§ 57-38-30.5 — Income tax credit for research and experimental expenditures

North Dakota § 57-38-30.5

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

Text

A taxpayer is allowed a credit against the tax imposed under section 57-38-30 or 57-38-30.3
for conducting qualified research in this state.
1. The amount of the credit for taxpayers that earned or claimed a credit under this
section in taxable years beginning before January 1, 2007, is calculated as follows:
a. For the first taxable year beginning after December 31, 2006, the credit is equal
to twenty-five percent of the first one hundred thousand dollars of the qualified
research expenses for the taxable year in excess of the base amount and equal

to seven and one-half percent of all qualified research expenses for the taxable
year more than one hundred thousand dollars in excess of the base amount.
b. For the second taxable year beginning after December 31, 2006, the credit is
equal to twenty-five percent of the first one hundred thousand dollars of the
qualified research expenses for the taxable year in excess of the base amount
and equal to eleven percent of all qualified research expenses for the taxable
year more than one hundred thousand dollars in excess of the base amount.
c. For the third taxable year beginning after December 31, 2006, the credit is equal
to twenty-five percent of the first one hundred thousand dollars of the qualified
research expenses for the taxable year in excess of the base amount and equal
to fourteen and one-half percent of all qualified research expenses for the taxable
year more than one hundred thousand dollars in excess of the base amount.
d. For the fourth through the tenth taxable years beginning after December 31,
2006, the credit is equal to twenty-five percent of the first one hundred thousand
dollars of the qualified research expenses for the taxable year in excess of the
base amount and equal to eighteen percent of all qualified research expenses for
the taxable year more than one hundred thousand dollars in excess of the base
amount.
e. Except as provided in subsection 4, for the eleventh taxable year beginning after
December 31, 2006, and for each subsequent taxable year in which the taxpayer
conducts qualified research in this state, the credit is equal to twenty-five percent
of the first one hundred thousand dollars of the qualified research expenses for
the taxable year in excess of the base amount and equal to eight percent of all
qualified research expenses for the taxable year more than one hundred
thousand dollars in excess of the base amount.
f. The maximum annual credit a taxpayer may obtain under this subsection is two
million dollars. Any credit amount earned in the taxable year in excess of two
million dollars may not be carried back or forward as provided in subsection 8.
2. Except as provided in subsection 4, for taxpayers that have not earned or claimed a
credit under this section in taxable years beginning before January 1, 2007, and which
begin conducting qualified research in North Dakota in any of the first four taxable
years beginning after December 31, 2006, the amount of the credit is equal to
twenty-five percent of the first one hundred thousand dollars of the qualified research
expenses for the taxable year in excess of the base amount and equal to twenty
percent of all qualified research expenses for the taxable year more than one hundred
thousand dollars in excess of the base amount.
a. This rate applies through the tenth taxable year beginning after December 31,
2006.
b. For the eleventh taxable year beginning after December 31, 2006, and for each
subsequent taxable year in which the taxpayer conducts qualified research in this
state, the credit is equal to twenty-five percent of the first one hundred thousand
dollars of the qualified research expenses for the taxable year in excess of the
base amount and equal to eight percent of all qualified research expenses for the
taxable year more than one hundred thousand dollars in excess of the base
amount.
3. Except as provided in subsection 4, for taxpayers that have not earned or claimed a
credit under this section in taxable years beginning before January 1, 2007, and which
begin conducting qualified research in North Dakota in any taxable year following the
fourth taxable year beginning after December 31, 2006, the amount of the credit is
equal to twenty-five percent of the first one hundred thousand dollars of the qualified
research expenses for the taxable year in excess of the base amount and equal to
eight percent of all qualified research expenses for the taxable year more than one
hundred thousand dollars in excess of the base amount.
4. A taxpayer may elect to use the alternative simplified credit under section 41(c)(5) of
the Internal Revenue Code [26 U.S.C. 41(c)] the amount of the credit under this
subsection is:

