# Title 81 — Tax Commissioner

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

## Chapter 81-03-05.1 — Income Tax on Corporations

### § 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.
General Authority: NDCC 57-38-56
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Repealed effective May 1, 1991.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.
General Authority: NDCC 57-38-56
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.
General Authority: NDCC 57-38-56
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.
General Authority: NDCC 57-38-56
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.
General Authority: NDCC 57-38-56
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.
General Authority: NDCC 57-38-56
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.
Corporation Corporation Corporation Combined
Example: A B C Amounts
Facts:
Federal taxable income $500,000 $(80,000) $40,000 $460,000
State adjustments 10,000 1,000 5,000 16,000

North Dakota property 150,000 0 10,000
Total property 150,000 100,000 10,000 260,000
North Dakota payroll 60,000 0 40,000
Total payroll 60,000 100,000 40,000 200,000
North Dakota sales 1,000,000 0 200,000
Total sales 1,500,000 300,000 200,000 2,000,000
Corporation Corporation
Computation of apportionment factor A C
North Dakota property $150,000 $10,000
Combined property 260,000 260,000
Property factor .576923 .038462
North Dakota payroll 60,000 40,000
Combined payroll 200,000 200,000
Payroll factor .300000 .200000
North Dakota sales 1,000,000 200,000
Combined sales 2,000,000 2,000,000
Sales factor .500000 .100000
Sum of factors 1.376923 .338462
Apportionment factor .458974 .112821
Corporation Corporation Total
Computation of tax liability A C Tax Due
Federal taxable income $460,000 $460,000
State adjustments 16,000 16,000
North Dakota apportionable income 476,000 476,000
Apportionment factor .458974 .112821
North Dakota taxable income 218,472 53,703
North Dakota tax due (2015 rates) 8,501 1,400 $9,901
History: Effective December 1, 1993; amended effective September 1, 1997; July 1, 2016.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38-14
