. The recycling process begins at the point where the raw materials are first received at the recycling facility and includes all direct processes prior to transporting the product from the facility. To qualify as recycling, the solid waste must be processed. Collecting or transporting waste materials without processing them is not recycling.

Recycling machinery and equipment are exempt from sales and use taxes if the machinery or equipment:

1.Is used solely in the process of recycling solid waste that will become a raw material for manufacturing or that will become a product for sale at retail or wholesale; and

2.Is used in a new recycling facility or in a physical or economic expansion of an existing facility.

Machinery and equipment used directly in recycling of tangible personal property include pulverizers, shredders, balers, granulators, separators, and conveyors. Motor vehicles used to collect material to be recycled do not qualify for the exemption. Items consumed or destroyed in the recycling process, but which do not become a part of the finished product, are not considered recycling machinery or equipment and are subject to sales tax when purchased for use by the recycler.

Requests for approval to buy recycling machinery or equipment without paying tax or for refunds of tax paid on machinery or equipment that qualifies for the exemption must be made in writing to the tax commissioner. The tax commissioner reserves the right to make an onsite inspection prior to granting permission to purchase qualifying machinery or equipment without paying tax or prior to approving a refund. An onsite inspection by the tax commissioner does not preclude an audit of the taxpayer's books and records.

The tax commissioner shall respond to each exemption request in writing stating whether or not the machinery or equipment qualifies as exempt recycling machinery or equipment. The recycler may provide the approval letter to equipment and machinery suppliers to avoid paying sales or use tax on approved equipment.

If a recycler purchases equipment before requesting a sales tax exemption, it must pay all applicable sales and use taxes at the time of purchase; however, the recycler may apply to the tax commissioner for a refund of taxes paid on qualifying equipment. When a recycler applies for a sales or use tax refund on qualifying machinery and equipment, the exemption application must include documentation showing the amount of tax paid.

History: Effective April 1, 1995.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-04, 57-39.2-04.3, 57-39.2-25, 81-04.1-01-23.2. Agricultural commodity processing facility.

An agricultural commodity processing facility is a manufacturing facility that processes agricultural commodities into marketable products. A facility, such as a grain elevator, that only stores, cleans, dries, or transports agricultural commodities, is not an agricultural commodity processing facility.

Tangible personal property consumed during the construction of an agricultural commodity processing facility or incorporated into the structure of an agricultural processing facility is exempt from sales and use tax. A contractor consuming or installing the materials shall pay the applicable sales or use taxes and the owner of the agricultural processing facility shall apply in writing for a refund of the taxes paid by the contractor unless the tax commissioner has approved the project for exemption and the facility owner has authorized the contractor to utilize the exemption.

The purchase or rental of machinery and equipment used directly in the processing of agricultural commodities into marketable products is regarded as manufacturing machinery and equipment, as provided in section 81-04.1-01-23. Machinery and equipment not used directly in the processing of agricultural commodities are subject to sales and use tax. Machinery and equipment not used directly in the processing of agricultural commodities include repair parts and equipment used for repairing, cleaning, or maintaining facilities, machinery, or equipment; handtools; backup or standby power suppliers; computer hardware and software to maintain inventory, production, or scheduling records; waste disposal or treatment facilities; and safety and security equipment, such as fire sprinkler systems and burglar alarms. Items consumed or destroyed in the process and which do not become a part of the finished products do not represent qualifying machinery and equipment and are subject to sales and use tax.

Requests by the manufacturer to purchase or lease machinery or equipment without paying tax or for refunds of tax paid on machinery or equipment which qualify for exemption must be made in writing to the tax commissioner. Only the owner of the agricultural commodity processing facility may apply for a refund of the sales or use tax paid on exempt machinery or equipment. A request for refund must include documentation showing the amount of tax paid by the owner of the agricultural commodity processing facility or the contractor. The tax commissioner reserves the right to make an onsite inspection prior to granting permission to purchase qualifying machinery and equipment without paying tax or prior to approving a refund. An onsite inspection by the tax commissioner does not preclude an audit of the taxpayer's books and records.

The tax commissioner shall respond in writing to each exemption request stating whether or not the machinery or equipment qualifies for the exemption. The owner of the agricultural commodity processing facility may provide the approval letter to its equipment and machinery suppliers or construction contractors to avoid paying sales and use taxes on approved equipment, machinery, and qualifying construction materials. If an owner of the agricultural commodity processing facility or a contractor purchases equipment before the tax commissioner approves the sales tax exemption, the owner or contractor shall pay all applicable sales and use taxes at the time of purchase. Only the facility owner may apply to the tax commissioner for a refund of the taxes paid.

To receive a refund of taxes paid by the contractor, the owner of the agricultural commodity processor must provide documentation showing that the contractor paid North Dakota sales or use taxes on the tangible personal property consumed during construction, or on the tangible personal property qualifying machinery and equipment installed into the manufacturing facility. The tax commissioner may request an onsite inspection of the manufacturing facility before approving the refund of taxes paid by the contractor.

The owner of the agricultural commodity processing facility may request that the refund amount be taken as a credit adjustment on its next sales or use tax return; however, the tax exemption must be approved in writing by the tax commissioner before the tax credit may be applied on a sales and use tax return. A letter from the tax commissioner stating the amount of the approved credit must be attached to the sales and use tax return on which the credit is applied.

History: Effective June 1, 2002; amended effective July 1, 2016.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-04, 57-39.2-04.3, 57-39.2-04.4, 57-39.2-25, 57-40.2-03, 57-40.2-04, 57-40.2-13 81-04.1-01-23.3. Computer and telecommunications equipment.

1.Purchases of computer and telecommunications equipment intended for a new primary sector business or a physical or economic expansion of a primary sector business are exempt from sales tax. As used in this section:

a."Computer equipment" means stored program processing equipment and all devices fastened to it by means of signal cables or any communication medium that serves the function of a signal cable. Examples of devices fastened by a signal cable or other communication medium include terminals, card or tape punchers, printers, optical readers, display units or monitors, document sorters, and card readers.

b."Primary sector business" means a business that has been certified by the North Dakota department of commerce division of economic development and finance as a primary sector business.

c."Telecommunications equipment" means tangible personal property used to provide a communication service, as defined by section 81-04.1-04-41.1.

2.Purchase of replacement communications and telecommunications equipment is subject to sales or use tax.

3.A contractor installing qualifying computer and telecommunications equipment shall pay the application sales or use tax and the primary sector business shall apply in writing for refund of the taxes paid by the contractor on computers and telecommunications equipment qualifying for a sales or use tax exemption.

4.Requests for a primary sector business to purchase or lease computer or telecommunications equipment without paying tax or for refunds of tax paid on machinery or equipment which qualify for exemption must be made in writing to the tax commissioner. Only the primary sector business may apply for a refund of the sales or use tax paid on exempt computer or telecommunications equipment. A request for refund must include documentation showing the amount of tax paid by the primary sector business or contractor. The tax commissioner reserves the right to make an onsite inspection prior to granting permission to purchase qualifying computer and telecommunications equipment without paying tax and prior to approving a refund. An onsite inspection by the tax commissioner does not preclude an audit of the taxpayer's books and records.

5.The tax commissioner shall respond in writing to each exemption request, stating whether or not the computer or telecommunications equipment qualifies for an exemption. The primary sector business may provide the approval letter to its computer and telecommunications equipment suppliers to avoid paying sales or use taxes on approved equipment. If a primary sector business purchases equipment before requesting a sales tax exemption, it shall pay all applicable sales and use taxes at the time of purchase but may apply to the tax commissioner for a refund of the taxes paid.

6.The primary sector business may request that the refund amount be taken as a credit adjustment on its next sales and use tax return; however, the tax exemption must be approved in writing by the tax commissioner before the credit may be applied on a sales and use tax return. A letter from the tax commissioner stating the amount of the approved credit must be attached to the sales and use tax return on which the credit is applied.

History: Effective June 1, 2002.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-04, 57-39.2-04.3, 57-39.2-25, 57-40.2-04, 57-40.2-13 81-04.1-01-24. Manufacturer's and retailer's federal excise tax.

Repealed effective July 1, 2016. 81-04.1-01-25. Credit sales and bad debts.

Conditional sales contracts or other forms of sales, if the payment of the principal sum is to be extended over a period longer than sixty days from the date of the sale, do not include credit sales for which the purchaser is billed in full in intervals of less than sixty consecutive days even though the credit terms may allow the purchaser to extend the principal payments beyond sixty consecutive days.

When a retailer sells or renegotiates a conditional sales contract or other form of credit for which the principal payment is to be extended over a period longer than sixty days to a third party, the retailer is required to remit the full amount of tax due on the outstanding credit balance.

Bad debts may be deducted from gross receipts when the tangible personal property is sold on credit and the following facts are fully shown:

1.That the account has not been paid and has been found to be worthless.

2.That the amount was previously included in the gross receipts and sales tax collected and remitted by the retailer.

3.That the bad debt is written off as uncollectible in the retailer's books.

When filing responsibilities have been assumed by a certified service provider, the certified service provider may claim, on behalf of the retailer, any bad debt provided by this section. The certified service provider must credit or refund the full amount of any bad debt allowance or refund received on behalf of the retailer.

The books and records of the party claiming the bad debt must contain the customers' names, addresses, amount charged off, and the period in which the sale was included in the holder's taxable sales, and be available for review by the tax commissioner upon request.

History: Effective June 1, 1984; amended effective July 1, 1989; April 1, 2006.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.2, 57-39.2-05, 57-39.2-10, 57-39.2-11, 57-39.4-21 81-04.1-01-26. Purchases subject to use tax.

When a retailer takes merchandise from stock for personal use or for a gift, the retailer is responsible for the use tax based on the cost of the merchandise. Retailers purchasing items for maintenance, advertising, and office use are subject to sales tax and must pay tax on all items for final use when purchasing them from the supplier. If the retailer fails to pay tax when buying these items, the retailer must report them on the quarterly sales or use tax return for the filing period in which the items were purchased.

A purchaser is required to pay any use tax to the seller if the seller holds a North Dakota sales and use tax permit. If the seller does not hold a permit, the purchaser is required to remit the tax directly to the tax commissioner.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.2, 57-39.2-03.3, 57-40.2-01, 57-40.2-02.1, 57-40.2-03.2, 57-40.2-05, 57-40.2-06, 57-40.2-07, 57-40.2-09, 57-40.2-13 81-04.1-01-27. Bookkeeping requirements.

Repealed effective March 1, 1988. 81-04.1-01-27.1. Recordkeeping a sales and use tax transaction.

Repealed effective June 1, 2002. 81-04.1-01-28. Coupons.

Retailers shall include in their taxable receipts the exchange value of coupons or redemption certificates taken from customers, if such coupons or certificates are redeemed by a wholesaler or others.

The exchange value of coupons or certificates issued by the retailer as store coupons, and not redeemable by wholesalers or others, must be treated as cash discounts not subject to sales tax.

Sales of gift certificates or other forms of credit which may be redeemed by the holder for equivalent cash value are deposits or prepayments and are not subject to tax when sold. However, the value of these certificates is taxable when redeemed if they are redeemed for taxable goods or services.

History: Effective October 1, 1986; amended effective March 1, 1988; July 1, 1989; March 1, 1990;

April 1, 2006.

Law Implemented: NDCC 57-39.2-01(3), 57-39.2-01(7), 57-39.2-02.1 81-04.1-01-29. Calculation of tax.

The sales or use tax liability must be computed by multiplying the sales price of each taxable item or total purchase amount by the appropriate tax rate percentage. If the tax results in a fraction of a cent, the tax liability shall be carried to the third decimal place and rounded to the nearest whole cent. If the third decimal place is four or less, round down, and if the third decimal place is greater than four, round up.

History: Effective November 1, 1987; amended effective March 1, 1990; April 1, 2006.

Law Implemented: NDCC 57-39.2-08.2, 57-39.4-25 81-04.1-01-30. Taxing separate articles.

Repealed effective April 1, 2006.

Chapter 81-04.1-02 Sales to Government Entities

N.D. Admin. Code 81-04.1-02 Sales to Government Entities

CHAPTER 81-04.1-02

SALES TO GOVERNMENT ENTITIES

Section 81-04.1-02-01Sales to the State of North Dakota, Any Subdivisions of North Dakota, and Sales by Municipal Corporations 81-04.1-02-02Contracts with Governments 81-04.1-02-03Tangible Personal Property Purchases - United States Government 81-04.1-02-04Sales to Federal Corporations 81-04.1-02-01. Sales to the state of North Dakota, any subdivisions of North Dakota, and sales by municipal corporations.

Gross receipts from sales of tangible personal property or from furnishing taxable services to this state or any of its political subdivisions, departments, agencies, or institutions are exempt from sales tax.

Retail sales or furnishing of services to the public by any state, subdivisions, departments, or institutions of any state, are subject to sales tax.

History: Effective June 1, 1984; amended effective August 1, 1994; July 1,1998.

General Authority: NDCC 57-39.2-19, 57-40.2-13; S.L. 1993, Ch. 561

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.2, 57-39.2-03.3, 57-39.2-04; S.L. 1993, ch. 561 81-04.1-02-02. Contracts with governments.

A contractor performing contracts for the United States government, this state, counties, cities, villages, or any other municipal corporation in this state is not exempt from payment of the sales or use tax on materials and supplies used by the contractor to carry out the contracts.

General Authority: NDCC 57-39.2-19, 57-40.2-13

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-04, 57-39.2-10, 57-39.2-20, 81-04.1-02-03. Tangible personal property purchases - United States government.

Except as provided by Congress, the United States government is not required to collect sales tax when making a sale. However, the purchaser of taxable tangible personal property or services from the United States government must report and remit the sales or use tax.

General Authority: NDCC 57-39.2-19, 57-40.2-13

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.2, 57-39.2-03.3, 57-39.2-04, 81-04.1-02-04. Sales to federal corporations.

Federal statutes creating the following corporations contain provisions which have been construed by the United States supreme court as exempt from sales or use tax.

1.Federal land banks.

2.Federal deposit insurance corporation.

3.Homeowners loan corporation.

4.Federal farm mortgage corporation.

5.Federal home loan banks.

6.Reconstruction-finance corporation.

7.American national red cross.

8.Federal credit unions.

General Authority: NDCC 57-39.2-19

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-04, 57-40.2-04

Chapter 81-04.1-03 Miscellaneous Sales

N.D. Admin. Code 81-04.1-03 Miscellaneous Sales

CHAPTER 81-04.1-03

MISCELLANEOUS SALES

Section 81-04.1-03-01Sales to American Indians - Sales on an Indian Reservation 81-04.1-03-01.1State-Tribal Tax Administration Agreement - Effect on Other Rules 81-04.1-03-02Sales by Employers to Employees 81-04.1-03-03Food and Food Products for Human Consumption 81-04.1-03-04Sales in Interstate Commerce 81-04.1-03-05Sales of Legal Tender Coins, Currency, and Precious Metals 81-04.1-03-06Meal Tickets and Gift Certificates 81-04.1-03-07Sales to Owners or Operators of a Building 81-04.1-03-08Sales by Trustees, Receivers, Executors, and Administrators 81-04.1-03-09Sales of Microfiche 81-04.1-03-10Mailing Lists 81-04.1-03-11Computers - Hardware and Software 81-04.1-03-12Sales by Political Parties and Political Committees 81-04.1-03-13Sales to a Person From Montana 81-04.1-03-14Sales to Residents of Canada 81-04.1-03-01. Sales to American Indians - Sales on an Indian reservation.

An Indian retailer whose place of business is on an Indian reservation in this state is not required to hold a North Dakota sales tax permit or to collect North Dakota sales tax on sales to any customer.

A non-Indian retailer whose place of business is on an Indian reservation cannot collect sales tax on sales to enrolled Indian customers but must collect and remit North Dakota sales tax on all sales to non-Indian customers.

Any retailer whose place of business is outside an Indian reservation may exempt sales made by delivery to an enrolled Indian customer living on an Indian reservation if the retailer maintains adequate records supporting the exempt status of the sale.

All sales to American Indians outside of an Indian reservation are subject to sales tax.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-04 81-04.1-03-01.1. State-tribal tax administration agreement - Effect on other rules.

If an agreement is in effect between the state and a Native American tribal government under the

authority of North Dakota Century Code chapter 54-40.2 or 57-39.8, then the provisions of that agreement apply with respect to retail sales to enrolled Native Americans on an Indian reservation in lieu of section 81-04.1-03-01.

History: Effective July 1, 2016.

Law Implemented: NDCC 57-39.8 81-04.1-03-02. Sales by employers to employees.

Purchases of tangible personal property by employees from their employer are subject to sales tax.

Employers operating a restaurant or cafeteria exclusively for employees are retailers and the gross receipts from such sales are subject to sales tax. Employees ordering merchandise from an employer's wholesale catalog for personal use are subject to sales tax.

Employers who provide free meals to their employees are subject to tax on the cost of the items given away. When an employer is unable to determine the exact cost of a giveaway meal, tax is due on fifty percent of the retail selling price of the meal.

History: Effective June 1, 1984; amended effective March 1, 1988.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.2, 57-39.2-03.3 81-04.1-03-03. Food and food products for human consumption.

Food or food ingredients are exempt from sales tax. Food and food ingredients do not include alcoholic beverages, candy, dietary supplements, prepared food, soft drinks, or tobacco, which remain subject to sales tax. For purposes of this section:

1."Alcoholic beverage" for human consumption means beverages containing one-half of one percent or more of alcohol by volume.

2."Candy" means a preparation of sugar, honey, or other natural or artificial sweeteners in combination with chocolate, fruits, nuts, or other ingredients or flavorings in the form of bars, drops, or pieces. Candy does not include any preparation as described herein, containing flour, or any item requiring refrigeration.

3."Dietary supplement" means a product subject to tax if the product label contains a "supplemental facts" box. If the product label contains a "nutrition facts" box, the product is regarded as food, and is exempt from tax.

4."Prepared food" is subject to sales tax and includes food sold in a heated state or heated by the seller, or food that is prepared by mixing or combining two or more food ingredients for sale as a single item, or food sold with eating utensils, such as plates, knives, forks, spoons, glasses, cups, napkins, or straws provided by the seller. Food sold in an unheated state by weight or volume as a single item is taxable only if sold with eating utensils. Food that ordinarily requires cooking, as opposed to just reheating, by the consumer prior to consumption is not prepared food. Generally businesses that sell prepared food include restaurants, convenience stores, delicatessens, concession stands, coffee shops, and caterers.

