# Title 81 — Tax Commissioner

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

## Chapter 81-03-09 — Division of Income

Net Income Tax
This State
### § 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.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1, 57-59
### § 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.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1, 57-59
### § 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: Amended effective November 1, 1991.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-01(1), 57-59-01 (art.IV(1)(a))
### § 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: Amended effective November 1, 1991.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-01(1), 57-59-01 (art.IV(1)(a))

### § 81-03-09-05. Business and nonbusiness income - Application of definitions.

Repealed effective November 1, 1991.
### § 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.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-01(1), 57-59-01 (art.IV(1)(a))
### § 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
section 57-59-01.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-02, 57-59-01 (art.IV(2))
### § 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
section 57-59-01.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-02, 57-59-01 (art.IV(2))
### § 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
section 57-59-01.
General Authority: NDCC 57-38-56

Law Implemented: NDCC 57-38.1-02, 57-59-01 (art.IV(2))
### § 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.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1, 57-59
### § 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
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
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.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-03, 57-59-01 (art.IV(3))
### § 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
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
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.
General Authority: NDCC 57-38-56

Law Implemented: NDCC 57-38.1-03, 57-59-01 (art.IV(3))
### § 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.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-03, 57-59-01 (art.IV(3))
### § 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.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-09, 57-59-01 (art.IV(9))
### § 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.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-10, 57-59-01 (art.IV(10))

### § 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.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-10, 57-59-01 (art.IV(10))
### § 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.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-10, 57-59-01 (art.IV(10))
### § 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.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-10, 57-59-01 (art.IV(10))
### § 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.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-11, 57-59-01 (art.IV(11))
### § 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.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-11, 57-59-01 (art.IV(11))
### § 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 $2,000.00 July $15,000.00
February 2,000.00 August 17,000.00
March 3,000.00 September 23,000.00
April 3,500.00 October 25,000.00
May 4,500.00 November 13,000.00
June 10,000.00 December 2,000.00
$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.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-12, 57-59-01 (art.IV(12))
### § 81-03-09-21.1. Property factor - Intangible drilling costs.

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: Effective July 1, 1985.
General Authority: NDCC 57-38-56
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
### § 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: Amended effective June 1, 1992.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-13, 57-59-01 (art.IV(13))
### § 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.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-13, 57-59-01 (art.IV(13))
### § 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.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-13, 57-59-01 (art.IV(13))
### § 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.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-14, 57-59-01 (art.IV(14))

### § 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: Amended effective March 1, 1988.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-15, 57-59-01 (art.IV(15))
### § 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: Amended effective March 1, 1988.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-15, 57-59-01 (art.IV(15))
### § 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.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-15, 57-59-01 (art.IV(15))
### § 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
state.
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.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-16, 57-59-01 (art.IV(16))
### § 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.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-16, 57-59-01 (art.IV(16))
### § 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
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-17, 57-59-01 (art.IV(17))

### § 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.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-18, 57-59-01 (art.IV(18))
### § 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
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.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-18, 57-59-01 (art.IV(18))
### § 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.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-18, 57-59-01 (art.IV(18))
### § 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.
3. Apportionment of business income.
a. In general. The property factor shall be determined in accordance with sections
b. The property factor.
(1) Property valuation. Owned property shall be valued at its original cost and property
rented from others shall be valued at eight times the net annual rental rate in
accordance with North Dakota Century Code section 57-38.1-11 and article IV(11)
of North Dakota Century Code section 57-59-01 and sections 81-03-09-19 and
### § 81-03-09-20. Railroad cars owned and operated by other railroads and temporarily

