§ 57-38-01.3 — Adjustments to taxable income for corporations

North Dakota § 57-38-01.3

• Jurisdiction: North Dakota
• Title 57: Taxation
• Ch. 57-38: Income Tax

Text

1. The taxable income of a corporation as computed pursuant to the provisions of the
Internal Revenue Code of 1954, as amended, must be:
a. Reduced by any interest received from obligations of the United States that is
included in taxable income or in the computation thereof on the federal return.
b. Reduced by any other income included in the taxable income, or in the
computation thereof, on the federal return which is exempt from taxation by this
state because of the provisions of the Constitution of North Dakota or the
Constitution of the United States.
c. Increased by the amount of any income taxes, including income taxes of foreign
countries, or franchise or privilege taxes measured by income, to the extent that
such taxes were deducted to determine federal taxable income.
d. Increased by the amount of any interest and dividends from foreign securities and
from securities of state and their political subdivisions exempt from federal
income tax, provided that interest upon obligations of the state of North Dakota or
any of its political subdivisions may not be included.
e. Reduced by the amount of net income not allocated and apportioned to this state
under the provisions of chapter 57-38.1, but only to the extent that the amount of
net income not allocated and apportioned to this state under the provisions of that
chapter is not included in any adjustment made pursuant to the preceding
subdivisions.
f. Repealed by S.L. 2003, ch. 529, § 3.
g. Increased by the amount of any special deductions and net operating loss
deductions to the extent that these items were deducted in determining federal
taxable income.
h. Reduced by dividends paid, as defined in section 561 of the Internal Revenue
Code of 1986, as amended, by a regulated investment company or a fund of a
regulated investment company as defined in section 851(a) or 851(g) of the
Internal Revenue Code of 1986, as amended, except that the deduction for
dividends paid is not allowed with respect to dividends attributable to any income
that is not subject to taxation under this chapter when earned by the regulated
investment company. Sections 852(b)(7) and 855 of the Internal Revenue Code
of 1986, as amended, apply for computing the deduction for dividends paid. A
regulated investment company is not allowed a deduction for dividends received
as defined in sections 243 through 245 of the Internal Revenue Code of 1986, as
amended.
i. Except for a cooperative described in this subsection, increased by the amount of
the deduction allowable under section 199 of the Internal Revenue Code
[26 U.S.C. 199], but only to the extent of the deduction taken to determine federal
taxable income. For a cooperative that has elected to pass the deduction through
to its patrons under section 199(d)(3), of the Internal Revenue Code [26 U.S.C.
199(d)(3)], the increase under this subsection does not include the amount
passed through to its patrons.

j. For taxable years 2005 and 2006, increased by the amount of extraterritorial
income as defined in section 114 of the Internal Revenue Code [26 U.S.C. 114],
that is excluded under sections 101(d), 101(e), and 101(f) of Pub. L. 108-357
[118 Stat. 1418], but only to the extent the income was excluded in determining
federal taxable income.
k. Reduced, for an interest charge domestic international sales corporation without
economic substance owned by individuals or passthrough entities, by the amount
of actual or deemed distributions of the interest charge domestic international
sales corporation to its owners. For purposes of this subsection, "without
economic substance" means, in the case of an interest charge domestic
international sales corporation subject to Internal Revenue Code section 992, that
the interest charge domestic international sales corporation has elected to use
intercompany pricing rules of Internal Revenue Code section 994, rather than the
Internal Revenue Code section 482 method. For purposes of this subsection, a
passthrough entity means an entity that for the applicable tax year is treated as
an S corporation under this chapter or a cooperative, general partnership, limited
partnership, limited liability partnership, trust, or limited liability company that for
the applicable tax year is not taxed as a corporation under this chapter.
l. Increased by the amount of the dividends paid deduction otherwise allowed under
section 857 of the Internal Revenue Code of 1986, as amended, if the real estate
investment trust is a captive real estate investment trust.
(1) For purposes of this subdivision:
(a) "Captive real estate trust" means a real estate investment trust the
shares or beneficial interests of which are not regularly traded on an
established securities market, and more than fifty percent of the voting
power or value of the beneficial interests or shares of the real estate
investment trust are owned or controlled, directly, indirectly, or
constructively, by a single entity that is:
[1] Treated as an association taxable as a corporation under the
Internal Revenue Code of 1986, as amended; and
[2] Not exempt from federal income taxation under section 501(a) of
the Internal Revenue Code of 1986, as amended.
(b) "Listed Australian property trust" means an Australian unit trust
registered as a managed investment scheme under the Australian
Corporations Act in which the principal class of units is listed on a
recognized stock exchange in Australia, and is regularly traded on an
established securities market, or an entity organized as a trust,
provided that a listed Australian property trust owns or controls,
directly or indirectly, seventy-five percent or more of the voting power
or value of the beneficial interests or shares of such trust.
(c) "Qualified foreign entity" means a corporation, trust, association, or
partnership organized outside the laws of the United States, and
which satisfies all of the following criteria:
[1] At least seventy-five percent of the entity's total asset value at
the close of its taxable year is represented by real estate assets
as defined in section 856(c)(5)(B) of the Internal Revenue Code
of 1986, as amended, including shares or certificates of
beneficial interest in any real estate investment trust, cash and
cash equivalents, and United States government securities;
[2] The entity is not subject to tax on amounts distributed to its
beneficial owners or is exempt from entity level taxation;
[3] The entity distributes at least eighty-five percent of its taxable
income, as computed in the jurisdiction in which it is organized,
to the holders of its shares or certificates of beneficial interest on
an annual basis;