5."Soft drinks" subject to sales tax include nonalcoholic beverages that contain natural or artificial sweeteners, and that do not contain milk or milk products, soy, rice, or similar milk substitutes, or that contain greater than fifty percent vegetable or fruit juice by volume. Soft drinks generally include pop and fruit drinks or fruit punches that are less than fifty percent juice by volume.

6."Tobacco" means any cigarettes, cigars, chewing or pipe tobacco, or any other items that contain tobacco.

The exemption for food and food products given, or to be given, as samples to consumers for consumption on the premises of a food store does not apply to food given away by restaurants or other businesses which regularly and primarily sell prepared food and beverages.

History: Effective June 1, 1984; amended effective July 1, 1985; November 1, 1987; March 1, 1990;

April 1, 2006; July 1, 2016.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-04.1, 57-40.2-04.1 81-04.1-03-04. Sales in interstate commerce.

When tangible personal property is sold by a North Dakota retailer for use or consumption and delivered to the purchaser in another state and the goods are not to be returned to this state, the sale is not subject to sales tax. However, where the seller actually delivers possession of the goods to the buyer or the buyer's representative or agent within this state, the transaction is then terminated, and the tax applies. If a shipping company takes possession of goods on behalf of a purchaser, the purchaser has not taken possession of the goods.

Tangible personal property sold by a North Dakota retailer is not subject to sales tax if it is shipped from the source of supply in another state to the purchaser at a point outside this state or delivered to the purchaser at the source of supply outside the state. If the property is brought into this state, it is subject to use tax.

Sales of tangible personal property made within this state by salesmen, representatives, agents, persons, or firms residing outside this state and delivered in this state are subject to tax.

History: Effective June 1, 1984; amended effective July 1, 2016.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.2, 57-39.2-04, 57-39.2-10, 57-39.4-12, 57-40.2-01, 57-40.2-03.3 81-04.1-03-05. Sales of legal tender coins, currency, and precious metals.

Coins or currency issued as legal tender by foreign nations are exempt from sales tax. Sales of precious metal that has been refined to a purity of not less than nine hundred ninety-nine parts per one thousand and is in such form or condition that its value depends upon its precious metal content and not its form are exempt from sales tax.

History: Effective June 1, 1984; amended effective July 1, 1985; April 1, 2006.

General Authority: NDCC 57-39.2-10

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-04 81-04.1-03-06. Meal tickets and gift certificates.

A meal ticket or gift certificate is not subject to sales tax when it is sold to the consumer. Sales tax is added when the meals or merchandise are purchased.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1 81-04.1-03-07. Sales to owners or operators of a building.

Purchases of tangible personal property by an owner or operator of a building for tenants' use in alterations, repair, or convenience are subject to sales tax.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1 81-04.1-03-08. Sales by trustees, receivers, executors, and administrators.

When trustees, receivers, executors, and administrators operate, manage, or control a business engaged in selling tangible personal property or services, they must collect and remit sales tax on the gross receipts. It is immaterial that the officer may have been appointed by a federal court.

Trustees, receivers, executors, or administrators engaged in liquidating the assets of the business are subject to sales tax if liquidation is by sales made in the usual and customary manner for use or consumption.

The trustee, receiver, executor, or administrator may not report and remit under a permit issued to the previous owner but must apply for and obtain a separate sales tax permit.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.2, 57-39.2-03.3, 57-39.2-14 81-04.1-03-09. Sales of microfiche.

The gross receipts from the sale of an original copy of microfiche are not subject to sales tax. This sale is exempt from sales tax as a nontaxable service.

The gross receipts from the sale of all copies of an original microfiche are subject to sales tax because they are sales of tangible personal property.

When a retailer sells an original copy of microfiche with additional copies, the original copy is exempt from sales tax as a nontaxable service if it is separately billed. The separately billed copies remain subject to sales tax. If a lump sum amount is billed to the purchaser, the total gross receipts, including labor charges, are subject to sales tax.

History: Effective October 1, 1986.

Law Implemented: NDCC 57-39.2-01(3), 57-39.2-01(7), 57-39.2-02.1 81-04.1-03-10. Mailing lists.

The gross receipts from the sale of a prepared mailing list are subject to sales tax if the retailer of the mailing list prepared the list for sale to a number of purchasers.

The gross receipts from the sale of a prepared mailing list are not subject to sales tax if the retailer of the mailing list prepared the list on a custom basis for a specific purchaser.

History: Effective October 1, 1986.

Law Implemented: NDCC 57-39.2-01(3), 57-39.2-01(7), 57-39.2-02.1 81-04.1-03-11. Computers - Hardware and software.

Computers, peripheral computer equipment, and computer software, with the exception of custom software, are subject to tax.

For purposes of administration of the sales and use tax law, unless the context otherwise requires, the following definitions apply:

1."Computer" means an electronic device that accepts information in digital or similar form and manipulates it for a result based on a sequence of instructions.

2."Computer software" means a set of coded instructions designed to cause a computer or automatic data processing equipment to perform a task.

3."Delivered electronically" means delivered from the seller to the purchaser by means other than tangible storage media.

4."Load and leave" means delivery to the purchaser by use of a tangible storage media when the tangible storage media is not physically transferred to the purchaser.

5."Prewritten computer software" means computer software, including prewritten upgrades, which is not designed and developed by the author or other creator to the specifications of a specific purchaser. The combining of two or more prewritten computer software programs or prewritten portions thereof does not cause the combination to be other than prewritten computer software. Prewritten computer software includes software designed and developed by the author or other creator to the specifications of a specific purchaser when it is sold to a person other than the purchaser. If a person modifies or enhances computer software of which the person is not the author or creator, the person is deemed to be the author or creator only of such person's modifications or enhancements. Prewritten computer software or the prewritten portion thereof that is modified or enhanced to any degree, if such modification or enhancement is designed and developed to the specifications of a specific purchaser, remains prewritten computer software. However, if there is a reasonable, separately stated charge or an invoice or other statement of the price given to the purchaser of such modification or enhancement, such modification or enhancement shall not constitute prewritten computer software.

6.Sale, lease, or rental of prewritten computer software. The transfer of title, possession, or use for a consideration of any prewritten computer software is taxable.

a.Tax applies to the entire amount charged to the customer. When the consideration consists of license fees, royalty fees, or program design fees, all fees present or future, whether for a period of minimum use or for extended periods, are includable in the purchase price subject to tax.

b.The sale of prewritten computer software is a taxable transaction, even though the program is delivered electronically or by load and leave. Tax does not apply to the sale or lease of custom computer software regardless of the form in which the program is transferred. If the custom computer software is not separately stated from the sale or lease of equipment, it will be considered taxable as part of the sale.

c.Maintenance contracts sold in connection with the sale or lease of prewritten computer software required by the seller as a condition of the sale or rental of prewritten computer software will be considered as part of the sale or rental of the prewritten computer software, and the gross sales price is subject to tax whether or not the charge for the maintenance contract is separately stated from the charge for the software.

d.If the purchase of the maintenance contract is optional with the purchaser, but the purchaser does not have the option to purchase the consultation services separately from the upgrades or enhancements, then the charges for consultation services are taxable as part of the sale or lease of upgrades or enhancements. If, however, the purchaser may at the purchaser's option, contract for the consultation services separately from the upgrades or enhancements, then the charges for the consultation services are nontaxable.

e.The sale of statistical reports, graphs, diagrams, microfilm, microfiche, photorecordings, or any other information, produced or compiled by a computer and sold or reproduced for sale in substantially the same form as it is produced is a sale of tangible personal property, unless the information from which such reports were compiled was furnished by the same person to whom the finished report is sold in which case the original report is not subject to tax.

f.When additional copies of records, reports, manuals, and tabulations are provided, tax applies to the charges made for the additional copies. Additional copies are all copies in excess of those produced simultaneously with the production of the original and on the same printer, when the copies are prepared by running the same program, by using multiple printers, by looping the program, by using different programs to produce the same output, or by other means.

If no separate charge is made for additional copies by the service bureau or data processing firm, then tax applies to that portion of the gross receipts on which the cost of the additional computer time, the cost of materials, and labor costs to produce the additional copies bear to the total job cost. Charges for copies produced by means of photocopying, multilithing, or by other means are subject to tax.

g.Separately stated charges for training services are nontaxable. Tax applies to charges for training materials, including books and manuals furnished to trainees for a charge separate from the charge for training services.

7.Time sharing. The sale or lease of computer time through the use of the terminal or as a result of a batch service arrangement is a nontaxable service and is not subject to tax if separately billed or charged. However, any charges for computer machines and equipment remain subject to tax.

8.Data processing service. The charge for reports compiled by a computer exclusively from data furnished by the same person for whom the data is prepared is a service and is not subject to sales or use tax unless it is part of a unitary transaction which is subject to sales or use tax.

History: Effective March 1, 1988; amended effective April 1, 2006.

General Authority: NDCC 57-39.2-19, 57-40.2-13

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-40.2-01, 57-40.2-02.1 81-04.1-03-12. Sales by political parties and political committees.

Political parties and political committees organized for political purposes are considered to be conducting educational activities. Political party or political committee sales of tickets, admissions, or tangible personal property are exempt from sales or use tax provided the entire net proceeds are used for political purposes and provided the sales do not occur in a publicly owned facility.

"Political party" means any association, committee, or organization which nominates a candidate for election to any office which may be filled by a vote of the electors of this state or any of its political subdivisions and whose name appears on the election ballot as the candidate of the association, committee, or organization.

"Political committee" means any committee, club, association, or other group of persons which receives contributions primarily for political purposes.

"Political purpose" means any activity undertaken in support of or in opposition to the election or nomination of a candidate for public office.

History: Effective March 1, 1988.

General Authority: NDCC 57-39.2-19, 57-40.2-13

Law Implemented: NDCC 16.1-08.1-01, 57-39.2-01, 57-39.2-02.1, 57-39.2-04, 57-40.2-01, 57-40.2-02.1, 57-40.2-04 81-04.1-03-13. Sales to a person from Montana.

Sales of tangible personal property to a person from Montana are exempt from sales tax if the person is in North Dakota specifically to make a purchase and signs a certificate of purchase or a certificate of exemption authorized by the streamlined sales tax agreement, the sale is in an amount of fifty dollars or more, and the goods are taken outside of North Dakota, for use entirely outside this state.

Sales of meals, onsale beverages, lodging accommodations, entertainment, and similar goods and services consumed in North Dakota do not qualify for the exemption.

Sales and installation of goods into personal property owned by a person from Montana are not taxable provided the goods are removed from North Dakota for use exclusively outside this state. Use which is incidental to removing the goods from North Dakota does not subject the goods to North Dakota use tax.

For purposes of this exemption, "person" means natural persons, Montana corporations, and other business entities when the owners, partners, or members are individual Montana residents.

History: Effective March 1, 1990; amended effective April 1, 2006; July 1, 2016.

Law Implemented: NDCC 57-39.2-04(12) 81-04.1-03-14. Sales to residents of Canada.

Canadian residents are subject to sales and use tax on purchases made in North Dakota.

Canadian residents may apply on forms prescribed by the tax commissioner for a refund of North Dakota sales tax.

Sales tax paid by residents of Canada is not refundable unless the goods are removed from North Dakota within thirty days of purchase and will be used permanently outside North Dakota. Sales tax paid on meals, onsale beverages, lodging accommodations, entertainment, and similar goods and services which are consumed in North Dakota is not refundable.

Requests for refunds of sales tax paid by Canadian residents must be accompanied by original sales receipts. The receipt must contain a description of the purchase, including the seller's name, the amount paid for the goods, and the date the goods were purchased.

A joint refund request is allowed for married couples, married couples and their dependents, and individuals and their dependents. A joint refund request by unrelated individuals is allowed only if the sales receipt contains the names of all parties and a letter explaining the joint refund request accompanies the request form.

History: Effective March 1, 1990.

Law Implemented: NDCC 57-39.2-04, 57-39.2-28

Chapter 81-04.1-04 Specific Occupations

N.D. Admin. Code 81-04.1-04 Specific Occupations

CHAPTER 81-04.1-04

SPECIFIC OCCUPATIONS

Section 81-04.1-04-01Agriculture - Commercial Chemicals and Seeds for Planting 81-04.1-04-02Agriculture - Farm Machinery and Irrigation Equipment - Farm Machinery and Irrigation Equipment Repair Parts 81-04.1-04-03Agriculture - Livestock and Poultry Feeds 81-04.1-04-04Amusement - Admission Receipts - Public School Districts 81-04.1-04-05Amusement - Fair Operators and Concessionaires 81-04.1-04-06Amusement - Games of Chance 81-04.1-04-07Amusement - Materials Purchased by Religious, Educational, and Charitable Organizations 81-04.1-04-07.1Educational, Religious, or Charitable Sales Activities [Repealed] 81-04.1-04-08Amusement - Skating Rinks 81-04.1-04-09Amusement - Tickets and Admissions to Places of Amusement - Charges for Participation in Amusement 81-04.1-04-09.1Reserved 81-04.1-04-10Vending Machines 81-04.1-04-10.1Amusement - Coin-Operated Amusement Devices [Repealed] 81-04.1-04-11Auctions - Auctioneers, Agents, and Public Auctions 81-04.1-04-12Auctions - Foreclosure Sales 81-04.1-04-13Automobiles - Sales 81-04.1-04-14Automobiles - Tire and Tube Repairing [Repealed] 81-04.1-04-15Automobiles - Washing, Waxing, and Lubrication 81-04.1-04-16Banks - Federal and State Credit Unions 81-04.1-04-17Banks - Purchases and Sales by National Banks, State Banks, Trust Companies, and Savings and Loan Associations 81-04.1-04-18Banks - Sales by Loan or Finance Companies 81-04.1-04-19Blacksmith and Machine Shops 81-04.1-04-20Contractors 81-04.1-04-20.1Highway Contractor's Tax [Repealed] 81-04.1-04-21Florists and Nurserymen 81-04.1-04-22Funeral Homes - Memorial Stones 81-04.1-04-23Health - Drugstores, Druggists, and Pharmacists 81-04.1-04-24Health - Hospitals and Infirmaries 81-04.1-04-25Health - Physicians 81-04.1-04-26Hotel, Restaurant, and Lodging 81-04.1-04-27Laundries and Drycleaners 81-04.1-04-28Military - Army or Navy Personnel and Veterans 81-04.1-04-29Minerals - Coal 81-04.1-04-30Minerals - Coke and Natural Gas Sold to Industrial Users 81-04.1-04-31Manufactured Homes 81-04.1-04-32Manufactured Homes - Sales and Rentals 81-04.1-04-33Moving and Storage Companies 81-04.1-04-34Pawnbrokers 81-04.1-04-35Pit Operators - Sand and Gravel - Truckers and Haulers 81-04.1-04-36Picture Framers 81-04.1-04-37Photographers and Photofinishers 81-04.1-04-38Printers, Mimeographers, Duplicators, and Lithographers 81-04.1-04-39Rural Electric Cooperatives 81-04.1-04-40Rentals and Rental Agencies 81-04.1-04-41Telephone Companies [Repealed] 81-04.1-04-41.1Communication Service 81-04.1-04-41.2Communication Equipment 81-04.1-04-42Signs - Sales, Rental, and Leasing 81-04.1-04-43School - Students - Fraternities and Sororities 81-04.1-04-44School - Students - Supplies 81-04.1-04-45Transportation - Dining 81-04.1-04-01. Agriculture - Commercial chemicals and seeds for planting.

Sales of agrichemical tank cleaners and foam markers, agricultural chemicals, including adjuvants, seeds, roots, bulbs, and small plants for commercial vegetable gardens or agricultural purposes are not subject to the tax, but such sales for noncommercial purposes are taxable. A householder's garden is not a commercial vegetable garden.

The term "adjuvant" includes surfactants, phytobland oils, stickers, spreaders, spreader-stickers, thickening agents, and antifoam agents.

The term "small plants" includes potted plants, set plants, small young trees, shrubs, herbs, slips, cuttings, flower seeds, flower plants, and small saplings.

Small young trees, including fruit trees, and shrubs, when sold for the purpose of rural windbreaks, shelterbelts, soil erosion prevention, and other agricultural purposes, are exempt from sales tax.

History: Effective June 1, 1984; amended effective November 1, 1987; July 1, 2016. 81-04.1-04-02. Agriculture - Farm machinery and irrigation equipment - Farm machinery and irrigation equipment repair parts.

Farm machinery and irrigation equipment used principally for producing agricultural crops or livestock, including leasing or renting of farm machinery and equipment, are subject to a special gross receipts tax in lieu of sales tax at a reduced rate, as provided by North Dakota Century Code chapter 57-39.5.

Machinery sold for nonagricultural purposes is subject to sales tax at the full rate. Motor vehicles required to be registered with the motor vehicle department, including vehicles such as trucks, pickups, cars, snowmobiles, all-terrain vehicles, and garden tractors, do not qualify as farm machinery. Irrigation equipment sold for nonagricultural purposes is subject to sales tax at the full rate. Tires, accessories, communication equipment, tools, shop equipment, grain bins, feed bunks, fencing material, and other farm supplies are subject to sales tax at the full rate.

Contractors installing barn cleaners, milking systems, automatic feeding systems, irrigation systems, and similar installations which become a part of real property are subject to use tax on the cost of the materials.

Parts, excluding tires, used to repair qualifying farm machinery or farm irrigation equipment, are exempt from the special gross receipts tax. These same parts are subject to the general North Dakota sales and use tax rate when sold to contractors or others who do not use the machinery exclusively for agricultural purposes.

Farm repair parts include any durable goods, except tires, used to repair qualifying farm machinery or farm irrigation equipment. Durable goods do not include fluids, gases, oils, greases, lubricants, paints, and waxes. Farm machinery and farm irrigation repair parts do not include items like tools, lumber, twine, fencing material, or storage tanks.

Sales of parts not clearly identified for use in farm machinery or farm irrigation equipment are subject to the reduced rate when used by the seller to repair farm machinery or farm irrigation equipment.

When parts are sold over the counter, the seller should use discretion but should generally accept in good faith the purchaser's word as to their intended use. When the purchaser intends to use the parts on a qualifying farm machine or qualifying farm irrigation equipment, the qualifying parts are exempt from sales tax. If the parts are for nonfarm use, the general sales tax rate must be charged.

History: Effective June 1, 1984; amended effective July 1, 1985; July 1, 1987; March 1, 1988; June 1, 2002; April 1, 2006; July 1, 2016.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-04, 57-39.2-08.2, 57-39.5-01, 57-39.5-01.1, 57-39.5-02, 57-40.2-01, 57-40.2-02.1, 57-40.2-03.3, 57-40.2-05, 57-40.2-12 81-04.1-04-03. Agriculture - Livestock and poultry feeds.