used by the taxpayer in its business and for which a per diem or mileage charge is
made are not included in the property factor as rented property. Railroad cars
owned and operated by the taxpayer and temporarily used by other railroads in their
business and for which a per diem charge is made by the taxpayer are included in
the property factor of the taxpayer.
(2) General definitions. The following definitions are applicable to the numerator and
denominator of the property factor:
(a) "Original cost" is deemed to be the basis of the property for federal income tax
purposes (prior to any federal income tax adjustments except for subsequent
capital additions, improvements thereto or partial dispositions); or, if the
property has no such basis, the valuation of such property for interstate
commerce commission purposes. If the original cost of property is
unascertainable under the foregoing valuation standards, the property is
included in the property factor at its fair market value as of the date of
acquisition by the taxpayer. Section 81-03-09-19.
(b) "Rent" does not include the per diem and mileage charges paid by the
taxpayer for the temporary use of railroad cars owned or operated by another
railroad.
(c) The "value" of owned real and tangible personal property shall mean its
original cost. See North Dakota Century Code section 57-38.1-11 and
article IV(11) of North Dakota Century Code section 57-59-01 and section
81-03-09-19.
(d) "Average value" of property means the amount determined by averaging the
values at the beginning and ending of the income tax year, but the office of

state tax commissioner may require the averaging of monthly values during the
income year or such averaging as necessary to effect properly the average
value of the railroad's property. See North Dakota Century Code section
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
and section 81-03-09-20.
(f) "Net annual rental rate" means the annual rental rate paid by the taxpayer less
any annual rental rate received by the taxpayer from subrentals.
(g) "Property used during the income year" includes property that is available for
use in the taxpayer's trade or business during the income year.
(h) A "locomotive mile" is the movement of a locomotive (a self-propelled unit of
equipment designed solely for moving other equipment) a distance of one mile
[1.61 kilometers] under its own power.
(i) A "car mile" is a movement of a unit of car equipment a distance of one mile
[1.61 kilometers].
(3) The denominator and numerator of the property factor. The denominator of the
property factor must be the average value of all of the taxpayer's real and tangible
personal property owned or rented and used during the income year. The numerator
of the property factor must be the average value of the taxpayer's real and tangible
personal property owned or rented and used in this state during the income year.
In determining the numerator of the property factor, all property except mobile or
movable property such as passenger cars, freight cars, locomotives, and freight
containers which are located within and without this state during the income year
must be included in the numerator of the property factor in accordance with North
Dakota Century Code sections 57-38.1-10 through 57-38.1-12 and article IV(10)(11)
(12) of North Dakota Century Code section 57-59-01, inclusive and sections
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
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: Effective July 1, 1985.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-01, 57-38.1-02, 57-38.1-05, 57-38.1-06, 57-38.1-07,
### § 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
personal property owned or rented and used during the income year. The numerator
of the property factor must be the average value of the taxpayer's real and tangible
personal property owned or rented and used in this state during the income year.
In determining the numerator of the property factor, all property except 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
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
### § 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: Effective July 1, 1985.

General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38.1-01, 57-38.1-02, 57-38.1-09, 57-38.1-10, 57-38.1-11,
### § 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
### § 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.
3. Apportionment of business income.
a. In general. The property factor must be determined in accordance with sections
(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
personal property owned or rented and used during the income year. The numerator
of the property factor must be the average value of the taxpayer's real and tangible
personal property owned or rented and used in this state during the income year. In
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
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
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
(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: Effective November 1, 1987; amended effective May 1, 1991.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38, 57-38.1, 57-59

### § 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: $1,095,600
(100/365 x $4,000,000):
Total value of property to be included in the state's property factor $3,095,600
numerator without apportionment of outer-jurisdictional and film property
Total value of property to be used in the denominator $300,000,000
($500,000,000-$200,000,000)
Total property factor percent .0103
($3,095,600/$300,000,000):
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: Effective June 1, 1992; amended effective September 1, 1997.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38, 57-38.1, 57-59
### § 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.
3. Apportionment of business income.
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 $2,000,000
(.02) x $100,000,000:
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
state.
(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
state.
History: Effective April 1,1995.
General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38, 57-38.1, 57-59