[4] Not more than ten percent of the voting power or value in the
entity is held directly or indirectly or constructively by a single
entity or individual, or the shares or beneficial interests of such
entity are regularly traded on an established securities market;
and
[5] The entity is organized in a country that has a tax treaty with the
United States.
(d) "Real estate investment trust" has the meaning ascribed in
section 856 of the Internal Revenue Code of 1986, as amended.
(2) For the purposes of applying subparagraph a of paragraph 1, the following
entities are not considered an association taxable as a corporation:
(a) A real estate investment trust other than a captive real estate
investment trust;
(b) A qualified real estate investment trust subsidiary under subsection i of
section 856 of the Internal Revenue Code of 1986, as amended, other
than a qualified real estate investment trust subsidiary of a captive real
estate investment trust;
(c) A listed Australian property trust; and
(d) A qualified foreign entity.
(3) A real estate investment trust that is intended to be regularly traded on an
established securities market and that satisfies the requirements of
sections 856(a)(5), 856(a)(6), and 856(h)(2) of the Internal Revenue Code of
1986, as amended, shall not be deemed a captive real estate investment
trust within the meaning of this subdivision.
(4) A real estate investment trust that does not become regularly traded on an
established securities market within one year of the date on which it first
became a real estate investment trust shall be deemed not to have been
regularly traded on an established securities market, retroactive to the date
it first became a real estate investment trust, and shall file an amended
return reflecting the retroactive designation for any tax year or part-year
occurring during its initial year of status as a real estate investment trust. For
purposes of this subdivision, a real estate investment trust becomes a real
estate investment trust on the first day that it has both met the requirements
of section 856 of the Internal Revenue Code of 1986, as amended, and has
elected to be treated as a real estate investment trust under section 856(c)
(1) of the Internal Revenue Code of 1986, as amended.
(5) For purposes of this subdivision, the constructive ownership rules of
section 318(a) of the Internal Revenue Code of 1986, as amended, as
modified by section 856(d)(5) of the Internal Revenue Code of 1986, as
amended, apply in determining the ownership of stock, assets, or net profits
of any person.
Provided, however, that each adjustment in the above subdivisions authorized under
law is allowed only to the extent that the adjustment is allocated and apportioned to
North Dakota income.
2. The tax commissioner is hereby authorized to prescribe rules and regulations to
prevent requiring income that had been previously taxed under this chapter from being
taxed again because of the provisions of this chapter and to prescribe rules and
regulations to prevent any income from becoming exempt from taxation because of the
provisions of this chapter if it would otherwise have been subject to taxation under the
provisions of this chapter.
3. The sum calculated pursuant to subsection 1 must be reduced by the amount of any
net operating loss that is attributable to North Dakota sources, including a net
operating loss calculated under chapter 57-35.3 for tax years beginning before
January 1, 2013. If the net operating loss that is attributable to North Dakota sources
exceeds the sum calculated pursuant to subsection 1, the excess may be carried
forward for the same time period that an identical federal net operating loss may be

carried forward. If a corporation uses an apportionment formula to determine the
amount of income that is attributable to North Dakota, the corporation must use the
same formula to determine the amount of net operating loss that is attributable to
North Dakota. In addition, no deduction may be taken for a carryforward when
determining the amount of net operating loss that is attributable to North Dakota
sources.