Pet foods, including wormers and tonics, are not livestock feeds and are subject to sales tax whether or not such animals are kept as pets. Horse feed and rabbit feed are exempt from sales tax. 81-04.1-04-04. Amusement - Admission receipts - Public school districts.

The receipts of public school districts from entertainment or events are exempt from sales tax if the net receipts after necessary operating expenses are deposited in the school district treasury. It is immaterial whether the receipts are expended directly from the school district treasury or through an incidental revolving fund. 81-04.1-04-05. Amusement - Fair operators and concessionaires.

When a fair enters into a percentage basis contract with concessionaires for the privilege of conducting exhibitions, games, or entertainment, the concessionaire is responsible for payment of tax on gross receipts. Sale of tickets for activities operated during the fair and entirely controlled by a state, county, district, or local fair board are not subject to sales tax.

All concessionaires operating under licensed carnivals, circuses, show troupes, and similar organizations are agents of the licensed operator and must report their gross receipts and sales tax to the licensed operator. The licensed operator must maintain a record of the gross receipts and tax of each concessionaire and remit the sales tax to the tax commissioner when the operator's own payments are made. The records must be available to the tax commissioner.

Operators of carnivals, circuses, show troupes, and similar organizations traveling from place to place and with tangible personal property not permanently located in North Dakota must furnish security in the form of surety, cash, or negotiable bond to the tax commissioner before starting operations in the state.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.2, 57-39.2-04, 57-39.2-20 81-04.1-04-06. Amusement - Games of chance.

Receipts from games of chance operated by nonprofit organizations are exempt from sales tax.

Instruments for gambling purchased by these organizations are subject to sales and use tax unless the organization is exempt from sales and use tax.

History: Effective June 1, 1984; amended effective March 1, 1990; July 1, 2016.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.3, 57-39.2-04, 57-39.2-20, 57-40.2-02.1 81-04.1-04-07. Amusement - Materials purchased by religious, educational, and charitable organizations.

Purchases by nonprofit, religious, educational, or charitable organizations of materials needed to conduct entertainment or athletic events are subject to sales tax. Items such as programs which are given away, advertising posters, tickets, and similar items are taxable when purchased by these organizations. Programs which are sold may be purchased tax exempt by the organization if the organization presents a certificate of resale to the seller.

Law Implemented: NDCC 57-39.2-04 81-04.1-04-07.1. Educational, religious, or charitable sales activities.

Repealed effective July 1, 2016. 81-04.1-04-08. Amusement - Skating rinks.

The admission charge and the charge for the rental or use of skates is subject to sales tax whether or not they are separately stated.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1 81-04.1-04-09. Amusement - Tickets and admissions to places of amusement - Charges for participation in amusement.

Tax is imposed upon the gross receipts from the sale of tickets or admission for participation in amusement, entertainment, or athletic events. Admission includes regular dues or fees which entitle one to usual club or similar organization privileges. Complementary tickets are taxable on the same amount as the regular admission charge.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.2, 57-39.2-04, 57-39.2-20 81-04.1-04-09.1. [Reserved] 81-04.1-04-10. Vending machines.

Gross receipts derived from coin-operated vending machines are subject to sales tax if the price per article exceeds fifteen cents. In the absence of a written agreement stipulating division of gross receipts between the vending machine owner and the location operator, the vending machine owner is responsible for sales tax on gross receipts derived from the vending machine.

The purchaser of a vending machine is liable for sales tax on a vending machine purchased in this state or for use tax on a vending machine purchased outside of this state regardless of whether a license fee is paid to any governmental authority for operating the vending machine.

History: Effective June 1, 1984; amended effective November 1, 1987; March 1, 1990; July 1, 1998.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.2, 57-39.2-03.3, 57-40.2-02.1 81-04.1-04-10.1. Amusement - Coin-operated amusement devices.

Repealed effective July 1, 2016. 81-04.1-04-11. Auctions - Auctioneers, agents, and public auctions.

Every auctioneer or agent acting for an unknown or undisclosed principal, entrusted with the possession of any bill of lading, customhouse, or warehouseman's receipt for delivery of any tangible personal property for the purpose of sale, is the owner. Upon the sale of such property, the individual is required to file a return and pay sales tax. This rule applies to lienholders, such as storagemen, pawnbrokers, mechanics, and artisans.

Auctioneers are retailers if they conduct a sale at which tangible personal property owned by any other retailer is sold. Sales of property submitted to the auction by nonretailers are casual sales and are not subject to sales or use tax.

Sales of goods not taxable as a casual sale are taxable if made through consignment auctions or multiparty auctions unless the principals and their specific consigned property are disclosed on all promotional material. Casual sales of consigned goods not part of any promotional material are exempt from tax if a verbal disclosure of the owner is made at the time of the sale, and if the auction is not promoted as a consignment sale.

Community sales and auction houses are retail establishments, the gross receipts of which are subject to sales tax. If the auctioneer is employed by the operator of a public auction, the operator is liable for the payment of sales tax. A public auction held to dispose of tangible personal property of an individual is a casual sale, the receipts of which are not taxable.

History: Effective June 1, 1984; amended effective November 1, 1987.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.3, 57-39.2-04 81-04.1-04-12. Auctions - Foreclosure sales.

Receipts from the sale at public auction of tangible personal property secured under the Uniform Commercial Code are not taxable if the sale is made by a court decree of foreclosure by an officer appointed by the court for that purpose or if the property is bid in by the mortgagee. Receipts from other foreclosure sales where goods and chattels are sold at retail are subject to sales tax.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.2, 57-39.2-03.3, 57-39.2-04 81-04.1-04-13. Automobiles - Sales.

Motor vehicles, including snowmobiles and all-terrain vehicles, purchased or acquired in or outside of the state of North Dakota for use on the streets and highways of this state are required to be registered with the North Dakota department of transportation and are subject to motor vehicle excise tax in lieu of sales and use tax.

Motor vehicles which are not legal for use on the streets and highways of this state or which are not registered for use on the streets and highways of this state are subject to sales and use tax.

North Dakota dealers of snowmobiles and all-terrain vehicles may be required to provide lists of purchasers to the office of state tax commissioner. Such information may be used to verify the proper payment of motor vehicle excise tax or sales and use tax.

History: Effective June 1, 1984; amended effective March 1, 1990.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-04, 57-40.2-01, 57-40.2-02.1, 57-40.2-04 81-04.1-04-14. Automobiles - Tire and tube repairing.

Repealed effective September 1, 1997. 81-04.1-04-15. Automobiles - Washing, waxing, and lubrication.

If lubricants are sold separately from the rendering of lubrication service, and the customer is billed separately for greases or lubricants, the tax applies upon the gross receipts from such sale.

Receipts from coin-operated automobile washes are not subject to sales tax. 81-04.1-04-16. Banks - Federal and state credit unions.

Any credit union organized under the Federal Credit Union Act [12 U.S.C.A. 1751] is exempt from North Dakota sales tax on purchases of tangible personal property for its own use.

Credit unions organized under North Dakota Century Code chapter 6-06 are subject to North Dakota sales and use tax.

History: Effective June 1, 1984; amended effective March 1, 1990.

Law Implemented: NDCC 6-06-29, 57-39.2-01, 57-39.2-02.1, 57-39.2-04 81-04.1-04-17. Banks - Purchases and sales by national banks, state banks, trust companies, and savings and loan associations.

When financial institutions are engaged in the business of purchasing tangible personal property for lease or rental at retail, they are required to collect and remit the tax from their customers on all periodic lease or rental payments unless the financial institution paid sales or use tax on the purchase price of the property at the time of purchase.

To qualify for the exemption on periodic lease or rental payments, the financial institution leasing or renting the tangible personal property must disclose on an invoice, contract, or lease agreement, or other supporting sales document provided to the customer that the financial institution paid sales or use tax on its purchase price. Financial institutions are required to collect sales tax on a payment made to exercise a purchase option.

When financial institutions acquire tangible personal property to offer as an inducement to deposit funds, sales tax applies on the full purchase price. If the seller fails to collect the sales tax, the financial institution must report the purchase of such merchandise and pay use tax. If such merchandise is subsequently sold at a reduced price to depositors, no sales tax applies.

History: Effective June 1, 1984; amended effective July 1, 2016.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-20, 57-40.3 81-04.1-04-18. Banks - Sales by loan or finance companies.

Companies which repossess or acquire tangible personal property in connection with their loan or finance business and sell such tangible personal property at retail are required to hold a retail sales tax permit and collect and remit sales tax on such sales.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-14, 57-39.2-20 81-04.1-04-19. Blacksmith and machine shops.

When a blacksmith or machine shop makes or fabricates and sells a finished article to a customer, the sales tax applies to the full selling price of such article, with no deduction for labor or material used.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-04, 57-39.2-11 81-04.1-04-20. Contractors.

A contractor or subcontractor installing materials into real property located in North Dakota must pay sales or use tax on those materials regardless of who owns them. If the materials are sold for installation into real property located outside of this state, sales or use tax must be paid if such sales would be subject to tax in the state of attachment. For example, delivery of tangible personal property within this state to a South Dakota contractor for installation in South Dakota is subject to tax because the delivery of tangible personal property to a North Dakota contractor in South Dakota would be subject to tax there. This also applies to a contractor or subcontractor engaged in retail sales who removes all or part of the machinery, equipment, material, or supplies used in carrying out a contract from stock purchased for resale.

A contractor or subcontractor is subject to sales tax on the cost of any items incorporated into or used in assembling articles used or consumed in carrying out a construction contract.

A business which holds a contractor's license issued by the North Dakota secretary of state may not contract with itself to install material into real property. A contractor or subcontractor who purchases or takes possession of construction material in North Dakota for its own use in another state must pay North Dakota sales or use tax on the goods.

For purposes of this rule, the terms "contractor" and "subcontractor" have the meaning ascribed to the term "contractor" in subsection 3 of North Dakota Century Code section 43-07-01. This rule applies to any person thus defined as a "contractor", regardless of whether the person is licensed under North Dakota Century Code chapter 43-07.

History: Effective June 1, 1984; amended effective March 1, 1990; September 1, 1997.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-40.2-03.3 81-04.1-04-20.1. Highway contractor's tax.

Repealed effective April 1, 2006. 81-04.1-04-21. Florists and nurserymen.

When the seller transplants for the buyer, the transaction is as an installation into real property, and the tax is computed on the cost of the merchandise.

When florists conduct transactions through a florists' telegraphy delivery association, the following rules apply:

1.On all orders taken by a North Dakota florist and sent to a second florist for delivery in any state, the sending florist is liable for sales tax on the receipts for the total amount collected from the customer.

2.When North Dakota florists receive telegraphic instructions from florists located within or outside of this state, the receiving florist is not liable for tax.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-20 81-04.1-04-22. Funeral homes - Memorial stones.

When the seller of a memorial stone agrees to erect a stone upon a foundation, the total gross receipts from the sale, including the erection of the foundation, are taxable.

Charges for inscription or work incidental to preparing a stone for a customer are subject to tax.

Charges for inscription upon a stone subsequent to erection are sales of service rendered in the alteration of tangible personal property and not subject to sales tax. 81-04.1-04-23. Health - Drugstores, druggists, and pharmacists.

Druggists and pharmacists selling nonprescription medicines and merchandise are liable for the collection and remittance of sales tax on the gross receipts from such sales. 81-04.1-04-24. Health - Hospitals and infirmaries.

Health institutions operating cafeterias, gift shops, or novelty shops open to the public are required to collect and remit sales tax on their gross receipts. If the cafeteria is operated solely for convenience of the staff, the proceeds are not subject to tax. Sales to these institutions of food supplies used in the cafeteria operation and sales of inventory for gift shops or novelty shop purposes are sales for processing or resale and are not subject to tax.

Hospital sales of lodging accommodations to nonpatients, including sales to families of registered patients, are subject to sales tax.

History: Effective June 1, 1984; amended effective March 1, 1988.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-04, 57-39.2-11, 57-39.2-20, 57-40.2-01, 57-40.2-02.1, 57-40.2-03.2, 57-40.2-05, 57-40.2-07, 57-40.2-09, 57-40.2-13 81-04.1-04-25. Health - Physicians.

Drugs prescribed, compounded, and sold by a physician are not subject to sales tax. 81-04.1-04-26. Hotel, restaurant, and lodging.

The sale of a meal by a hotel, restaurant, or other eating place is a sale of tangible personal property and is subject to sales tax. A sale of food supplies and beverage products to an eating place for use in preparing and serving meals is a sale for processing or resale and is not subject to tax.

When a hotel, restaurant, or other eating place furnishes meals to its employees as part compensation, it is liable for the tax upon the cost of the meals furnished. If records to substantiate the cost of meals to employees are not available, the tax commissioner will accept figures from records kept by competing hotels, restaurants, and other eating places, as a basis on which to compute the tax.

A cover charge made exclusively for the privilege of occupying space within an eating place is included in the gross receipts.

A hotel, motel, or lodging accommodation used for residential housing for thirty or more consecutive days is exempt only when the accommodation includes continuous residency by at least one specific individual for thirty or more consecutive days. Any break in the continuous occupancy of the room by that individual which results in a continuous occupancy of less than thirty consecutive days subjects the accommodation to tax. If an occupancy break results in one continuous occupancy period of thirty or more consecutive days and one continuous occupancy period of less than thirty consecutive days, the exemption applies only to the occupancy period of thirty or more consecutive days.

A business which rents a lodging accommodation is not exempt from tax unless the same worker or workers occupy the accommodation for thirty or more consecutive days.

History: Effective June 1, 1984; amended effective November 1, 1991.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.2, 57-39.2-04, 57-39.2-21 81-04.1-04-27. Laundries and drycleaners.

Gross receipts from coin-operated laundry or drycleaning machines are not subject to sales tax.

Sale of soaps, bleaches, and other tangible personal property is subject to sales tax unless dispensed by a vending machine for fifteen cents or less. Sales of these items directly are taxable.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.3, 57-39.2-04 81-04.1-04-28. Military - Army or navy personnel and veterans.

Gross receipts from retail sales to persons in the army, navy, or other service of the United States are subject to tax regardless of whether the delivery of the merchandise is at the retailer's place of business or elsewhere. Merchandise delivered to a military base is taxable. Gross receipts from retail sales to all veterans are subject to tax.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.2, 57-39.2-03.3 81-04.1-04-29. Minerals - Coal.

Coal mined and sold in this state subject to the coal severance tax is exempt from sales tax. Coal mined outside this state is not subject to sales tax when sold in this state.

History: Effective June 1, 1984; amended effective June 1, 2002; July 1, 2016.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-04, 57-61 81-04.1-04-30. Minerals - Coke and natural gas sold to industrial users.

All sales of natural gas are exempt from sales tax. Sales to industrial users of coke and other fuels not subject to a special tax are sales at retail and subject to sales tax if they do not become an integral, ingredient, or component part of a manufactured product sold at retail.

History: Effective June 1, 1984; amended effective July 1, 2016. 81-04.1-04-31. Manufactured homes.

Manufactured homes, not sold in conjunction with installation, are tangible personal property subject to sales tax at a reduced rate on the gross receipts. Installation of a manufactured home includes any method established under North Dakota Century Code section 54-21.3-08. A manufacturer or seller who permanently attaches manufactured homes to a foundation or provides installation by any method established under North Dakota Century Code section 54-21.3-08 is subject to tax in the same manner as a construction contractor and is liable for tax based on the cost of materials to the manufacturer or seller.

Trade-ins are not to be deducted from the gross sales price prior to application of the sales tax.

A manufactured home that is sold and will be installed in another state is not subject to tax.

History: Effective June 1, 1984; amended effective July 1, 1985; July 1, 2016. 81-04.1-04-32. Manufactured homes - Sales and rentals.

Leasing or renting manufactured homes for nonresidential purposes is subject to sales tax. A manufactured home dealer using a manufactured home as an office must pay sales or use tax based on the dealer's cost. Sales tax is applied on the lease or rental of a new manufactured home at a reduced rate. The lease or rental of a used manufactured home is not subject to sales or use tax.

History: Effective June 1, 1984; amended effective July 1, 1985; July 1, 2016. 81-04.1-04-33. Moving and storage companies.

Materials of a permanent and reusable nature are subject to North Dakota sales tax when purchased by a moving or storage company. Materials intended for one-time usage are subject to North Dakota sales tax when used to pack, preserve, load, or store a shipment from one point in this state to another. These materials are exempt from sales tax when used to pack, preserve, load, or store a shipment from a point in this state to a point outside this state. 81-04.1-04-34. Pawnbrokers.

When a customer does not redeem property from a pawnbroker within the statutory period, title passes to the pawnbroker who must collect and remit the sales tax when the item is sold.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-20 81-04.1-04-35. Pit operators - Sand and gravel - Truckers and haulers.

Operators of sand and gravel pits are retailers and are liable for sales tax on receipts from sales.

Sales to truckers and haulers who do not have an established place of business and are not engaged in the business of selling at retail are taxable sales. When sand or gravel is procured at the pit for delivery to one who has employed a trucker or hauler, the operator of the pit must collect and remit the tax.

Sales to truckers and haulers who sell tangible personal property are not taxable if the pit operator obtains a certificate of resale. The trucker's or hauler's sales price, including the cost of delivery, is subject to sales tax. When a pit operator agrees to deliver sand or gravel to the purchaser's home, place of business, or other designated place, the entire cost, including the cost of delivery, is subject to sales tax.

When sand or gravel is sold unsevered and is severed for the purchaser's own use, the severing is subject to use tax. It is presumed that the selling price is eight cents per ton of two thousand pounds [905 kilograms], and the tax must be computed upon this value unless the contrary is shown.

When other minerals are severed and used by the person who severs them, the severance is subject to use tax. The price upon which the tax is based is the prevailing market price for such minerals in that geographic area of the state.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-04, 57-39.2-10, 57-39.2-20, 57-40.2-01, 57-40.2-02.1, 57-40.2-05, 57-40.2-13 81-04.1-04-36. Picture framers.

When a picture framer sells a frame and agrees to frame or install a picture for a lump sum, the total gross receipts are subject to sales tax. The gross receipts from services of installing a picture owned by a customer into a frame owned by that customer are exempt from sales tax. 81-04.1-04-37. Photographers and photofinishers.

Commercial photographers are the producers and sellers of tangible personal property which is subject to sales tax.