a. Seventeen and one-half percent of the first one hundred thousand dollars of the
alternative excess research and development for the taxable year plus five and
six-tenths percent of the alternative excess research and development for the
taxable year in excess of one hundred thousand dollars.
b. If a taxpayer has zero qualified research expenses in any one of the three taxable
years preceding the taxable year for which the credit is determined, the amount of
qualified research expenses for the taxable year multiplied by seven and one-half
percent of the first one hundred thousand dollars plus two and four-tenths percent
of qualified research expenses for the taxable year more than one hundred
thousand dollars.
5. For purposes of this section:
a. "Alternative excess research and development" means the amount of qualified
research expenses which exceeds fifty percent of the average qualified research
expenses for the three taxable years preceding the taxable year for which the
credit is being determined.
b. "Alternative simplified credit" means the computation set forth in section 41(c)(5)
of the Internal Revenue Code [26 U.S.C. 41(c)(5)], except the term does not
include qualified research expenses incurred outside the state of North Dakota.
c. "Base amount" means base amount as defined in section 41(c) of the Internal
Revenue Code [26 U.S.C. 41(c)], except it does not include research conducted
outside the state of North Dakota.
d. "Director" means the director of the department of commerce division of
economic development and finance.
e. "Primary sector business" has the meaning provided in section 1-01-49.
f. "Qualified research" means qualified research as defined in section 41(d) of the
Internal Revenue Code [26 U.S.C. 41(d)], except it does not include research
conducted outside the state of North Dakota.
g. "Qualified research and development company" means a taxpayer that is a
primary sector business with annual gross revenues of less than seven hundred
fifty thousand dollars and which has not conducted new research and
development in North Dakota.
h. "Qualified research expenses" means qualified research expenses as defined in
section 41(b) of the Internal Revenue Code [26 U.S.C. 41(b)], except it does not
include expenses incurred for basic research conducted outside the state of
North Dakota.
6. The credit allowed under this section for the taxable year may not exceed the liability
for tax under this chapter.
7. In the case of a taxpayer that is a partner, shareholder, or a member in a passthrough
entity, the credit allowed for the taxable year may not exceed an amount separately
computed with respect to the taxpayer's interest in the trade, business, or entity equal
to the amount of tax attributable to that portion of the taxpayer's taxable income which
is allocable or apportionable to the taxpayer's interest in the trade, business, or entity.
8. Except as provided in subsection 1, if the amount of the credit determined under this
section for any taxable year exceeds the limitation under subsection 6, the excess may
be used as a research credit carryback to each of the three preceding taxable years
and a research credit carryover to each of the fifteen succeeding taxable years. The
entire amount of the excess unused credit for the taxable year must be carried first to
the earliest of the taxable years to which the credit may be carried and then to each
successive year to which the credit may be carried and the amount of the unused
credit which may be added under this subsection may not exceed the taxpayer's
liability for tax less the research credit for the taxable year. A claim to carry back the
credit under this section must be filed within three years of the due date or extended
due date of the return for the taxable year in which the credit was earned.
9. A taxpayer that is certified as a qualified research and development company by the
director may elect to sell, transfer, or assign all or part of the unused tax credit earned
under this section. The director shall certify whether a taxpayer that has requested to

