# Title 81 — Tax Commissioner

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

## Chapter 81-03-09.1 — Division of Income for Financial Institutions

### § 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.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38, 57-38.1, 57-38.1-18
### § 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.
History: Effective April 1, 2014.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38, 57-38.1, 57-38.1-18
### § 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.
History: Effective April 1, 2014.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38, 57-38.1, 57-38.1-18
### § 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.
History: Effective April 1, 2014.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38, 57-38.1, 57-38.1-18

### § 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.
History: Effective April 1, 2014.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38, 57-38.1, 57-38.1-18
### § 81-03-09.1-06. Taxable years.

This chapter is applicable to tax years beginning after December 31, 2012.
History: Effective April 1, 2014.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38, 57-38.1, 57-38.1-18