Sitting or camera charges are not subject to sales tax if they are separately stated and are reasonable in relation to the total charge.

A photographer selling tangible personal property such as cameras, lenses, film, frames, photo equipment, and supplies may purchase them for resale. Sales tax must be collected when these items are sold to customers.

When photofinishers develop and print pictures, they are producing a completed article of tangible personal property and must collect the tax on the total selling price. Photofinishers engaged in the processing of color film who mount such film in frames are engaged in the production of tangible personal property and must collect the tax on the total charge or selling price.

The materials which become an integral part of the finished product are not taxable to the photofinisher. Chemicals which are used in the process of photofinishing and which do not become a

part of the finished product are subject to tax when purchased by the photofinisher.

Charges for developing movie films are subject to sales tax.

History: Effective June 1, 1984; amended effective July 1, 1985.

Law Implemented: NDCC 57-39.2-01 81-04.1-04-38. Printers, mimeographers, duplicators, and lithographers.

Printers, mimeographers, duplicators, and lithographers are engaged in producing tangible personal property, and sales of printed matter are subject to tax. Tax applies to the full selling price of such property, including cost of labor or service rendered in its production. A separate charge made for addressing, folding, enclosing, and sealing is subject to sales tax.

Commercial printing involving the use of United States postcards or stamped envelopes purchased by the printer is taxed on the basis of the selling price of the job, less the amount of postage on the postcards or envelopes. Typesetting performed by a printer when title to the metal does not pass to the customer is not subject to sales tax.

The sales of printed advertising brochures and pamphlets are not taxable if labeled as an advertising supplement to a newspaper and delivered to the newspaper for insertion and distribution.

Materials and supplies used by printers, mimeographers, duplicators, lithographers, or newspaper publishers in their operations, which do not become an ingredient or component part of the end product, are taxable when purchased. If the printer sells these items after using them, it is a casual sale and not subject to sales tax. 81-04.1-04-39. Rural electric cooperatives.

Rural electric cooperatives are subject to sales or use taxes on purchases made for final use or consumption. These organizations are also required to collect the sales tax on all retail sales made by them.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.2, 57-39.2-03.3, 57-39.2-20, 57-40.2-01, 57-40.2-02.1, 57-40.2-03.2, 57-40.2-05, 57-40.2-06, 57-40.2-13 81-04.1-04-40. Rentals and rental agencies.

The lease or rental of tangible personal property is subject to sales tax based on the periodic payments as they are made unless the retailer has paid sales or use tax on its purchase of the tangible personal property. Sales tax is applied based on where the lease or rental equipment will be located in the state.

Examples of lease or rental transaction include:

1.A customer picks up lease or rental equipment for the day from a rental business. State and local sales tax will apply to the lease or rental charge based upon the location of the rental business.

2.A customer has lease or rental equipment delivered to the customer's location for the day.

State and local sales tax will apply to the lease or rental charge based upon the location of the customer.

3.A customer enters into a six-month lease of equipment with lease payments due monthly. The customer picks up the equipment at the lessor's business location in the state. Because the customer first takes possession of the equipment at the lessor's business location, the first lease payment is subject to sales and local sales tax based on the lessor's business location.

Sales tax on subsequent lease payments will be due based on the location where the equipment is stored or used in this state. If stored or used outside this state, the subsequent lease payments applying to this period of time will not be taxable.

North Dakota sales tax law continues to provide an exemption from sales tax on lease or rental receipts for tangible personal property purchased for lease or rental when sales or use tax had been paid to North Dakota on the purchase price. To qualify for an exemption on periodic lease or rental payments, the retailer leasing or renting the tangible personal property shall disclose on an invoice, contract, lease agreement, or other supporting sales document provided to the customer that the retailer paid sales or use tax on the retailer's purchase price. Retailers that pay tax on the purchase price of lease or rental property are required to collect sales tax on a payment made to exercise a purchase option.

In a lease-purchase arrangement, sales tax must be charged on the rentals until the option is exercised. When the option is exercised, sales tax must be charged on any additional amount the purchaser must pay to complete the purchase.

An agent acting for an undisclosed principal and leasing tangible personal property to the public is the owner, and the rentals received are subject to sales tax. Tax applies to the full rental as long as the leased item is used within this state.

Persons engaged in the business of leasing or renting tangible personal property other than motor vehicles are retailers and subject to sales tax. Purchases by rental agencies of items to be leased or rented are purchases for resale and are not subject to sales tax. A certificate of resale must be presented to the seller for these purchases.

The term "sale" does not include sales or rentals of motor vehicles licensed by the director of the North Dakota department of transportation on which the motor vehicle excise tax has been paid to North Dakota.

When the sales tax rate changes during the term of an existing lease, the rate of tax to be charged on the remaining lease or rental payments will reflect the new rate of tax.

In a sale-leaseback arrangement, when a company purchases or owns tangible personal property on which applicable sales and use taxes were paid, and enters into a sale-leaseback arrangement with a financial business for the sale and leaseback of the same property, no sales tax shall apply to the transfer of title to the business or subsequent lease to the company. The subsequent sale of the property by the financial business at the conclusion of the lease is subject to sales tax. "Leaseback" means a transaction involving the sale of property and the seller's simultaneous lease of the property from the purchaser.

History: Effective June 1, 1984; amended effective October 1, 1986; April 1, 2006; July 1, 2016. 81-04.1-04-41. Telephone companies.

Repealed effective April 1, 1995. 81-04.1-04-41.1. Communication service.

1.The gross receipts from the sale of all communication services, including telecommunications services and ancillary services, provided in the state are subject to sales tax provided the communication service originates and terminates within the state's borders, regardless of where the billing for the service is made.

2.Taxable communication services include the following:

a.Telecommunications services;

b.Ancillary services; and

c.Access charges, including internet access charges billed to retail customers, unless otherwise prohibited by federal law.

3.Mobile telecommunications services. A mobile telecommunications company that provides communication services, as defined in North Dakota Century Code chapter 57-34.1, to retail consumers shall use the location of the customer's place of primary use for the purpose of determining whether tax is due on services charged to the customer. "Place of primary use" means the street address representative of where the customer's use of the mobile telecommunications service primarily occurs, which must be the residential street address or the primary business street address of the customer and within the licensed service area of the home service provider.

4.Taxable communication services do not include:

a.Purchase of communication service from one communication provider to another, for resale to a retail consumer, provided a certificate of resale is provided to the seller by the purchaser;

b.Charges for interstate communication service;

c.Communication services to exempt entities;

d.Communication services to Indian retail consumers enrolled and living on an Indian reservation within this state; and e.911 emergency telephone charges.

5.In the case of a bundled transaction that includes telecommunications service, ancillary service, or internet access:

a.If the price is attributable to products that are taxable and products that are nontaxable, the portion of the price attributable to the nontaxable products may be subject to tax unless the provider can identify by reasonable and verifiable standards such portion from its books and records that are kept in the regular course of business for other purposes, including nontax purposes.

b.The provisions of this rule shall apply unless otherwise prohibited by federal law.

6.Definitions. For the purposes of this section, the following definitions apply:

a."Ancillary service" means services that are associated with or incidental to the provisions of "telecommunications services", including "detailed telecommunications billing", "directory assistance", "vertical service", and "voice mail services".

b."Coin-operated telephone service" means a telecommunications service paid for by inserting money into a telephone that accepts direct deposits of money to operate.

c."Conference bridging service" means an "ancillary service" that links two or more participants in an audioconference or videoconference call and may include the provision of a telephone number. Conference bridging service does not include the "telecommunications services" used to reach the conference bridge.

d."Detailed telecommunications billing service" means an "ancillary service" of separately stated information pertaining to individual calls on a customer's billing statement.

e."Directory assistance" means an "ancillary service" of providing telephone number information or address information, or both.

f."Fixed wireless service" means a telecommunications service that provides radio communication between fixed points.

g."International" means a telecommunications service that originates or terminates in the United States and terminates or originates outside the United States, respectively. United States includes the District of Columbia and United States territories or possessions.

h."Interstate" means a telecommunications service that originates in one United States state, territory, or possession, and terminates in a different United States state, territory, or possession.

i."Intrastate" means a telecommunications service that originates in one United States state or a United States territory or possession and terminates in the same United States state or United States territory or possession.

j."Mobile wireless service" means a telecommunications service that is transmitted, conveyed, or routed regardless of the technology used, whereby the origination or termination points, or both, of the transmission, conveyance, or routing are not fixed, including, by way of example only, telecommunications services that are provided by a commercial mobile radio service provider.

k."Paging service" means a telecommunications service that provides transmission of coded radio signals for the purpose of activating specific pagers; such transmissions may include messages or sounds, or both.

l."Pay telephone service" means a telecommunications service provided through any pay telephone.

m."Prepaid wireless calling service" means a telecommunications service that provides the right to utilize mobile wireless service as well as other nontelecommunications services, including the download of digital products delivered electronically, content, and ancillary services, which must be paid in advance, and that is sold in predetermined units of dollars of which the number declines with use in a known amount.

n."Private communications service" means a telecommunications service that entitles the customer to exclusive or priority use of a communications channel or group of channels between or among termination points, regardless of the manner in which such channel or channels are connected, and includes switching capacity, extension lines, stations, and any other associated services that are provided in connection with the use of such channel or channels.

o."Residential telecommunications service" means a telecommunications service or ancillary services provided to an individual for personal use at a residential address, including an individual dwelling unit, such as an apartment. In the case of institutions where individuals reside, such as schools or nursing homes, telecommunications service is considered residential if it is provided to and paid for by an individual resident rather than the institution.

p."Telecommunications service" means the electronic transmission, conveyance, or routing of voice, data, audio, video, or any other information or signals to a point, or between or among points. The phrase "telecommunications service" includes such transmission, conveyance, or routing in which computer processing applications are used to act on the form, code, or protocol of the content for purposes of transmission, conveyance, or routing, without regard to whether such service is referred to as voice over internet protocol services or is classified by the federal communications commission as enhanced or value-added. "Telecommunications service" does not include:

(1)Data processing and information services that allow data to be generated, acquired, stored, processed, or retrieved and delivered by an electronic transmission to a purchaser when such purchaser's primary purpose for the underlying transaction is the processed data or information;

(2)Installation or maintenance of wiring or equipment on a customer's premises;

(3)Tangible personal property;

(4)Advertising, including directory advertising;

(5)Billing and collection services provided to third parties;

(6)Internet access service;

(7)Radio and television audio and video programming services, regardless of the medium, including the furnishing or transmission, conveyance, and routing of such services by the programming service provider. Radio and television audio and video programming services shall include cable service, as defined in 47 U.S.C. 522(6) and audio and video programming services delivered by commercial mobile radio service providers, as defined in 47 CFR 20.3;

(8)"Ancillary services" or digital products delivered electronically, including software, music, video, reading materials, or ring tones.

q."Value-added nonvoice data service" means a service that otherwise meets the definition of telecommunications services in which computer processing applications are used to act on the form, content, code, or protocol of the information or data, primarily for the

purpose other than transmission, conveyance, or routing.

r."Vertical service" means an "ancillary service" that is offered in connection with one or more "telecommunications services", which offers advanced calling features that allow customers to identify callers and manage multiple calls and call connections, including "conference bridging services".

s."Voice mail service" means an "ancillary service" that enables the customer to store, send, or receive recorded messages. Voice mail service does not include any vertical services that the customer may be required to have in order to utilize the voice mail service.

t."800 service" means a telecommunications service that allows a caller to dial a toll-free number without incurring a charge for the call. The service is typically marketed under the name "800", "855", "866", "877", and "888" toll-free calling, and any subsequent numbers designated by the federal communications commission.

u."900 service" means an inbound toll "telecommunications service" purchased by a subscriber that allows the subscriber's customers to call in to the subscriber's prerecorded announcement or live service. "900 service" does not include the charge for collection services provided by the seller of the "telecommunications services" to the subscriber, or service or product sold by the subscriber to the subscriber's customer. The service is typically marketed under the name "900" service, and any subsequent numbers designated by the federal communications commission.

History: Effective April 1, 1995; amended effective June 1, 2002; April 1, 2006; July 1, 2016.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-04, 57-39.2-11, 57-39.2-19, 57-39.2-20 81-04.1-04-41.2. Communication equipment.

Tangible personal property used to provide a communication service by a communication service provider, but that is not sold, leased, or rented to a retail customer is taxable. Taxable charges include downpayments, commission charges, or other service or handling charges applied in conjunction with the sales, rental, or lease of tangible personal property.

Communication systems sold, leased, or rented to a retail customer may include both material and equipment that are installed, attached, or affixed to real property and material and equipment that remains tangible personal property. The material and equipment installed, attached, or affixed to real property is subject to sales or use tax based on the cost of the material and equipment to the installer.

A communication system that includes material and equipment installed, attached, or affixed to real property and material and equipment remaining tangible personal property must be separately stated on the billing. That portion of the billing representing the installation of material and equipment into real property is subject to sales or use tax based on the cost of the material and equipment and that portion remaining tangible personal property is subject to sales tax based on the selling price to the final consumer.

The purchase of telephone directories for distribution to subscribers is not for resale and sales tax applies at the time of purchase.

History: Effective April 1, 1995.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-04, 57-39.2-11, 57-39.2-19, 57-39.2-20 81-04.1-04-42. Signs - Sales, rental, and leasing.

If, as a condition of sale, the sign is physically attached by the seller to real property, the sale is not subject to tax. However, the seller must pay sales tax when purchasing materials to construct the sign.

The lease or rental payments for use of any type of sign are subject to sales tax unless the sign is attached to real property.

Sales of small signs, desk signs, plaques, posters, magnetic signs, and similar products are subject to tax without a deduction for cost of material or labor.

When a painter paints a sign on the painter's own personal property and sells the finished product, it is subject to sales tax without any deduction for cost of material or labor. 81-04.1-04-43. School - Students - Fraternities and sororities.

Colleges, universities, or student fraternities or sororities serving meals to students other than members, for which separate charges are made, or operating canteens selling tangible personal property must collect and remit sales tax.

College and university food service operations which provide catering services are responsible for collecting and remitting sales tax on the gross receipts from catering activities.

Student fraternities and sororities are not political subdivisions or institutions of the state and are not exempt from sales tax on purchases of tangible personal property for their own use.

History: Effective June 1, 1984; amended effective March 1, 1988; July 1, 1989.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.2, 57-39.2-03.3, 57-39.2-04, 57-39.2-20 81-04.1-04-44. School - Students - Supplies.

The term "school supplies" means only those items purchased by a school for use by it in the classrooms, gymnasiums, athletic fields, and offices to conduct its programs and courses of study and in operating and maintaining the school plant. It does not include materials purchased to construct a school building or other buildings. School or athletic supplies sold directly to students by a retailer are not exempt from sales tax.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.2, 57-39.2-03.3, 57-39.2-04 81-04.1-04-45. Transportation - Dining.

Sales of tangible personal property on railway trains, club cars, lounge cars, dining cars, or airlines operated in or through this state are taxable if ordered or delivered within the boundaries of this state.

Food, meals, or alcoholic beverages included in the ticket charge by an airline are not subject to sales tax. The airline may not purchase such food, meals, or alcoholic beverages for resale, and all such purchases which take place in this state are subject to sales tax.

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-39.2-03.2, 57-39.2-04

Article 81-05.1 Motor Vehicle Excise Tax

Chapter 81-05.1-01 Motor Vehicle Excise Tax

N.D. Admin. Code 81-05.1-01 Motor Vehicle Excise Tax

ARTICLE 81-05.1

MOTOR VEHICLE EXCISE TAX

Chapter 81-05.1-01Motor Vehicle Excise Tax

CHAPTER 81-05.1-01

MOTOR VEHICLE EXCISE TAX

Section 81-05.1-01-01Definitions 81-05.1-01-02Motor Vehicle Excise Tax Imposed 81-05.1-01-03Exemptions 81-05.1-01-04Leasing and Rental Companies 81-05.1-01-05Purchases by Indians 81-05.1-01-06Company-Owned Vehicles 81-05.1-01-07Nonfranchise Purchases 81-05.1-01-08Purchase of Vehicles With Extra Equipment 81-05.1-01-09Refunds 81-05.1-01-01. Definitions.

As used in this article all terms and phrases have the same meaning as defined in the North Dakota Century Code, and in addition "trailer" and "semitrailer" includes trailers towed by a bona fide resident farmer hauling agricultural, horticultural, dairy, or other farm products if the gross weight, not including the towing vehicle, does not exceed twenty-four thousand pounds [10886.22 kilograms].

Law Implemented: NDCC 57-40.3-01 81-05.1-01-02. Motor vehicle excise tax imposed.

1.All motor vehicles, except motor vehicles leased for a period of one year or more and having an actual vehicle weight of ten thousand pounds [4535.92 kilograms] or less, purchased or acquired in or outside this state intended for use upon the streets and highways of this state are subject to an excise tax on the purchase price, less any trade-in allowance, of the motor vehicle.

2.Motor vehicles leased for a period of one year or more and having an actual vehicle weight of ten thousand pounds [4535.92 kilograms] or less are subject to an excise tax on the total consideration of the lease at the time the lease is initiated.

3.A credit will be allowed for sales, use, or motor vehicle excise tax paid in another state on all motor vehicles purchased or acquired outside this state if the state in which the motor vehicle was purchased or acquired allows a similar credit.

If the state in which the motor vehicle was purchased does not impose a sales tax or a motor vehicle excise tax, the North Dakota motor vehicle excise tax must be paid on the full purchase price of the vehicle before license and registration will be issued in this state. If the motor vehicle has been previously licensed and registered in a state which imposes no sales tax or motor vehicle excise tax, the North Dakota motor vehicle excise tax will apply at the fair market value of the vehicle upon registration in this state.

If a motor vehicle has been licensed and registered in a foreign country prior to its licensing and registration in this state, no credit is allowed for sales tax or motor vehicle excise tax previously paid to such foreign country.

4.The motor vehicle excise tax is in addition to any other tax provided for by law on the purchase price of motor vehicles.

5.The motor vehicle excise tax must be paid to the North Dakota department of transportation's motor vehicle division when application is made for registration plates or for a certificate of title for a motor vehicle.

Registration plates and certificates of title will not be issued unless the tax is paid.

Law Implemented: NDCC 39-04-18, 57-40.3-02, 57-40.3-02.1, 57-40.3-06, 57-40.3-07, 57-40.3-08, 57-40.3-09 81-05.1-01-03. Exemptions.