become a qualified research and development company meets the requirements of
subsection 5. The director shall establish the necessary forms and procedures for
certifying qualifying research and development companies. The director shall issue a
certification letter to the taxpayer and the tax commissioner. A tax credit can be sold,
transferred, or assigned subject to the following:
a. A taxpayer's total credit assignment under this section may not exceed one
hundred thousand dollars over any combination of taxable years.
b. If the taxpayer elects to assign or transfer an excess credit under this subsection,
the tax credit transferor and the tax credit purchaser jointly shall file with the tax
commissioner a copy of the purchase agreement and a statement containing the
names, addresses, and taxpayer identification numbers of the parties to the
transfer, the amount of the credit being transferred, the gross proceeds received
by the transferor, and the taxable year or years for which the credit may be
claimed. The taxpayer and the purchaser also shall file a document allowing the
tax commissioner to disclose tax information to either party for the purpose of
verifying the correctness of the transferred tax credit. The purchase agreement,
supporting statement, and waiver must be filed within thirty days after the date
the purchase agreement is fully executed.
c. The purchaser of the tax credit shall claim the credit beginning with the taxable
year in which the credit purchase agreement was fully executed by the parties. A
purchaser of a tax credit under this section has only such rights to claim and use
the credit under the terms that would have applied to the tax credit transferor,
except the credit purchaser may not carry back the credit as otherwise provided
in this section. This subsection does not limit the ability of the tax credit purchaser
to reduce the tax liability of the purchaser, regardless of the actual tax liability of
the tax credit transferor.
d. The original purchaser of the tax credit may not sell, assign, or otherwise transfer
the credit purchased under this section.
e. If the amount of the credit available under this section is changed as a result of
an amended return filed by the transferor, or as the result of an audit conducted
by the internal revenue service or the tax commissioner, the transferor shall
report to the purchaser the adjusted credit amount within thirty days of the
amended return or within thirty days of the final determination made by the
internal revenue service or the tax commissioner. The tax credit purchaser shall
file amended returns reporting the additional tax due or claiming a refund as
provided in section 57-38-38 or 57-38-40, and the tax commissioner may audit
these returns and assess or issue refunds, even though other time periods
prescribed in these sections may have expired for the purchaser.
f. Gross proceeds received by the tax credit transferor must be assigned to North
Dakota. The amount assigned under this subsection cannot be reduced by the
taxpayer's income apportioned to North Dakota or any North Dakota net
operating loss of the taxpayer.
g. The tax commissioner has four years after the date of the credit assignment to
audit the returns of the credit transferor and the purchaser to verify the
correctness of the amount of the transferred credit and if necessary assess the
credit purchaser if additional tax is found due. This subdivision does not limit or
restrict any other time period prescribed in this chapter for the assessment of tax.
h. The tax commissioner may adopt rules to permit verification of the validity and
timeliness of the transferred tax credit.
10. If a taxpayer acquires or disposes of the major portion of a trade or business or the
major portion of a separate unit of a trade or business in a transaction with another
taxpayer, the taxpayer's qualified research expenses and base period must be
adjusted in the manner provided by section 41(f)(3) of the Internal Revenue Code
[26 U.S.C. 41(f)(3)].
11. If a taxpayer entitled to the credit provided by this section is a member of a group of
corporations filing a North Dakota consolidated tax return using the combined

reporting method, the credit may be claimed against the aggregate North Dakota tax
liability of all the corporations included in the North Dakota consolidated return. This
section does not apply to tax credits received or purchased under subsection 9.
12. An individual, estate, or trust that purchases a credit under this section is entitled to
claim the credit against state income tax liability under section 57-38-30.3.
13. A passthrough entity entitled to the credit under this section must be considered to be
the taxpayer for purposes of calculating the credit. The amount of the allowable credit
must be determined at the passthrough entity level. The total credit determined at the
entity level must be passed through to the partners, shareholders, or members in
proportion to their respective interests in the passthrough entity. An individual taxpayer
may take the credit passed through under this subsection against the individual's state
income tax liability under section 57-38-30.3.
14. For any taxable year in which the federal research tax credit provisions of section 41 of
the Internal Revenue Code are ineffective, the provisions of section 41 of the Internal
Revenue Code [26 U.S.C. 41] referenced in this section have the same meaning and
application as provided in section 41 of the Internal Revenue Code, as amended
through the most recent taxable year in which the provisions were in effect.
15. If a taxpayer claims a credit under this section on the taxpayer's original return, the
taxpayer's election to calculate the credit under subsection 1, 2, 3, or 4 is binding for
the taxable year in which the election is made. A taxpayer claiming a credit for tax
years beginning before January 1, 2019, may not file an amended return for the
purpose of calculating the credit under subsection 4.