The following are exempt from payment of the North Dakota motor vehicle excise tax:

1.Any two motor vehicles owned by or leased and in the possession of a disabled veteran pursuant to conditions set forth in North Dakota Century Code section 57-40.3-04.

2.Any motor vehicle owned by or in possession of the federal or state government, including any state institution, or a political subdivision thereof.

3.Motor carrier vehicles in excess of twenty thousand pounds [9071.85 kilograms] gross weight, whether owned or leased, engaged in interstate commerce but only to the extent their revenue from interstate hauling bears to their total revenue from hauling for the preceding operating year.

For the purpose of properly administering this exemption, the percentage allowed as an exemption to carriers is derived from figures included in either the auto transportation utility annual report or the agricultural carrier annual report. One of those reports must be filed annually by each carrier registered with the North Dakota public service commission. When completing the required report, the carrier must include figures which indicate gross income from freight or passenger transport during the preceding calendar year as well as income from strictly intrastate transport for that year. No exemption is allowed until the required report is filed with the North Dakota public service commission.

When one person owns or leases two or more motor carrier vehicles over twenty thousand pounds [907l.85 kilograms], the receipts from all such vehicles will be used when figuring the percentage of revenue earned from interstate and intrastate transport for motor vehicle excise tax purposes.

When the person responsible for payment of the motor vehicle excise tax has not owned or leased such a motor carrier vehicle during the preceding year, no exemption is allowed at the time of titling it with the motor vehicle division, unless that person purchases a business which received revenue from interstate hauling in the preceding year. The exemption will be allowed only if there are no substantial changes intended which would affect the percentage of interstate hauling done by the business. No exemption will be allowed to persons responsible for the motor vehicle excise tax on the basis of projected miles of interstate transport for a future year or years. A person who purchases or leases such a motor carrier vehicle for use in interstate commerce but who did not own or lease such a vehicle for interstate commerce use during the preceding year will not be allowed an exemption at the time of titling the vehicle with the motor vehicle division, but after using it one year in interstate commerce, that person may apply for a refund for that part of the tax attributed to use in interstate commerce as determined in accordance with this section.

Private motor carriers and those agricultural carriers who are not required to file an annual report with the public service commission are eligible for the interstate exemption when titling motor carrier vehicles of at least twenty thousand pounds [907l.85 kilograms] gross weight.

However, owners must submit a signed affidavit to the motor vehicle division indicating the percentage of gross revenue they received during the preceding calendar year from interstate transport of passengers or freight in such vehicles. These carriers' records will be subject to audit by the North Dakota tax department to substantiate figures claimed on the affidavit. The percentage of gross revenue refers to the gross revenue from freight or passenger transport.

4.Any motor vehicle transferred without consideration to or from a person within thirty days prior to that person's entering into, within thirty days after discharge from, or while serving in the armed services of the United States, provided the person certifies to the motor vehicle division that the transfer is made for one of those reasons.

Members of the armed forces on active military duty within this state are liable for payment of motor vehicle excise tax when titling a vehicle in this state.

Any motor vehicle purchased by a North Dakota resident who is a member of the armed forces and is stationed out of state may title that vehicle in this state but is exempt from payment of excise tax provided the vehicle is not intended for use in this state.

5.Motor vehicles acquired by inheritance from or by bequest of a decedent who owned it; the transfer of motor vehicles which were previously titled or licensed in the names of two or more joint tenants and subsequently transferred without monetary consideration to one or more of the joint tenants; the transfer of motor vehicles by way of gift between a husband and wife, parent and child, or brothers and sisters.

This exemption includes title changes for motor vehicles as a result of name changes due to adoption, court order, marriage, or divorce.

6.Motor vehicles transferred between a lessee and a lessor, provided that the lessee has been in continuous possession of such vehicle for a period of one year or longer, and provided that the lessor has paid the tax based on the purchase price of the vehicle at the time of titling.

This exemption does not include motor vehicles transferred between a lessee and a lessor, on or after July 1, 2001, for a period of one year or more and having an actual vehicle weight of ten thousand pounds [4535.92 kilograms] or less.

7.Any motor vehicle in the possession of and used as a bus exclusively by a nonprofit senior citizens' or handicapped persons' corporation, provided that such bus is not used for commercial activities.

8.Any motor vehicle which does not exceed ten thousand pounds [4535.92 kilograms] gross weight and which is acquired by a permanently physically disabled licensed driver who is restricted to operating only motor vehicles equipped with special controls to compensate for the disability, or by a permanently physically disabled individual who has either surrendered or who has been denied an operator's license because of a permanent physical disability, provided the individual obtains from the state highway commissioner or an authorized representative a statement that either the individual has such a restricted operator's license, or has surrendered the license, or one has not been issued because of a permanent physical disability.

9.Any motor vehicle being registered pursuant to North Dakota Century Code chapter 39-04 for the first time by a person who manufactured or assembled the motor vehicle for that person's own use, except when such vehicle is manufactured by a manufacturer of motor vehicles as defined in subsection 32 of North Dakota Century Code section 39-01-01.

10.Motor vehicles purchased or leased and in the possession of a parochial or a private nonprofit school to be used for the transportation of students. This exemption includes motor vehicles used for driver education instruction. The vehicles may not be used in a commercial activity, and the school must normally maintain a regular faculty and a curriculum approved by the department of public instruction and must have a regularly organized body of students.

11.Housetrailers or mobile homes subject to the sales and use tax. Travel trailers are not exempt.

12.Motor vehicles transferred within one hundred eighty days from the effective date as the result of the following partnership transactions:

a.Motor vehicles licensed in the name of an individual who is a member of a general or limited partnership transferred to the partnership at the time the partnership is established.

b.Motor vehicles licensed in the name of a general or limited partnership transferred to an individual who is a member of such partnership at the time the partnership is terminated.

13.Motor vehicles transferred within one hundred eighty days from the effective date as the result of the following corporate transactions:

a.Motor vehicles licensed in the name of an individual who is a stockholder in a corporation transferred to the corporation at the time the corporation is organized.

b.Motor vehicles licensed in the name of a corporation transferred to a stockholder of that corporation at the time the corporation is liquidated.

14.Motor vehicles transferred within one hundred eighty days from the effective date of the business reorganization. The original owner of the motor vehicle must be a member of the reorganized business and the exemption applies only under the following circumstances:

a.A sole proprietor changes the name or the nature of the proprietor's business and requests a new title to reflect this change.

b.A sole proprietor becomes a partner in a partnership and a new title is requested to reflect the change in ownership of the vehicle.

c.A sole proprietor or partnership reorganized into a corporation and a motor vehicle is transferred from the sole proprietor or a partnership to the corporation.

d.A motor vehicle is transferred between a subsidiary and a parent corporation as the result of a merger, exchange of, or redistribution of assets during the course of reorganization.

e.A merger takes place between any of the following: a sole proprietorship, partnership, or corporation.

f.A joint venture is undertaken.

Law Implemented: NDCC 57-40.3-02, 57-40.3-02.1, 57-40.3-04 81-05.1-01-04. Leasing and rental companies.

Leasing companies are responsible for payment of the motor vehicle excise tax to the motor vehicle division when titling vehicles for leasing purposes. The application of tax is as follows:

1.All motor vehicles leased for a period of one year or more and having an actual vehicle weight of ten thousand pounds [4535.92 kilograms] or less are subject to motor vehicle excise tax, at the time the owner of the vehicle titles the motor vehicle for use in this state, based on the total consideration of the lease at the time the lease is initiated. The motor vehicle excise tax will apply when additional charges are made after the inception of the lease, and may include excess mileage charges, excess wear charges, damage or repair charges, lease cancellation charges, option to renew charges, and end-of-the-lease payments. The subsequent purchase or buyout of a qualifying lease vehicle by the lessee will result in the payment of motor vehicle excise tax by the lessee on the purchase or buyout amount when titled or licensing the motor vehicle in this state.

Tax will apply to an end-of-the-lease payment if it is determined the lessee owes an additional charge based on the difference between the market value and the estimated residual value of the vehicle. No refund of tax is provided to the owner or lessee when the market value is greater than the estimated residual value.

2.All other motor vehicles placed into lease service will be subject to motor vehicle excise tax based on the purchase price of the vehicle at the time of titling or licensing the vehicle in this state. The subsequent purchase or buyout of the leased vehicle by the lessee will result in the payment of motor vehicle excise tax by the lessee on the purchase or buyout amount when titling or licensing the motor vehicle in this state unless the vehicle has been in continuous possession of the lessee for a period of one year or more.

Rental companies are responsible for payment of the motor vehicle excise tax to the motor vehicle division when titling vehicles for rental purposes.

When a dealer occasionally rents a vehicle on a daily basis and has not paid motor vehicle excise tax on the vehicle, such as one held for resale, the dealer is required to collect and remit sales tax at the current rate based on the daily rental charges.

Law Implemented: NDCC 57-40.3-02, 57-40.3-02.1, 57-40.3-04 81-05.1-01-05. Purchases by Indians.

Purchases of motor vehicles by Indians are subject to the motor vehicle excise tax for titling purposes, unless the purchase occurs on an Indian reservation by an enrolled member of the tribe or by the tribe.

The owner of a motor vehicle intended for lease or rental to an enrolled member of the tribe is subject to the motor vehicle excise tax, unless the owner is an enrolled member of the tribe and the transaction occurs on the Indian reservation.

Motor vehicles owned and operated by Indian mission schools are exempt from payment of motor vehicle excise tax.

History: Effective June 1, 1984; amended effective July 1, 1998; June 1, 2002.

Law Implemented: NDCC 39-04-18, 57-40.3-02, 57-40.3-02.1, 57-40.3-04, 57-40.3-08 81-05.1-01-06. Company-owned vehicles.

When a company owns a vehicle which is titled in an employee's name, then transfers the title to another employee or to the company itself, motor vehicle excise tax is due.

Law Implemented: NDCC 57-40.3-02 81-05.1-01-07. Nonfranchise purchases.

Any automobile dealer who purchases a new vehicle for resale for which the dealer does not have the factory franchise is liable for motor vehicle excise tax based on the acquisition cost of such vehicle.

Law Implemented: NDCC 39-22-02 81-05.1-01-08. Purchase of vehicles with extra equipment.

When purchasing and titling a vehicle which includes extra equipment such as a grain box, camper topper, well drilling rig, and bulk tank, motor vehicle excise tax must be remitted on the combined purchase price of both the vehicle and the extra equipment if purchased as a unit.

Law Implemented: NDCC 57-40.3-02 81-05.1-01-09. Refunds.

If it appears that any motor vehicle excise tax was paid in error or remitted when not due, the tax will be refunded upon application. The application must be made within three years from the date of payment of the tax.

Such application should be made to the motor vehicle division who will, upon presentation of satisfactory proof, authorize the refund to be made. No refund will be authorized by the motor vehicle division until the motor vehicle division is fully satisfied through the production of necessary purchase agreements, tax receipts, other documents, and information that the refund is warranted.

A refund of the motor vehicle excise tax paid on the total consideration of a qualifying lease that is due and payable by the owner is not allowed unless the owner has agreed to cancel the lease and refund all moneys received or if the motor vehicle is returned under North Dakota Century Code

chapter 57-40.4.

General Authority: NDCC 57-40.4-01

Law Implemented: NDCC 57-40.4-01, 57-40.4-02

Article 81-06.1 Motor Fuel Tax

Chapter 81-06.1-01 Definitions [Repealed]

N.D. Admin. Code 81-06.1-01 Definitions [Repealed]

ARTICLE 81-06.1

MOTOR FUEL TAX

Chapter 81-06.1-01Definitions [Repealed] 81-06.1-02Motor Fuel Tax Imposed 81-06.1-03Refunds and Assignments [Repealed] 81-06.1-04Licenses, Bonding, and Permits [Repealed]

CHAPTER 81-06.1-01

DEFINITIONS [Repealed effective June 1, 2002]

Chapter 81-06.1-02 Motor Fuel Tax Imposed

N.D. Admin. Code 81-06.1-02 Motor Fuel Tax Imposed

CHAPTER 81-06.1-02

MOTOR FUEL TAX IMPOSED

Section 81-06.1-02-01Motor Vehicle Fuel Tax Imposed [Repealed] 81-06.1-02-02Importer for Use Tax Imposed [Repealed] 81-06.1-02-03Special Fuels Tax Imposed - Exemptions [Repealed] 81-06.1-02-03.1Special Fuels Tax Imposed Under North Dakota Century Code Section 57-43.2-03 - Exemptions [Repealed] 81-06.1-02-04Aviation Fuel Tax Imposed [Repealed] 81-06.1-02-05Tax Deductions Allowed to Retail Outlets 81-06.1-02-06Tax Reduction, Exemption, Credit, or Refund on Gasoline Containing Alcohol [Repealed] 81-06.1-02-01. Motor vehicle fuel tax imposed. 81-06.1-02-02. Importer for use tax imposed. 81-06.1-02-03. Special fuels tax imposed under North Dakota Century Code section 57-43.2-02 - Exemptions. 81-06.1-02-03.1. Special fuels tax imposed under North Dakota Century Code section 57-43.2-03 - Exemptions. 81-06.1-02-04. Aviation fuel tax imposed. 81-06.1-02-05. Tax deductions allowed to retail outlets.

For purposes of administering North Dakota Century Code section 57-43.1-27, the following procedures apply:

1.On a sale of motor vehicle fuel made to a retail outlet not licensed by the tax commissioner, a supplier or distributor must credit the retail outlet with a one-half of one percent shrinkage and tax collection allowance. The allowance must be documented on the face of the delivery invoice, and the supplier or distributor shall deduct the allowance from taxable gallons on the supplier's or distributor's tax return.

2.On a transfer of product to a supplier's or distributor's retail storage facility or pump, a credit may be allowed for a one-half of one percent shrinkage and tax collection allowance, provided:

a.The transfer is treated as a sale documented by a sales invoice.

b.The per gallon tax is reported and paid on the monthly report for the month in which the product is transferred.

c.The product transferred is deducted from the supplier's or distributor's inventory as sold or used. The allowance must be documented on the face of the delivery invoice, and the supplier or distributor shall deduct the allowance from taxable gallons on the dealer's tax return.

3.On a sale of fuel made by a supplier or distributor to another supplier or distributor, or on a sale to a fuel user, including a person who uses fuel for agricultural purposes, the one-half of one percent shrinkage and tax collection allowance credit may not be taken on the supplier's or distributor's tax return.

History: Effective June 1, 1984; amended effective November 1, 1991; June 1, 2002; April 1, 2006.

General Authority: NDCC 57-43.1-30

Law Implemented: NDCC 57-43.1-16, 57-43.1-27 81-06.1-02-06. Tax reduction, exemption, credit, or refund on gasoline containing alcohol.

Repealed effective November 1, 1991.

Chapter 81-06.1-03 Refunds and Assignments [Repealed]

N.D. Admin. Code 81-06.1-03 Refunds and Assignments [Repealed]

CHAPTER 81-06.1-03

REFUNDS AND ASSIGNMENTS [Repealed effective June 1, 2002]

Chapter 81-06.1-04 Licenses, Bonding, and Permits [Repealed]

N.D. Admin. Code 81-06.1-04 Licenses, Bonding, and Permits [Repealed]

CHAPTER 81-06.1-04

LICENSES, BONDING, AND PERMITS [Repealed effective June 1, 2002]

Article 81-07.1 Estate Tax

Chapter 81-07.1-01 Estate Taxes

N.D. Admin. Code 81-07.1-01 Estate Taxes

ARTICLE 81-07.1

ESTATE TAX

Chapter 81-07.1-01Estate Taxes

CHAPTER 81-07.1-01

ESTATE TAXES

Section 81-07.1-01-01Terms and Phrases 81-07.1-01-02Taxes and Interest Payable 81-07.1-01-03Credit for State Death Taxes 81-07.1-01-04Valuations 81-07.1-01-05Estate Tax Documents 81-07.1-01-01. Terms and phrases.

Terms and phrases used in this article have the same meaning as those under North Dakota Century Code section 57-37.1-01.

Law Implemented: NDCC 57-37.1-01 81-07.1-01-02. Taxes and interest payable.

Estate taxes are due and payable upon death of a decedent and become delinquent if not paid within fifteen months from the date of death. Interest attaches to unpaid taxes beginning with the expiration of the fifteen-month period. Neither the tax commissioner, the county court, nor any other person has the authority to waive interest which has or which will accrue on unpaid estate taxes on estates of decedents who died prior to July 1, 1987.

Law Implemented: NDCC 57-37.1-02, 57-37.1-07 81-07.1-01-03. Credit for state death taxes.

The credit for state death taxes is computed based upon the federal taxable estate exclusive of adjusted taxable gifts.

History: Effective June 1, 1984.

Law Implemented: NDCC 57-37.1-04 81-07.1-01-04. Valuations.

Under no circumstances will the tax commissioner be bound by any valuation on the federal estate tax return which was approved without audit. The tax commissioner reserves the right to change any improper valuation deemed fit and proper.

History: Effective June 1, 1984.

Law Implemented: NDCC 57-37.1-11 81-07.1-01-05. Estate tax documents.

1.If the gross value of an estate meets the requirements for filing a federal estate tax return, the following documents must be submitted to the tax commissioner by the personal representative, attorney for the estate, surviving joint tenant, or other heir:

a.One copy of a North Dakota estate tax return.

b.A copy of decedent's will, if any.

c.A copy of the federal estate tax return.

d.If there is a North Dakota estate tax due, a duplicate situs affidavit. One copy will be filed with the state treasurer for proper distribution of taxes collected.

e.If the estate includes farmland, a supplemental information form listing the assessed value.

f.Two certificates of estate tax determination must be filed if the decedent owned real property in North Dakota and died before January 1, 1991. One certificate will be returned to the person responsible for filing it with the register of deeds in the county where the real property is located.

g.Any other information as the tax commissioner may require.

2.If the decedent died before January 1, 1991, the total value of the estate is under the federal filing requirement, and the estate includes property to which a lien attached upon the death of a decedent, the following documents must be filed with the tax commissioner:

a.A verified petition for release of lien.

b.Duplicate release of lien. One copy will be returned to the personal representative or the attorney for the estate for filing with the register of deeds in the appropriate county.

3.Except as otherwise provided, the documents required by this section apply to all estates of decedents who died on or after July 1, 1975. For estates of decedents who died prior to July 1, 1975, the proper forms are those required by the statutes and rules in effect on the date of death of the decedent.

Law Implemented: NDCC 57-37.1-17, 57-37.1-21

Article 81-08 Coal Taxes

Chapter 81-08-01 General Considerations

N.D. Admin. Code 81-08-01-01 Source note not part of rule

No source note shall be deemed a promulgation by the tax commissioner as to the purpose, scope, or effect of any section of this article to which such source note relates. For this purpose "source note" includes any citation to "general authority" or "law implemented" that follows any section of this article.

History

• General Authority: NDCC 57-61-08
• Law Implemented: NDCC 57-61

N.D. Admin. Code 81-08-01-02 Headnote, cross-reference, and source note not part of rule

No headnote, source note, or cross-reference, whether designating an entire article, chapter, or

section or any part thereof of this article shall constitute any part of a rule.

History

• General Authority: NDCC 57-61-08
• Law Implemented: NDCC 57-61

Chapter 81-08-02 Coal Severance Tax

N.D. Admin. Code 81-08-02-01 Definitions

As used in these sections and for the administration of North Dakota Century Code chapter 57-61, unless the context otherwise requires:

1."Coal mine owner or operator" does not include any individual who mines coal from the individual's own land solely for use for heating the individual's own home.

2."Cogeneration facility" means a facility which produces electrical energy and any other form of useful energy, such as steam or heat, which is used for industrial, commercial, heating, or cooling purposes.

3."Industrial purposes" as applied to coal that has been severed includes the use of such coal for making products from it or for the consumption of such coal to produce power or heat, except that it does not include coal mined by an individual from the individual's own land for use for heating the individual's own home.

4."Producer" means the coal mine owner, or the operator of the coal mine if different from the owner.

5."Renewable resources" means biomass, waste, wind, solar, geothermal, or any combination of those resources.

6."Sale" as applied to coal that has been severed means any transfer of title, conditional or otherwise, to such coal for a consideration regardless of where such transfer of title occurs.

7."Tax commissioner" means the tax commissioner of the state of North Dakota.

History

• History: Amended effective September 1, 1979; July 1, 1985; November 1, 1987.
• General Authority: NDCC 57-61-08
• Law Implemented: NDCC 57-61

N.D. Admin. Code 81-08-02-02 Nature of coal severance tax

Repealed effective June 1, 2002.

N.D. Admin. Code 81-08-02-03 Reporting and paying coal severance tax

Each coal mine owner, or the operator of the coal mine if different from the owner, must file a report on forms prescribed by the tax commissioner for each month showing the number of tons of coal severed in each county in this state during such month, the amount of severance tax due thereon, and such other information as the tax commissioner shall deem necessary. The report and payment shall be filed in the office of the tax commissioner at the state capitol, Bismarck, North Dakota, by the twenty-fifth day of the following month.

History

• History: Amended effective July 1, 1985.
• General Authority: NDCC 57-61-08
• Law Implemented: NDCC 57-61-02, 57-61-03

N.D. Admin. Code 81-08-02-04 Coal severance tax rate

Repealed effective July 1, 1998.

N.D. Admin. Code 81-08-02-05 Coal severance tax in lieu of sales or use taxes on coal

Repealed effective June 1, 2002.

Chapter 81-08-03 Coal Conversion Facilities Privilege Tax

N.D. Admin. Code 81-08-03-01 Definitions

As used in these sections and for the administration of North Dakota Century Code chapter 57-60, unless the context requires otherwise:

1."Cost to repair" means the cost to return a disabled unit to generating capability, including costs from the date on which the unit became incapable of generating electricity to the date the unit again becomes capable of generating electricity.

2."Eighteen consecutive months" means the eighteen-month period commencing immediately following the last month during which a unit was capable of generating electricity.

3."Estimated cost to repair" means an estimate of the total cost to return the unit to generating capability, made at the end of the first eighteen consecutive months that a unit is incapable of generating electricity. The estimate includes costs from the date the unit became incapable of generating electricity through projected completion of repair.

4."First taxable production" means the first production which occurs after April 20, 1987, and which is subject to the coal conversion facilities privilege tax.

5."Original cost" means the total undepreciated cost of construction of and additions to the unit, less retirements, as recorded on the books of the operator, on the date the unit became incapable of generating electricity.

N.D. Admin. Code 81-08-03-02 Taxable electrical production

"Electricity produced for the purpose of sale" includes electricity supplied to a coal mine serving the coal conversion facility. It does not include electricity used within the plant or used within freestanding structures located at the plantsite which constitute an integral part of the plant, for example, an AC/DC terminal.

N.D. Admin. Code 81-08-03-03 Installed capacity

The operator of each electrical generating plant shall certify to the tax commissioner the installed capacity of the power unit as defined in North Dakota Century Code section 57-60-01, shown in kilowatts on the nameplate assigned to the turbine of the power unit, the manufacturer of the power unit, and the serial number of the power unit.

N.D. Admin. Code 81-08-03-04 Calculation of reduced tax rate

If a unit has been incapable of generating electricity for eighteen consecutive months, the tax on that unit for taxable periods beginning after the eighteenth month must be reduced by the ratio that the estimated cost to repair bears to the original cost of the unit. When the unit is again capable of generating electricity, the reduced tax rate must be recalculated, using the ratio that the cost to repair bears to the original cost of the unit. Taxes for all taxing periods during which the reduced rate was in effect must be recalculated, and adjustments for underpayments or overpayments made. The full tax rate will be in effect for the month in which the unit is again capable of generating electricity.

N.D. Admin. Code 81-08-03-05 Maximum benefit under reduced tax rate

The rate reduction calculated for a unit that has been incapable of generating electricity for eighteen consecutive months may not exceed one hundred percent of the tax.

N.D. Admin. Code 81-08-03-06 Taxable synthetic natural gas

"Taxable synthetic natural gas" does not include synthetic natural gas used within the plant and does not include any amount of synthetic natural gas in excess of one hundred ten million cubic feet per day, over and above that used within the plant. Calculation of any amount of synthetic natural gas in excess of one hundred ten million cubic feet per day must be accomplished by multiplying one hundred ten million cubic feet by the number of days in the month for which the report is filed, and subtracting the result from the total number of cubic feet of synthetic natural gas produced, less that used within the plant, during the month for which the report is made.

N.D. Admin. Code 81-08-03-07 Byproducts revenue exempt from taxation

Effective after December 31, 2000, for any given month, the allowed exemption of revenue derived from the sale of byproducts other than the sale of carbon dioxide for use in enhanced recovery of oil or natural gas may not exceed twenty percent of the sum of total gross receipts from the sale of synthetic natural gas during the month plus total gross receipts from the sale of byproducts during the month.

Gross receipts from the sale of carbon dioxide for use in enhanced recovery of oil or natural gas are not subject to tax but are included in total gross receipts for the purpose of the percentage calculation.

June 1, 2002.

History

• History: Effective November 1, 1987; amended effective July 1, 1989; November 1, 1991; July 1, 1998;

Article 81-09 Oil and Gas Gross Production and Oil Extraction Taxes

Chapter 81-09-01 General Considerations

N.D. Admin. Code 81-09-01-01 Source note not part of rule

No source note shall be deemed a promulgation by the commissioner as to the purpose, scope, or effect of any section of this article to which such source note relates. For this purpose "source note" includes any citation to "general authority" or "law implemented" that follows any section of this article.

History

• History: Effective July 1, 1982.
• General Authority: NDCC 57-51-21
• Law Implemented: NDCC 57-51, 57-51.1

N.D. Admin. Code 81-09-01-02 Headnote, cross-reference, and source note not part of rule

No headnote, cross-reference, or source note, whether designating an entire article, chapter, or

section or any part thereof of this article shall constitute any part of a rule.

History

• History: Effective July 1, 1982.
• General Authority: NDCC 57-51-21
• Law Implemented: NDCC 57-51, 57-51.1

Chapter 81-09-02 Oil and Gas Gross Production Tax

N.D. Admin. Code 81-09-02-01 Definitions

As used in this chapter and for the administration of North Dakota Century Code chapter 57-51, unless the context otherwise requires:

1."Casinghead gas" means gas as produced from a well classified as an oil well by the industrial commission.

2."Commissioner" means the tax commissioner of the state of North Dakota.

3."Gross value at the well" means fair market value at the time of production.

4."Natural gas" means gas as produced from a well classified as a gas well by the industrial commission.

5."Nonoperating interest" means an interest in production from a mineral property which does not share in operating rights. A nonoperating interest includes an overriding royalty interest, a net profit interest, and a carried interest.

6."Oil" means petroleum, crude oil (including condensate), mineral oil, and casinghead gasoline.

7."Operator" means the person responsible for the actual physical operation of the producing property.

8."Person" means an individual, partnership, corporation, association, fiduciary, trustee, and any combination thereof.

9."Producer" means the owner of a working interest or a nonoperating interest, in a well capable of producing oil or gas, or both.

10."Purchaser" means any buyer of oil or gas after it has been produced, or any processor of gas. Purchaser does not include one who acquires oil or gas in place in the earth through a lease, estate, or other interest.

11."Return" means any statement, report, or return required by North Dakota Century Code

chapter 57-51 to be filed with the commissioner. To constitute a timely filed original or amended return, a return must be filed on or before the due date and must contain sufficient information by which the commissioner can process the return and determine the correct tax due. In the case of an information return, a return must be filed on or before the due date and must contain sufficient information by which the commissioner can process the return and determine the correct oil and gas volumes to be reported and, where applicable, the gross value of oil produced.

12."Take-in-kind" means a nonoperator elects to receive production in lieu of proceeds from the sale of production.

13."Tax" means the oil and gas gross production tax.

14."Taxpayer" means any person that is responsible for filing a report or paying the tax.

15."Trunkline" means a pipeline for the transportation of oil or gas from producing areas to refineries or terminals.

16."Working interest" means a mineral interest which includes the rights granted to a lessee of property to explore for, produce and own, oil or gas.

History

• History: Effective July 1, 1982; amended effective August 1, 1986; July 1, 1989; June 1, 1992; April 1, 1995; September 1, 1997.
• Law Implemented: NDCC 57-51

N.D. Admin. Code 81-09-02-02 Procedure for review of commissioner's determination of additional tax, penalty, and interest

1.The commissioner will review or audit the returns filed pursuant to North Dakota Century Code

chapter 57-51. 2.a.If it is determined that additional tax is due, the commissioner shall notify the taxpayer of this determination within the applicable time period specified in North Dakota Century Code section 57-51-09.

b.For the purpose of determining whether there has been a change in tax liability on any return by an amount in excess of twenty-five percent of the amount of tax liability reported on a return, the change in tax liability must be determined on a well or unit

basis, as reported on the return. If no tax has been paid on production from a well or unit for any production month, the requirement of a change in the liability in excess of twenty-five percent is automatically met.

c.The notice of determination must be sent by certified mail with a return receipt requested and it must state the statutory basis for the determination, the reasons for the determination, and the amount of additional tax due along with the applicable penalty and interest.

3.The notice of determination becomes final and irrevocable unless the taxpayer files a protest and statement of grounds with the commissioner pursuant to section 81-01.1-01-06. If a taxpayer protests only a portion of the commissioner's determination, the portion which is not protested becomes finally and irrevocably fixed. The commissioner shall provide a detailed response to the statement of grounds pursuant to section 81-01.1-01-07.

4.Upon request, the commissioner may grant the taxpayer an informal conference.

5.If a protest and statement of grounds are filed, the commissioner shall reconsider the notice of determination. This reconsideration may include further examination by the commissioner of the taxpayer's books, papers, records, or memoranda, pursuant to section 81-01.1-01-03 and North Dakota Century Code sections 57-01-02 and 57-51-07.

6.Pursuant to section 81-01.1-01-08, the commissioner shall send a notice of reconsideration to the taxpayer by certified mail with a return receipt requested stating the amount of additional tax due, along with the applicable penalty and interest.

7.The notice of reconsideration becomes final and irrevocable unless the taxpayer seeks formal administrative review of the notice by filing a complaint and requesting an administrative hearing pursuant to sections 81-01.1-02-01 and 81-01.1-02-02.1. The complaint must be served personally or by certified mail. The provisions of North Dakota Century Code chapter 28-32 apply to and govern the filing of the complaint and the administrative hearing, including any appeal from a decision rendered by the commissioner.

History

• History: Effective July 1, 1982; amended effective August 1, 1986; July 1, 1989; May 1, 1991; June 1, 1992.
• Law Implemented: NDCC 28-01-16, 57-01-02, 57-01-11, 57-51-07, 57-51-09

N.D. Admin. Code 81-09-02-03 Procedure for refund of overpayments, duplicate payments, and erroneous payments of tax

1.For purposes of this section, "taxpayer" means the party who has actually remitted an overpayment, duplicate payment, or erroneous payment of tax.

2.A claim for credit or refund must be made by filing an amended return with the commissioner.

3.A claim for credit or refund must be made within the applicable time period specified in North Dakota Century Code section 57-51-19. For the purpose of determining whether there has been a change in tax liability on any return by an amount in excess of twenty-five percent of the amount of tax liability reported on a return, the change in tax liability must be determined on a well or unit basis, as reported on the return. If no tax has been paid on production from a well or unit for any production month, the requirement of a change in the liability in excess of twenty-five percent is automatically met.

4.The commissioner shall notify the taxpayer as to the amount of refund or credit granted within a reasonable time of the claim. If the commissioner decides to deny the taxpayer's claim for refund or credit, in part or in full, a notice of refund change must be sent by certified mail with a return receipt requested, and it must state the reasons for the decision.

5.The notice of refund change becomes final and irrevocable unless the taxpayer files a protest and statement of grounds with the commissioner pursuant to section 81-01.1-01-06. If a taxpayer protests only a portion of the commissioner's decision, the portion which is not protested becomes finally and irrevocably fixed. The commissioner shall provide a detailed response to the statement of grounds pursuant to section 81-01.1-01-07.

6.Upon request, the commissioner may grant the taxpayer an informal conference.

7.If a protest and statement of grounds are filed, the commissioner shall reconsider the notice of refund change. This reconsideration may include further examination by the commissioner of the taxpayer's books, papers, records, or memoranda, pursuant to section 81-01.1-01-03 and North Dakota Century Code sections 57-01-02 and 57-01-07.

8.Pursuant to section 81-01.1-01-08, the commissioner shall send a notice of reconsideration to the taxpayer by certified mail with a return receipt requested stating the amount of refund or credit denied.

9.The notice of reconsideration becomes final and irrevocable unless the taxpayer seeks formal administrative review of the notice by filing a complaint and requesting an administrative hearing pursuant to sections 81-01.1-02-01 and 81-01.1-02-02.1. The complaint must be served personally or by certified mail. The provisions of North Dakota Century Code chapter 28-32 apply to and govern the filing of the complaint and the administrative hearing procedure, including an appeal from any decision rendered by the commissioner.

The commissioner does not have the authority to pay interest on a claim for credit of tax. Interest of ten percent per annum must be paid on tax refunds. The daily interest rate is .000277. Interest accrues from sixty days after the due date of the return or after the return was filed or after the tax was fully paid, whichever comes later, through the date the refund is mailed to the taxpayer.

1.Upon receipt of an amended return submitted with a claim for credit or refund, the commissioner shall perform a limited review to determine that tax was paid with a previously filed return and that the amended return is completed properly.

2.Mathematical or clerical errors as defined in section 81-01.1-01-02 may be corrected by the commissioner after notification is provided to the taxpayer.

3.When the tax commissioner grants a tax credit, the taxpayer will be notified by written confirmation of the amount of the tax credit which may be used to reduce a future tax liability.

4.When the tax commissioner grants a tax refund, a refund check will be issued to the taxpayer.

5.Nothing in this rule is intended to preclude the commissioner's authority to audit the information reported on the amended return or to assess tax due.

History

• History: Effective October 1, 1987; amended effective July 1, 1989; May 1, 1991; June 1, 1992; April 1, 1995; June 1, 2002.
• Law Implemented: NDCC 57-01-02, 57-01-07, 57-51-19 81-09-02-03.1. Interest on refunds.
• History: Effective July 1, 1989; amended effective June 1, 1992; August 1, 1994; June 1, 2002.
• Law Implemented: NDCC 57-51-19 81-09-02-03.2. Procedure for limited review of amended returns submitted with claim for credit or refund.
• History: Effective June 1, 1992; amended effective April 1, 1995; June 1, 2002.
• Law Implemented: NDCC 57-51-19

N.D. Admin. Code 81-09-02-04 Due dates for filing a return and paying tax

If the due date for filing a return and paying the tax owed falls on a Saturday, Sunday, or legal holiday, the return and payment are due on the next business day. If a taxpayer is required to file an amended return, this return is due on the date set by the commissioner. A return is delinquent if it is postmarked or transmitted after the due date. A payment is delinquent if it is postmarked, or an electronic payment is initiated, after the due date.

History

• History: Effective July 1, 1989; amended effective June 1, 2002; April 1, 2006.
• Law Implemented: NDCC 57-51-05, 57-51-06, 57-51-10

N.D. Admin. Code 81-09-02-05 Extension of due date for filing a return or paying tax

1.A taxpayer may request that the due date for payment of the tax be extended by a maximum of fifteen days. In addition, a taxpayer may request that the due date for filing a return be extended. However, if tax is due with the return, the due date for filing will only be extended by a maximum of fifteen days.

2.A taxpayer may request an extension of time either verbally or in writing. A verbal request must be made on or before the due date for paying the tax or filing the return. A written request must be received by the commissioner on or before the due date for paying the tax or filing the return. Both a verbal and written request must advise the commissioner as to why the extension of time is needed.

3.If a request for an extension of time is approved verbally, the taxpayer shall submit written notice to the commissioner confirming this fact within five days of the date the request was approved. If a request is not approved verbally, the commissioner shall promptly notify the taxpayer in writing as to whether the request is approved or denied.

4.If a request for an extension of time for filing a return is approved, the taxpayer shall compute and pay with the return extension interest at the rate of twelve percent per annum. The daily interest rate is .000333. Interest is computed from the original due date of the return to the date the tax is paid, which is the date the payment is mailed or an electronic payment is initiated.

History

• History: Effective July 1, 1989; amended effective June 1, 1992; April 1, 2006.
• Law Implemented: NDCC 57-51-05, 57-51-06

N.D. Admin. Code 81-09-02-06 Penalty for failure to file a return and procedure for review of imposition of penalty

1.The term "taxpayer" includes any person or entity that is responsible for filing a tax or information return.

2.For purposes of this section, the terms "tax return" and "information return" have the meanings provided in section 81-09-02-01.

3.A taxpayer is subject to a penalty of twenty-five dollars per day for each well or unit for which a tax or information return has not been filed. This penalty must be collected in the same manner as gross production taxes and apportioned as other gross production tax penalties.

4.The commissioner shall notify the taxpayer of imposition of the failure to file penalty by certified mail, return receipt requested. The notice of imposition of failure to file penalty must specify the wells or units for which a return was not filed, the reporting periods for which a return was not filed, and the amount of penalty assessed. If the taxpayer objects to the imposition of the penalty, the taxpayer may protest by filing an administrative complaint with the commissioner within thirty days of the notice of imposition of penalty for failure to file a return. The taxpayer will be granted an automatic extension of thirty days to file a complaint, provided the taxpayer makes a request for extension within thirty days of the notice. If the taxpayer fails to protest within thirty days of the notice and the penalty remains unpaid, the commissioner may bring an action to collect the penalty for failure to file a return. The two-year statute of limitations on actions under North Dakota Century Code section 28-01-18 applies to imposition of this penalty by the commissioner and to protest of this penalty by the taxpayer.

5.The taxpayer may request a hearing before the commissioner relating to the imposition of the penalty for failure to file a return. An administrative complaint filed by the taxpayer must be served personally or by certified mail. The provisions of North Dakota Century Code chapter 28-32 apply to and govern the filing of the complaint and the administrative hearing, including any appeal from a decision rendered by the commissioner.

1.A penalty is imposed on delinquent tax in the amount of five percent of the delinquent tax or five dollars, whichever is greater. This penalty does not apply to delinquent tax reported on an amended return if:

a.Ninety percent of the total combined tax liability, reported on the original return and amended returns, was paid with the taxpayer's original return; and

b.The amended return is filed and all delinquent tax is paid within sixty days of the due date of the original return.

2.Interest is imposed on delinquent tax at a rate of one percent per month for each calendar month or any part of a month in which the tax remains unpaid, except that interest is not imposed in the month the delinquent tax became due.

The commissioner will consider a taxpayer's oral or written request for a waiver of penalty and interest and may grant a waiver in accordance with sections 81-01.1-01-09 and 81-01.1-01-10.

Penalty and interest collected by the commissioner on delinquent tax must be apportioned in the same manner as the delinquent tax.

The amount of penalty and interest due will be determined in the following manner:

a.The penalty and interest rates must be applied to delinquent tax for each production period. Multiple tax underpayments for different production periods will not be combined to calculate penalty and interest. Tax overpayments and tax underpayments for different production periods will not be offset to calculate penalty and interest.

b.The penalty and interest rates must be applied to the delinquent tax computed on an original or amended return. Tax overpayments and tax underpayments for individual well or unit entries on a single return will be offset and the penalty and interest computed on the net delinquent tax. Tax overpayments and tax underpayments reported on separate returns for the same production period will not be offset.

History

• History: Effective July 1, 1989; amended effective April 1, 1995; April 1, 2006.
• General Authority: NDCC 28-01-18, 57-51-21
• Law Implemented: NDCC 57-51-06 81-09-02-06.1. Penalty and interest on delinquent tax.
• History: Effective April 1, 1995.
• Law Implemented: NDCC 57-51-05(1), 57-51-10

N.D. Admin. Code 81-09-02-07 Injected oil

When produced from and injected into the same well, oil must be reported as production upon recovery after injection.

When produced from one well and transported to a second well, oil injected into the second well must be reported as production from the first well and tax is due at the time the oil is transported to the second well. In determining production from the second well, injected oil must be excluded from production. The amount excluded must be applied against the first oil recovered after injection.

Injected oil includes, but is not limited to, what is commonly known as power oil, frac oil, and load oil.

History

• History: Effective June 1, 1992.
• Law Implemented: NDCC 57-51-02, 57-51-05

N.D. Admin. Code 81-09-02-08 Determination of gross value

Repealed effective June 1, 2002.

N.D. Admin. Code 81-09-02-09 Definition of arm's length contract

As used in North Dakota Century Code chapter 57-51, "arm's length contract" means a contract or agreement executed by a willing buyer and a willing seller, neither party being affiliated. For purposes of this definition, a contract or agreement between affiliated parties is any contract or agreement between a parent and a wholly or partially owned subsidiary, or between entities wholly or partially owned by a common parent, or between persons otherwise affiliated through ownership or economic relationships.

1.To determine the volume of gas upon which gross production tax must be paid, the following may be deducted from the total volume of gas produced and must be reported to the commissioner:

a.Wet gas and gas products exempt from taxation pursuant to subsection 3 of North Dakota Century Code section 57-51-05. The volume of gas to be deducted for the wet gas and gas products must be computed using the formulas prescribed in forms provided by the commissioner.

b.Condensate reported as oil. The volume of gas to be deducted for each barrel of condensate must be computed using the formula prescribed in forms provided by the commissioner.

c.Gas flared from an oil well by a producer that is not subject to taxation pursuant to North Dakota Century Code section 38-08-06.4.

d.In the event a substance is being injected into a reservoir as a part of a tertiary recovery project, and the amount of nonhydrocarbon gas produced from a well is disproportionally increased as a result of the project, the total volume of gas produced from the well may be adjusted subject to the approval of the commissioner in a manner approved by the commissioner.

2.A producer is not required to report exempt lease use gas and gas flared from an oil well that is not connected to a gas gathering line if the producer submits the following to the commissioner:

a.A chemical analysis of the flared gas, if available;

b.After the first year's production, an industrial commission order exempting the producer from the provisions of North Dakota Century Code section 38-08-06.4; and

c.A written statement stating the specific use of exempt gas volumes used on the lease.

History

• History: Effective June 1, 1992.
• General Authority: NDCC 57-51-21, 57-51.1-05
• Law Implemented: NDCC 57-51-01, 57-51-02.3 81-09-02-09.1. Reduction from gas volumes and reporting.
• History: Effective June 1, 1992; amended effective April 1, 1995.
• Law Implemented: NDCC 57-51-01, 57-51-05

N.D. Admin. Code 81-09-02-10 Condensate recovered from a gas stream

1.For the purposes of this section, the following definitions apply:

a."Condensate" means all liquid hydrocarbons recovered from a gas stream in a gathering system after the custody transfer meter but before processing at a gas plant. Condensate is otherwise referred to as "pigging liquids", "gathering system condensate", or "drip".

b."Gross value" of condensate at the point of recovery means the price paid under an arm's length contract for the sale of oil as defined in North Dakota Century Code section 57-51-02.3.

c."Processing" means any process designed to remove elements or compounds, hydrocarbons and nonhydrocarbons, from gas, including absorption, adsorption, or refrigeration. Field processes that normally take place on or near the lease, such as natural pressure reduction, mechanical separation, heating, cooling, dehydration, and compression are not considered processing.

2.Gross value at the well includes the value of condensate from associated and nonassociated production. There may be deducted from the gross value of condensate certain costs incurred to recover the condensate from a gas stream after the custody transfer meter. Effective January 1, 1995, the costs of recovery must be calculated and deducted from the gross value of condensate under either of the following methods:

a.By multiplying fifteen percent times the gross value of the condensate, using a gross value that is finally determined by the commissioner. This method establishes conclusively the costs of recovery of the condensate from a gas stream; or

b.By using reasonable actual costs incurred to recover the condensate from a gas stream after the custody transfer meter. Actual costs do not include proceeds retained under a gas sales or gas processing agreement between a producer and a purchaser or processor. If the method under this subdivision is elected, the costs of recovery must be fully substantiated upon request and are subject to audit by the commissioner.

The value of condensate is included in gross value regardless of the point at which it is recovered.

This includes condensate recovered at the lease site, gas gathering lines, compressor station, and inlet separator of a processing plant.

The commissioner shall review the cost of recovery methods under subdivisions a and b of subsection 2 after the cost of recovery provision has been in effect for two years.

History

• History: Effective August 1, 1986; amended effective April 1, 1995; June 1, 2002.
• Law Implemented: NDCC 57-51-02

N.D. Admin. Code 81-09-02-11 Tax reimbursement

Repealed effective September 1, 1997.

N.D. Admin. Code 81-09-02-12 Postproduction costs for periods prior to July 1, 1991

Repealed effective September 1, 1997.

N.D. Admin. Code 81-09-02-13 Measurement or determination of oil or gas production

The volume of oil or gas to be reported is the gross amount of oil or gas produced. When measuring or determining the amount of oil production, a reasonable deduction may be made for basic sediment and water and a reasonable allowance may be made for correction of the temperature to sixty degrees Fahrenheit [15.55 degrees Celsius]. When measuring or determining the amount of gas production, the measurement must be at a pressure base of 14.73 pounds per square inch absolute and a standard temperature base of sixty degrees Fahrenheit [15.55 degrees Celsius].

The amount of production is generally measured or determined at the lease by tank tables, meters, or other measuring devices. However, the commissioner may verify the accuracy of measurements or determinations made at the lease by comparing those amounts with measurements or determinations made at some other point.

History

• History: Effective July 1, 1989.
• Law Implemented: NDCC 57-51-02

N.D. Admin. Code 81-09-02-14 Taxation of volume gains

1.An oil purchaser that has realized a volume gain resulting from differing measurements of the oil must report and pay tax on the volume gain. An oil purchaser that has incurred a volume loss resulting from differing measurements of the oil may utilize the volume loss on a first-in first-out basis to offset a volume gain in subsequent periods as follows. An oil purchaser may utilize the loss to offset a gain at another trunkline measuring point. A volume loss may be carried forward for three years after the due date of the return for the production month in which the loss was incurred.

2.The amount of volume gain and volume loss must be calculated for each month and reported.

The amount of volume gain must be reported on the oil return in the month succeeding production.

3.A volume gain or volume loss is calculated by subtracting the total amount of oil received by the purchaser as measured at the well from the total amount of oil delivered by the purchaser as measured at the trunkline. If this calculation results in a positive number, there is a volume gain. If this calculation results in a negative number, there is a volume loss. A volume gain or loss may be adjusted for a volume gain or loss attributable to production outside North Dakota.

4.A volume gain cannot be decreased and a volume loss cannot be increased by oil lost due to spillage, leakage, fire, theft, or any other event resulting in a physical loss of oil.

1.Each operator of an oil pipeline in North Dakota must file a report with the tax commissioner showing its volume gains and volume losses for the calendar year. The report may be filed in the form of the pipeline's "over and short" report compiled during the ordinary course of its business. The annual report must be filed by the twenty-fifth day of February following the end of the calendar year.

2.The volume gains and losses must be calculated on a monthly basis by subtracting the total amount of oil received by the pipeline as measured at the well or at the trunkline from the total amount of oil delivered by the pipeline as measured at a subsequent point. If this calculation results in a positive number, there is a volume gain. If this calculation results in a negative number, there is a volume loss.

3.For purposes of calculating a volume gain or volume loss under this section, a volume gain cannot be decreased and a volume loss cannot be increased by oil lost due to spillage, leakage, fire, theft, or any other event resulting in a physical loss of oil.

History

• History: Effective June 1, 1992; amended effective September 1, 1997; June 1, 2002.
• Law Implemented: NDCC 57-51-02, 57-51-05, 57-51-06 81-09-02-14.1. Taxation of oil pipeline volume gains.
• History: Effective September 1, 1997.
• Law Implemented: NDCC 57-51-02, 57-51-05, 57-51-06

N.D. Admin. Code 81-09-02-15 Exempt royalty interests

1.A royalty interest in oil or gas is exempt from the gross production tax if the royalty interest is owned by any of the following entities and that entity's immunity from taxation has not been waived by the appropriate governmental authority:

a.The federal government or an instrumentality of the federal government.

b.The state of North Dakota or its political subdivisions.

c.An organized Indian tribe, whose land cannot be alienated without consent of the federal government.

2.A royalty interest in production which is owned by a private or charitable organization, whether profit or nonprofit, is not exempt from the gross production tax.

3.For oil, the value of an exempt royalty interest is limited to the lesser of the following:

a.The amount of any royalty payments made to the entities listed in subdivisions a, b, and c of subsection 1.

b.The royalty percentage attributable to the entities listed in subdivisions a, b, and c of subsection 1 times the total amount reported as the gross value at the well.

4.For gas, the volume of an exempt royalty interest is the royalty interest percentage attributable to the entities listed in subdivisions a, b, and c of subsection 1 times the taxable volume of gas.

History

• History: Effective August 1, 1986; amended effective July 1, 1989; March 1, 1990; June 1, 1992.
• General Authority: NDCC 57-51-21; ND Con X, 5
• Law Implemented: NDCC 57-51-02, 57-51-02.2

N.D. Admin. Code 81-09-02-16 Exemption for lease use gas

Any gas taken directly from the wellhead or returned to the lease from a treating or processing plant and used in the production of oil or gas is exempt from taxation. This exemption is for gas used in drilling for or producing oil or gas or repressurization of a reservoir. Examples of exempt gas include, but are not limited to, gas used as fuel for heater-treaters or separators or in lift or injection operations.

History

• History: Effective August 1, 1986; amended effective July 1, 1989.
• Law Implemented: NDCC 57-51-05

N.D. Admin. Code 81-09-02-17 Definition of gas base rate adjustment and tax rate

Repealed effective June 1, 2002.

N.D. Admin. Code 81-09-02-18 Method for calculating the tax rate on gas

The gas tax rate will be calculated by the following method:

1.An annual average of the gas fuels producer price index, commodity code 05-3, as published by the United States department of labor, bureau of labor statistics, will be calculated by dividing the sum of the monthly gas fuels producer price index for January through December of the previous calendar year by the denominator of twelve, with the resultant rounded to one place after the decimal.

2.The gas base rate adjustment will be calculated by dividing the annual average of the gas fuels price index by the denominator of 75.7, with the resultant rounded to six places after the decimal.

3.The gas tax rate will be calculated by multiplying $.04 times the gas base rate adjustment, with the resultant rounded to four places after the decimal.

History

• History: Effective August 1, 1994; amended effective June 1, 2002.
• Law Implemented: NDCC 57-51-02.2

N.D. Admin. Code 81-09-02-19 Reporting requirements for producers and purchasers

1.The purchaser of oil at the well must file a monthly oil purchaser's report, as follows:

a.If the purchase of oil at the well is an arm's length transaction, the first purchaser must file the oil purchaser's report.

b.If the first purchase of oil at the well is a non-arm's length transaction and the oil is resold at the well to an arm's length purchaser, the second purchaser must file the oil purchaser's report.

c.If the first purchase of oil at the well is a non-arm's length transaction and the oil is not resold at the well but is sold downstream, the purchaser at the well must file the oil purchaser's report.

d.The term arm's length transaction as used in this section is defined in section 81-09-02-09.

2.The purchaser is primarily responsible for remitting tax due on all oil purchased from an operator or working interest owner when delivery is made at the well. The commissioner may accept payment of the tax from the operator or working interest owner but failure of the operator or working interest owner to pay the tax will not relieve the purchaser of liability for the tax.

3.Unless the operator and working interest owner have received a waiver of the filing requirement, they shall report as follows:

a.The operator must report the sales volume and the gross value at the well of the oil the operator actually sold.

b.The working interest owners who take oil in kind must report the sales volume and the gross value at the well of the oil taken in kind.

4.The operator must report and remit the tax on all oil not sold at the well, including any oil used, lost, stolen, or otherwise unaccounted for after it has been produced.

5.The person reporting and remitting tax on a new property must submit documentation to support a claim for exempt royalty interests. The documentation must be mailed to the commissioner within ninety days after the first report is filed on the property.

History

• History: Effective April 1, 1995; amended effective June 1, 2002.
• Law Implemented: NDCC 57-51-05, 57-51-06, 57-51-07

N.D. Admin. Code 81-09-02-20 Waiver of requirement to file producer's report

1.The commissioner may waive the producer's requirement to file a monthly oil or gas report. To qualify for a waiver the producer must file an application for waiver with the commissioner. The producer must receive written approval from the commissioner before a waiver of the filing requirement will become effective.

2.All tax due on oil sold from a producing property, for which the filing requirement has been waived, must be reported and paid on the purchaser's monthly report. A waiver does not release a producer from any responsibility to remit tax due. A producer's period of obligation will be determined by the filing date of the purchaser's return. A producer must continue to maintain production records for inspection by the commissioner.

3.A producer must continue to report and remit the tax on all oil not sold at the well, including any oil used, lost, stolen, or otherwise unaccounted for after it has been produced even though a waiver has been received.

4.The commissioner may terminate the waiver at any time by providing written notice to the producer. The producer will be required to file a return effective for the production month following the month in which the notice of termination is issued. The producer may terminate the waiver by providing the commissioner with written notice that a return will be filed in the next succeeding month.

History

• History: Effective July 1, 1998; amended effective June 1, 2002.
• Law Implemented: NDCC 57-51-06

Chapter 81-09-03 Oil Extraction Tax

N.D. Admin. Code 81-09-03-01 Application of oil and gas gross production tax rules to the oil extraction tax

All rules and regulations adopted in chapter 81-09-02 for the administration of the oil and gas gross production tax law, not in conflict with the provisions of the oil extraction tax law, shall apply to and govern the administration of the oil extraction tax law.

History

• History: Effective July 1, 1982.
• General Authority: NDCC 57-51-21
• Law Implemented: NDCC 57-51.1-05

N.D. Admin. Code 81-09-03-02 Definitions

As used in these sections and for the administration of North Dakota Century Code chapter 57-51.1, unless the context requires otherwise, the following definitions apply:

1."Completion" or "completed" means an oil well will be considered completed when the first oil is produced through wellhead equipment after production casing has been run.

2."Drilled" means the spudding of a well.

3."Incremental production" means the oil which has been classified as incremental by the industrial commission under subsections 5 and 6 of North Dakota Century Code section 57-51.1-03.

4."New well" means a well initially drilled and originally completed after April 27, 1987, to a separate and distinct reservoir as recognized by the industrial commission.

5."Nonincremental production" means the oil which has not been classified as incremental by the industrial commission.

6."Reservoir" means a common source of supply as defined by the industrial commission.

7."Test oil" means oil recovered during and after drilling but before normal completion of a well.

8."Unit" means the total area of land that results from the combining of interests in all or parts of two or more leases or fee interests in order to operate the reservoir as a single production unit subject to a single operating interest. A unit may be formed by an agreement between the mineral interest owners (voluntary unitization) or by order of an agency of the state or federal government (compulsory unitization). A unit does not include "poolings" resulting from the enforcement of spacing requirements. This definition is only effective for periods prior to April 27, 1987.

April 1, 1996; April 1, 2006; July 1, 2016.

History

• History: Effective August 1, 1986; amended effective October 1, 1987; March 1, 1990; June 1, 1992;
• Law Implemented: NDCC 57-51.1-01(3)(4)(5)(8), 57-51.1-03(3)

N.D. Admin. Code 81-09-03-03 Determination of a property - Operator's election to designate individual wells as separate properties

Repealed effective September 1, 1997.

N.D. Admin. Code 81-09-03-04 Designation of a property on an individual well basis - Notification by operator

Repealed effective September 1, 1997.

N.D. Admin. Code 81-09-03-05 Rate reduction for qualifying secondary and tertiary recovery projects

Repealed effective June 1, 2002. 81-09-03-05.1. Tax incentives for qualifying secondary recovery projects.

The exemption for incremental production from a qualifying secondary recovery project starts with the first day of the first month in which incremental oil is produced from the project.

1.The exemption for incremental production from a qualifying tertiary recovery project starts with the first day of the first month in which incremental oil is produced from the project.

2.The exemption and rate reduction may be eliminated as of the first day of the first month in which the unit ceased to be operated as a qualified project if the industrial commission determines that the unit operator is not continuing to operate the unit as a qualifying tertiary recovery project.

1.Categorization and taxation of production. The unit operator must report on a form prescribed by the commissioner all of the oil produced from the project. The aforementioned production is categorized and taxed in the following manner:

a.If the five-year or ten-year exemption is in effect, any incremental production is exempt from the oil extraction tax.

b.If the applicable exemption period has expired, any incremental production is subject to extraction tax at a rate of four percent.

c.Any nonincremental production attributable to stripper wells, new wells, and worked-over wells is exempt from the oil extraction tax. The volume of this exempt nonincremental production must be calculated by multiplying the actual production from any stripper wells, new wells, and worked-over wells by a fraction the numerator of which is the lesser of the volume of oil projected pursuant to the production decline curve or the total volume of oil produced from the project and the denominator of which is the total volume of oil produced from the project.

d.If a project has been certified as qualifying for a reduced extraction tax rate, any nonincremental production which is not otherwise exempt is subject to extraction tax at a rate of four percent.

e.If a project has not been certified as qualifying for a reduced extraction tax rate, any nonincremental production which is not otherwise exempt is subject to extraction tax at a rate of six and one-half percent.

f.If a project has not been certified as qualifying for a reduced extraction tax rate, any nonincremental production attributable to new wells that are no longer exempt is subject to extraction tax at a rate of four percent. The volume of nonincremental production subject to this reduced rate must be calculated by multiplying the actual production from any new wells that are no longer exempt by a fraction the numerator of which is the lesser of the volume of oil projected pursuant to the production decline curve or the total volume of oil produced from the project and the denominator of which is the total volume of oil produced from the project.

2.Payment of tax. Tax must be paid on all nonexempt oil produced from the project during each month of production. For reporting purposes, oil produced but not sold in the month of production should be valued based on the taxpayer's average sales price for any oil that was sold during the month.

3.Remittance of tax. Tax may be remitted by the unit operator or the unit's working interest owners. However, if tax will be remitted by any working interest owner, the unit operator must provide on a form prescribed by the commissioner the name and address of each working interest owner that will be remitting tax along with the percentage of ownership interest on which the tax will be remitted. In addition, the tax remitted by any working interest owner must be calculated based on the production reported by the unit operator.

History

• History: Effective June 1, 1992; amended effective June 1, 2002; July 1, 2016. 81-09-03-05.2. Tax incentives for qualifying tertiary recovery projects.
• History: Effective June 1, 1992; amended effective June 1, 2002; July 1, 2016. 81-09-03-05.3. Reporting requirements for secondary and tertiary recovery projects.
• History: Effective June 1, 1992.

N.D. Admin. Code 81-09-03-06 New well exemption for vertical and horizontal wells

N.D. Admin. Code 81-09-03-07 Stripper well exemption

Oil produced from a stripper well property is exempt from the oil extraction tax.

To be eligible for the stripper well exemption, a producer must have its property certified as a stripper well property by the industrial commission and must submit a copy of the certification received from the industrial commission to the tax commissioner.

History

• History: Effective October 1, 1987; amended effective June 1, 1992.
• Law Implemented: NDCC 57-51.1-03(2), 57-51-19

N.D. Admin. Code 81-09-03-08 Work-over exemption

N.D. Admin. Code 81-09-03-09 Trigger provision applicable to oil extraction tax rate

N.D. Admin. Code 81-09-03-10 Horizontal reentry well exemption

N.D. Admin. Code 81-09-03-11 Two-year inactive well exemption

Article 81-10.1 Financial Institutions Tax

Chapter 81-10.1-01 General

N.D. Admin. Code 81-10.1-01 General

ARTICLE 81-10.1

FINANCIAL INSTITUTIONS TAX

Chapter 81-10.1-01General

CHAPTER 81-10.1-01

GENERAL

Section 81-10.1-01-01Subchapter S Election 81-10.1-01-02Receipts Factor - Net Gains 81-10.1-01-03Short Period Returns 81-10.1-01-01. Subchapter S election.

If a corporation elects to file its federal tax return under subchapter S of the Internal Revenue Code of 1986, as amended, "federal taxable income" means the income or loss as computed on Schedule K of the S-corporation's federal return.

Law Implemented: NDCC 57-35.3-01 81-10.1-01-02. Receipts factor - Net gains.

For purposes of computing the receipts factor, "net gains" means the sum of all transactions resulting in gains for a particular category of receipts. If the net result is a loss, the amount included in the receipts factor is zero.

Example:

Taxpayer sells ten loans or ten pools of loans. Nine of the loans (or pools) result in a gain of $1,000 each. One of the loans (or pools) results in a loss of $1,000. The amount to include in the receipts factor as net gains is $9,000. If the results were reversed ($9,000 loss and $1,000 gain), the amount included in the receipts factor is $1,000.

Law Implemented: NDCC 57-35.3-15 81-10.1-01-03. Short period returns.

1.A financial institution as defined in subdivisions a through j of subsection 2 of North Dakota Century Code section 57-35.3-01, which previously reported income under North Dakota Century Code chapter 57-38 on a fiscal year basis, and is now required to report under North Dakota Century Code chapter 57-35.3 on a calendar year basis, must file a short period return for the fiscal year beginning in 1997 and ending on December 31, 1997.

2.A financial institution as defined in subdivisions a through j of subsection 2 of North Dakota Century Code section 57-35.3-01 which:

a.Has not previously conducted business in North Dakota;

b.Reports its income on a fiscal year basis for federal income tax purposes; and

c.Is required to report under North Dakota Century Code chapter 57-35.3 on a calendar year basis; must file a short period return for the first year in which the financial institution does business in North Dakota. The first short period return shall report the income from the date the financial institution started doing business in North Dakota to the end of the calendar year.

Law Implemented: NDCC 57-35.3-01, 57-35.3-03, 57-35.3-06

Article 81-12 Alcohol and Beer Taxes

Chapter 81-12-01 General Considerations - Alcohol and Beer Taxes

N.D. Admin. Code 81-12-01-01 Forms

The tax commissioner shall prescribe the necessary forms and procedures to ensure proper and efficient collection of beer and liquor taxes.

History

• History: Effective June 1, 2002.

N.D. Admin. Code 81-12-01-02 Source of supply

No wholesaler shall purchase any alcoholic beverage for resale from any source other than any of the following:

1.The manufacturer, rectifier, distiller, brewer, microbrewer, winery, or domestic winery producing the alcoholic beverage.

2.The owner of the trademark under which the alcoholic beverage is packaged for sale to retailers.

3.The United States importer or United States agent for a foreign manufacturer or trademark owner of the alcoholic beverage.

4.The expressly designated agent for North Dakota, or the primary American source of supply, of any of the above.

5.The wholesaler of alcoholic beverages.

History

• Law Implemented: NDCC 5-01-11, 5-03-05, 5-01-14, 5-01-17

N.D. Admin. Code 81-12-01-03 Liquor supplier reporting requirements

1.Liquor suppliers shall file reports detailing sales to wholesalers and returns from wholesalers.

The report shall be a schedule A and must include all information required by the tax commissioner. The tax commissioner may require that the report be submitted in an electronic

2.The report is due no later than the thirtieth day of the month following the month in which a sale is made or in which product was returned. This applies to all reports except those due in February of each year. Reports due in February must be filed no later than the last day of the month. To be timely, reports mailed to the tax commissioner must be postmarked by midnight on the due date. Electronically filed reports must be submitted to the tax commissioner no later than midnight on the due date. When a due date falls on a Saturday, Sunday, or legal holiday, the due date is the first working date after the Saturday, Sunday, or legal holiday.

3.The report is not required when there are no transactions to report.

History

• Law Implemented: NDCC 5-01-11, 5-03-01, 5-03-04, 5-03-05, 5-03-06, 5-03-09

N.D. Admin. Code 81-12-01-04 Beer suppliers reporting requirements

Except as provided in North Dakota Century Code section 5-01-16, beer shall not be sent or brought into North Dakota except to licensed wholesalers.

1.Beer suppliers shall file monthly reports detailing sales to wholesalers and returns from wholesalers. The report shall be a schedule C and must include all information required by the tax commissioner. The tax commissioner may require that the report be submitted in an electronic format approved by the tax commissioner.

2.The report is due no later than the thirtieth day of the month following the month in which the sales or shipment is made. This applies to all months except February of each year. The report for transactions occurring in the month of January is due no later than the last day of February. When the due date falls on a Saturday, Sunday, or legal holiday, the due date is the first working day after the Saturday, Sunday, or legal holiday.

3.The report is not required when there are no transactions to report.

4.All beer destined for delivery to a federal enclave in North Dakota for domestic consumption and not transported through a licensed North Dakota wholesaler for delivery to such bona fide federal enclave in North Dakota shall have clearly identified on each individual item that such shall be for consumption within the federal enclave exclusively. Such identification must be in a form and manner prescribed and approved by the tax commissioner.

History

• Law Implemented: NDCC 5-01-11, 5-03-01, 5-03-04, 5-03-05, 5-03-06, 5-03-09

N.D. Admin. Code 81-12-01-05 Beer wholesalers reporting requirements

1.Tax on beer purchased by a wholesaler is due on or before the fifteenth day of the month following the month of purchase. Payments may be made by check or by electronic means.

2.Reports covering beer purchased during each calendar month must be filed with the tax commissioner on or before the fifteenth day of the month following the month of purchase. The report must provide such detail and be in a format and on a form as prescribed by the tax commissioner. The tax commissioner may require that the report be submitted in an electronic

3.To be timely, tax reports and tax payments mailed to the tax commissioner must be postmarked by midnight on the due date. Electronic tax payments and electronically filed tax reports must be submitted to the tax commissioner no later than midnight on the due date. If the due date falls on a Saturday, Sunday, or legal holiday, the tax payments and tax reports are due on the first business day following the Saturday, Sunday, or legal holiday.

4.Beer purchased from the brewery, or as allowed under section 81-12-01-02, in the preceding calendar month means all beer invoiced by the brewery, or those sources allowed under

section 81-12-01-02, to the wholesaler.

5.Beer in bulk containers means containers other than bottles and cans.

6.Beer purchased from another beer wholesaler licensed in North Dakota shall not be reported if North Dakota tax was paid to the tax commissioner by the selling wholesaler. Neither wholesaler may take a tax credit under section 81-12-01-06 for these transactions.

7.Beer exported to another state must be reported.

N.D. Admin. Code 81-12-01-06 Beer tax credit

1.Beer wholesalers may be given credit of up to ten dollars on taxes paid on beer which cannot be sold in North Dakota upon receipt of a statement from the licensee explaining the reason such beer is not salable. Tax credits for larger amounts shall be allowed, upon satisfactory proof, after immediate notification to the tax commissioner of an event that prohibits sale of such beer in North Dakota, unless time is not important in proving the facts required by the tax commissioner.

2.Claims for tax credits on beer exported to another state shall be accompanied by a copy of the return filed in that state.

3.Invoices for sales to military reservations shall be sent to the tax commissioner with the monthly report.

4.Tax credits shall be allowed on bad accounts charged off for income tax purposes only after receipt of a copy of the tax return showing such and receipt of invoices showing the type and quantity of beverages purchased for which payment was not received.

N.D. Admin. Code 81-12-01-07 Liquor wholesalers reporting requirements

1.Tax on liquor sold by a wholesaler is due on or before the fifteenth day of the month following the month of sale. Payments may be made by check or by electronic means.

2.Reports covering liquor sales during each calendar month must be filed with the tax commissioner on or before the fifteenth day of the month following the month of purchase. The report must provide such detail and be in a format and on a form as prescribed by the tax commissioner. The tax commissioner may require that the report be submitted in an electronic

3.To be timely, tax reports and payments mailed to the tax commissioner must be postmarked by midnight on the due date. Electronic tax payments and electronically filed tax reports must be submitted to the tax commissioner no later than midnight on the due date. If the due date falls on a Saturday, Sunday, or legal holiday, the tax payments and tax reports are due on the first business day following the Saturday, Sunday, or legal holiday.

4.Liquor wholesalers shall retain copies of all invoices of liquor sold and make these invoices available for inspection upon request by the tax commissioner in a manner prescribed by

chapter 81-01.1-04. The invoices shall show the name and address of the purchaser, the date of sale, the kind of merchandise, the number of cases, and the number and size of containers per case. The date of sale shall be the date of delivery.

N.D. Admin. Code 81-12-01-08 Cash for beer

No wholesaler may sell beer to any retailer except for cash. Cash shall include a check dated on or before the day of delivery or an electronic funds transfer initiated on or before the day of delivery. Any wholesaler receiving a check from a retailer which is returned by the bank due to insufficient funds shall immediately notify the retailer. If the check is not made good within forty-eight hours, the wholesaler shall notify the wholesaler's competitors and the tax commissioner. No sales shall be made to such retailer until the wholesaler notifies the wholesaler's competitors and the tax commissioner that the insufficient funds payment has been cleared.

History

• Law Implemented: NDCC 5-01-11, 5-03-05

N.D. Admin. Code 81-12-01-09 Commercial credit for liquor

The normal commercial credit between liquor wholesalers and retailers is thirty days. Any wholesaler receiving a check from a retailer which is returned by the bank due to insufficient funds which was given for merchandise received shall immediately notify the retailer. If the check is not made good within forty-eight hours, the wholesaler shall notify the wholesaler's competitors and the tax commissioner. Any wholesaler having an unpaid retail account for merchandise received which is in excess of thirty days shall notify the wholesaler's competitors and the tax commissioner. No sale shall be made by any wholesaler to the account of a retailer who has or had possession of such merchandise until said delinquent account is paid in full and the wholesaler has notified the wholesaler's competitors and the tax commissioner accordingly. A retail account may not be deemed delinquent for any alleged sale in any instance where there exists a bona fide dispute between the licensee and the wholesaler as to the amount owing as a result of the alleged sale.

History

• Law Implemented: NDCC 5-01-11, 5-03-01, 5-03-04, 5-03-05, 5-03-06

N.D. Admin. Code 81-12-01-10 Promotional items

1.A wholesaler is allowed to furnish miscellaneous materials to retailers provided the value of the materials furnished does not exceed one hundred dollars per calendar year.

For purposes of this subsection, "miscellaneous materials" means materials that advertise the manufacturer's or wholesaler's alcoholic beverage products.

2.A wholesaler is allowed to furnish point-of-sale items to retailers provided the value of the materials furnished does not exceed five hundred dollars per retail account.

For purposes of this subsection, "point-of-sale" items include outdoor signs, lights, window signs, coolers, and items of a similar nature, and may include manufacturer or wholesale items that advertise the manufacturer's or wholesaler's alcoholic beverage products for display purposes at the retailer location.

3.Contest prizes, premium offers, refunds, and like items may be offered by manufacturers and wholesalers for any consumer promotion. Retailers may distribute coupons and other consumer premiums to customers for redemption by the manufacturer or wholesaler, but not for redemption by the retailer. Retailers shall not seek reimbursement from a manufacturer or wholesaler for any consumer promotion. Officers, employees, and representatives of manufacturers, wholesalers, and retailers shall be excluded from participation in such promotions.

History

• Law Implemented: NDCC 5-01-11, 5-03-05

N.D. Admin. Code 81-12-01-11 Recordkeeping - Items provided to retailers

Each manufacturer or wholesaler of alcoholic beverages shall maintain on file the previous calendar year's records of all equipment, supplies, services, and retailer advertising specialty and product display items furnished to retailers. The previous calendar year's records may be discarded when a next calendar year's records are complete and available for inspection. Records must be made available for inspection by the state tax commissioner upon request.

The records must contain the:

1.Name and address of the retailer receiving the equipment, supplies, services, and retailer advertising specialty and product display items;

2.Item or items furnished;

3.Date item or items furnished;

4.Manufacturer's or wholesaler's cost of the item or items furnished as determined by the manufacturer's invoice price; and

5.Charges to the retailer for the item or items.

History

• Law Implemented: NDCC 5-01-11, 5-03-05, 5-03-06

N.D. Admin. Code 81-12-01-12 Equal information to retailers

Any beer wholesaler who publishes, mails, delivers, or distributes, or in any way directly or indirectly disseminates written price information about alcoholic beverages shall disseminate that information to all of its retailers and the state tax commissioner.

History

• Law Implemented: NDCC 5-01-12

Chapter 81-02

N.D. Admin. Code 81-02

ARTICLE 81-02

PROPERTY TAXES [Repealed effective October 1, 1982; June 1, 1984]

Chapter 81-04

N.D. Admin. Code 81-04

ARTICLE 81-04

SALES AND USE TAXES [Repealed effective October 1, 1982; June 1, 1984]

Chapter 81-05

N.D. Admin. Code 81-05

ARTICLE 81-05

MOTOR VEHICLE EXCISE TAX [Repealed effective June 1, 1984]

Chapter 81-06

N.D. Admin. Code 81-06

ARTICLE 81-06

MOTOR FUEL TAX [Repealed effective June 1, 1984]

Chapter 81-07

N.D. Admin. Code 81-07

ARTICLE 81-07

ESTATE TAX [Repealed effective January 1, 1980; July 1, 1981; June 1, 1984]

Chapter 81-10

N.D. Admin. Code 81-10

ARTICLE 81-10

BANKS, TRUST COMPANIES, AND SAVINGS AND LOAN ASSOCIATIONS [Repealed effective July 1, 2016]

Chapter 81-11

N.D. Admin. Code 81-11

ARTICLE 81-11

MUNICIPAL WASTE SURCHARGE [Repealed effective April 1, 1996]